September 29, 1999

Present:

Michael J. Murphy, State Treasurer Brad Owen, Lieutenant Governor

Also Present:

Mary P. Gaston, Perkins Coie, LLP Michael Clarey, Office of the State Treasurer Lilia Lopez, Office of the Attorney General Gary Robertson, Department of Health Kim Diamond, Office of the State Auditor Vicki Cox, Office of the State Treasurer Martin Reynoso, Office of the State Treasurer Sue Melvin, Office of the State Treasurer Darlene Cimino-DeRose, Montague DeRose and Associates Dean Torkelson, Seattle Northwest Securities Jeanne Cushman, Office of the Attorney General Roy Koegen, Perkins Coie, LLP Mike Roberts, Office of Financial Management Allan J. Martin, Office of the State Treasurer Sue Martin, Office of the State Treasurer

Chairman Murphy called the meeting to order.

Mr. Martin introduced proposed Resolution No. 903 providing for the award of sale of $273,500,000 State of Washington Various Purpose General Obligation Bonds, Series 2000A. Bids were electronically accepted at 8:00 am. Mr. Martin stated the Preliminary Official Statement was posted on our Homepage and additional paper copies were mailed. Proceeds from the Series 2000A Bonds will be used to finance projects authorized by the 1999-01 capital budget which are currently underway or to reimburse construction accounts for work already completed. The 2000A financing plan was developed by Treasury staff in conjunction with state agency customers and the Office of Financial Management. Bond proceeds from this proposed issue are to be deposited in the state building construction account (fund 057) and the higher education construction account (fund 01L), with transfers to the state and local improvements revolving account - waste disposal facilities (fund 051) and state and local improvements revolving account - water supply facilities (fund 072).

Mr. Torkelson explained that approximately $50 million would help finance construction and renovation projects at the University of Washington Medical Center. Because the University of Washington will pay back the state with money from their own local funds, this is not part of the state’s statutory debt limit. Mr. Torkelson continued by saying that by paying only interest until 2010, it wraps the new debt around existing debt and helps with the cash flow.

Mr. Torkelson stated that the bond market the morning of the sale was reasonably stable, but far from the record low interest rates of the last few years. He continued by stating in previous months, the bond market has been pretty volatile and rocky. We’re not far from those record lows, so this is still attractive borrowing for the state.

Mr. Martin listed the bidders for the Series 2000A bonds as: JP Morgan with a true interest cost (TIC) of 5.6986043 percent, Merrill Lynch with a TIC of 5.7009697 percent, Paine Webber with a TIC of 5.6858763 percent, and Salomon Smith Barney, Inc. with a TIC of 5.7012874 percent. The apparent winning bid is Paine Webber. Mr. Martin asked bond counsel if the bids complied with the notice of sale and bid forms specified by the notice of sale. Mr. Koegen stated that all bids did comply.

Mr. Martin presented proposed Resolution No. 903 to the committee.

Resolution No. 903 providing for the award of sale of $273,500,000 State of Washington Various Purpose General Obligation Bonds, Series 2000A, authorized by Chapter 14, Laws of 1989, 1^st Ex. Sess., as amended, Chapter 456, Laws of 1997, Chapter 380, Laws of 1999, and Chapter 39.42 RCW.

Lieutenant Governor Owen moved to accept the TIC bid of 5.6858763 percent from Paine Webber and to adopt Resolution No. 903. Chairman Murphy seconded the motion and the resolution was adopted.

Mr. Martin introduced proposed Resolution No. 904 to the committee providing for the award of sale of $26,500,000 State of Washington General Obligation Bonds (State Housing Trust Fund), Series 2000T. Mr. Martin stated that bids were taken electronically at 8:30 am. Mr. Martin stated the Preliminary Official Statement was posted on our Homepage and additional paper copies were mailed. Proceeds from the Series 2000T (Taxable) Bonds will be used to finance part of the state’s routine seasonal capital construction financing and for Housing Trust Fund programs which provide low-interest loans and grants from bond proceeds to private non-profit charities, which includes 501(c) (3) organizations.

