State to issue $350M in TANs

PROVIDENCE – The state of Rhode Island will issue $350 million in tax anticipation notes (TANs) this month to help the state’s cash flow in fiscal 2010, according to General Treasurer Frank T. 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,” Caprio said in a press release last week. “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.”
In fiscal year 2009, the state of Rhode Island sold $350 million in TANs, with an interest rate of 2.2 percent. The notes were repaid in full with interest on June 30. The $350 million borrowing in October 2008 represented 13.9 percent of fiscal 2008’s receipts.
This year, Rhode Island will borrow earlier to take advantage of lower interest rates. “The expected rate in August will be less than 1 percent, subject to market fluctuation, saving the state substantial interest expense,” said Caprio.
Gov. Donald L. Carcieri’s requested maximum authority in fiscal 2010 of $350 million would be 14.6 percent of the prior year’s receipts.
Caprio said that percentage is still an improvement over borrowing in the early 1990s, which ranged between 17 and 20 percent of the prior tax receipts.
“As one can see by the percentages, the state’s current reliance on the sale of TANs is less than our reliance in the early 1990s,” said Caprio.
The notes are repaid in full by the end of the current budget year, as is required by the state constitution, which mandates a balanced budget.