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Borrowing Bucks to Pay the Bills

S. Lincoln

Louisiana is not totally strapped for cash – yet. But the state’s capital outlay escrow account is dwindling rapidly.

“We are spending approximately $40-45 million dollars a month. That’s what we call our burn rate,” State Treasurer John Kennedy told the Joint Budget committee Thursday. “We could continue to go for a few more months, but we don’t want to hit the bottom of the bucket.”

Kennedy assured lawmakers this is a fairly regular occurrence, and said normally the state would issue general obligation bonds to refill the account, but…
“These are not normal times.”

Kennedy explained the plummet in oil prices, the drop in Louisiana’s revenue collections plus upcoming change in state administration would make it difficult to complete the certifications required by the federal Securities and Exchange Commission for issuing the long term general obligation bonds.

Instead, he said, “What we’re proposing is that we do a short-term borrowing. It’s called a ‘bond anticipation note’.”

The Treasurer noted the state hasn’t done this type of borrowing for nearly 30 years – not since 1987.

“So there is precedent for doing this,” Kennedy assured the legislators. “You don’t do it very often.”

“Is this – essentially -- we’re funding the cash flow?” Senate Finance chairman Jack Donahue asked, for clarification.” Is that what we’re doing?”

“Yes sir,” Kennedy responded. “When they need money, we have to actually have the cash, and we’re getting low on cash.”

House Appropriations chair Jim Fannin added, “This is just makin’ sure, if we got a project started out there and the contracts are done that there’s no slow down; it all moves smoothly and we don’t run out of funds.”

Kennedy term of this BAN loan would be no more than six to nine months, and once the new administration settles in, general obligation bonds will be issued -- long term debt over 20 years to pay off this short-term loan. The proposal was approved, without objection.