Mr. Martin listed the bidders for the Series 2000T bonds as: First Albany Corporation with a TIC of 6.6096496 percent, First Union Capital Markets Corporation with a TIC of 6.5771502 percent, Griffin, Kubik, Stephens & Thompson with a TIC of 6.6134705 percent, JP Morgan Securities with a TIC of 6.65977 percent, Merrill Lynch & Company with a TIC of 6.3808956 percent, Paine Webber with a TIC of 6.3782994 percent, Raymond James & Associates with a TIC of 6.6814462 percent, Salomon Smith Barney Incorporated with a TIC of 6.4033807 percent, and U.S. Bankcorp with a TIC of 6.6381567 percent. The apparent winning bid is Paine Webber. Mr. Martin asked bond counsel if the bids complied with the notice of sale and bid forms as specified by the notice of sale. Mr. Koegen stated that all bids received did comply and that competition was very close.

Mr. Torkelson stated that from a market standpoint, taxable interest rates on municipal borrowers are high by historic standards relative to the Treasury market which is why we shortened the life of this portion of the financing so that we didn’t pay those higher rates for a longer period of time. Had it been a normal 25 year schedule, rates would be 7.40 to 7.50 percent as opposed to 6.38 percent, so the state saved over 100 basis points.

Mr. Martin presented proposed Resolution No. 904 to the committee.

Resolution No. 904 providing for the award of sale of $26,500,000 State of Washington General Obligation Bonds (State Housing Trust Fund), Series 2000T (Taxable), authorized by Chapter 456, Laws of 1997, and Chapter 39.42 RCW.

Lieutenant Governor Owen moved to accept the TIC bid of 6.3782994 percent from Paine Webber and to adopt Resolution No. 904. Chairman Murphy seconded the motion and the resolution was adopted.

Chairman Murphy introduced Gary Robertson and Lilia Lopez, representing the Department of Health, and explained the Department of Health (DOH) regulates uranium mills in the state of Washington. Dawn Mining Company ("DMC") owns a uranium mine located in Ford, Washington (Stevens County) which ceased commercial mining operations in 1982. They are required to provide financial assurance to address abandonment, default or other inability of the licensee to meet DOH requirements. In 1995, DOH approved DMC’s plan to decommission, close and reclaim the site. DOH recently renewed DMC’s license and DMC recently increased the amount of its bond to $19,949,200.00. DMC obtained a surety bond in that amount for the benefit of the State of Washington Department of Health from United States Fidelity and Guaranty Company ("USF&G"). The surety bond is in effect from June 2, 1997 until such date as the Department of Health issues a written finding that all requirements and conditions of DMC’s license relating to decommissioning and reclamation have been complied with, and that a Radiation Materials License is no longer required by law (currently anticipated to be 2019 or later).

Chairman Murphy continued by saying that RCW 70.121.110 requires that the surety company providing such bond be deemed by the State Finance Commission (sic) to be "financially secure." The Department of Health via letter dated August 9, 1999 asked the State Finance Committee to make a determination regarding USF&G. Standard & Poor’s assigned a Rating of "AA" for USF&G. An obligor rated "AA" has VERY STRONG capacity to meet its financial commitments. It differs from the highest rated obligors only in small degree. USF&G was rated "A" by Best’s. A Best’s Rating of "A++" to "B+" is considered a "Secure Rating." The approval of USF&G as surety bond provider is based on the following considerations. The bond provided amounts to $19.9 million. Concurrent with DMC’s next licensing renewal, the State Finance Committee will be required in 2004 to re-evaluate and approve or disapprove USF&G’s financial health (or that of an alternate surety provider). USF&G’s "A" rating by industry rating agencies (Standard & Poor’s and Best’s) are within the "Secure Range" as determined by these commonly recognized industry experts.

Lieutenant Governor Owen made a motion to acknowledge that United States Fidelity & Guaranty Company is financially secure within RCW 70.121.110 to issue a $19,949,200 bond pursuant to a request from the Secretary of the Department of Health regarding Dawn Mining Company. Chairman Murphy seconded the motion and the motion was adopted.

Mr. Martin thanked all parties involved with the bond sale.

There being nothing further to come before the committee, the meeting was adjourned at 9:36 AM.

	STATE FINANCE COMMITTEE STATE OF WASHINGTON   _______________________________________ Michael J. Murphy, State Treasurer & Chairman   ________________________________________ Gary Locke, Governor   ________________________________________ Brad Owen, Lieutenant Governor
________________________________________ Allan J. Martin Acting Deputy State Treasurer & Secretary