R.I. General Treasurer Frank T. Caprio announced recently that the state soon will issue $350 million in tax anticipation notes (TANs) to help the state’s cash flow in fiscal 2010. Last year, for the first time, the tax-free, short-term notes were made available to the public because of a concern that with the turmoil in the municipal debt market of a year ago that the notes wouldn’t attract large-scale investors. Caprio answered a few questions about this year’s issuance.
PBN: Can you explain why the state needs to issue tax anticipation notes?
CAPRIO: TANs are used to cover operating costs in the state budget through the fall and winter months, until the larger corporate and individual tax collections arrive in the spring. In the past, we have been very successful in offering these bonds and they have proved popular with both local retail and the larger institutional investors.
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PBN: Why is the issuance of the TANs coming earlier this year?
CAPRIO: This year Rhode Island will be borrowing earlier due to the availability of better interest rates. Another reason we are offering the TANs earlier is because Texas and California are also going to be going out with large bond sales, and we didn’t want to compete with a flooded market. Additionally, offering the bonds in August also alleviates any need at this point to borrow from the Temporary Disability Insurance (TDI) fund.
PBN: How much does that cost the state in terms of borrowing costs?
CAPRIO: The expected interest rate in August will be less than 1 percent, subject to market fluctuation, saving the state substantial money in interest payments. The rate for the 2008 $350 million TANs sale was 2.2 percent.
PBN: Is there any way to avoid this process? Would the state want to do that?
CAPRIO: A balanced budget along with higher tax revenues generated by the state would alleviate a need for the issuance of tax anticipation notes of this large amount. Yes, the state would like to not have to use TANs to plug these financial gaps, but it’s something that is done on an annual basis and repaid in full at the end of the fiscal year.
PBN: Will you make these notes available to the general public, like you did last year?
CAPRIO: We will make TANs available to Rhode Island retail investors once again, but this year’s lower interest rate will probably be more appealing to the larger institutions.
