JobsOhio announced it will move forward issuing bonds against Ohio liquor profits this week despite outstanding constitutional questions raised by a pending lawsuit from ProgressOhio. The sale was delayed last week after The Ohio Supreme Court agreed to determine if ProgressOhio has standing to sue.
According to a recent article in Bond Buyer, “the legal uncertainty swirling around the deal will translate into a demand for extra yield” – i.e. JobsOhio will have to pay higher interest rates on the bonds because of the extra risk.
In the same Bond Buyer article, Howard Cure, Managing Director of Municipal Research for Evercore Wealth Management, questioned the wisdom of issuing bonds while litigation is pending: “I get the sense that the governor is really anxious to get this deal done, and I think that this anxiousness to get this done is clouding a more prudent view of when to issue this.” (emphasis added)
Cure also concludes that JobsOhio will be paying a premium for releasing their bonds now and expressed concern that pending litigation would impact the liquidity of the bonds – i.e. no one would want to buy them from you because of the potential risk. “You have to be really careful about whose accounts you’re going to be putting it into,” warned Cure.
Last week JobsOhio delayed the deal and issued additional disclosures to try to quell concerns over the lawsuit and constitutional issues. But this still won’t be enough to get many people to buy the bonds. One investor quoted in Bond Buyer claimed “There’s not enough disclosure in the world” for the state to bring the deal to market before the supreme court has ruled.
As we pointed out in early January, Kasich is anxious to get this deal done now, even with the unresolved legal issues and increased cost to JobsOhio, because the deal will result in a one-time payment to the state of $500 Million. Kasich is counting on this extra cash to help him balance his budget.
To Kasich, this bond deal is less about economic development and more about securing enough one-time money to create a budget that he thinks will get him reelected in 2014 – including an income tax cut that will likely benefit the wealthy.
Kasich’s budget is due on February 4th and the Governor will do everything in his power to move this bond deal forward in the next eight days , even if JobsOhio has to pay unheard of interest rates just to get people to make the risky investment. For Kasich’s sake, I sure hope he spent part of his time in Davor dazzling some billionaire investors.