March 2, 1999

The State Finance Committee met in special meeting after notice duly given to the press and radio of Thurston County.

Present:

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

Also Present:

Allan J. Martin, Office of the State Treasurer Dave Walsh, Office of the Attorney General Tim Kerr, Office of the State Treasurer Mike Clarey, Office of the State Treasurer Dan Gottlieb, Gottlieb Fisher & Andrews PLLC Harvey C. Childs, Office of Financial Management Kay L. King, Office of the State Treasurer Dick Thompson, Office of Financial Management Svein Braseth, Office of the State Treasurer Mike Roberts, Office of Financial Management Jay Kirkevold, Office of the State Treasurer

Chairman Murphy called the meeting to order.

Lieutenant Governor Owen moved the minutes for the February 10, 1999, meeting be approved.  Chairman Murphy seconded the motion.  The motion passed and the minutes were adopted.

Mr. Kerr introduced proposed Resolution No. 885 providing for award of sale of up to $94,300,000 state of Washington various purpose general obligation refunding bonds (Note:  adjusted to $93,120,000 to conform with escrow requirements).  He stated that eight days ago the state had prepared a refunding financing package amounting to nearly $461 million for entry into the market.  In the intervening time since, the market used Federal Reserve Chairman Greenspan’s remarks before the Senate and House Banking Committees as an excuse to further raise interest rates on Treasury bonds.  The market has also received economic data indicating that the economy is growing faster than expected resulting in a concern that the Fed may hike interest rates, which is always a concern to bond market players.

Mr. Kerr noted that this concern in the market manifested itself by increasing interest rates which started to erode the state’s refunding savings target.  Last week the staff met with the financial advisor and bond counsel to determine what amount of bonds could be sold and still stay within the State Finance Committee’s policy of having a savings ratio of present value savings to the new issue size of greater than 5 percent.  Some portions of the refunding package were eliminated in order to allow the state to enter a turbulent market and achieve its savings target.

Mr. Kerr said the proposal this morning is a total adjusted amount of $93,120,000 various purpose refunding bonds.  Four true interest cost (TIC) bids were received for these bonds and were read for the record:  Bear Stearns & Co., Inc., 4.8335418 percent; Goldman Sachs & Co., 4.8197327 percent; Merrill Lynch & Co., 4.7925044 percent; and Salomon Smith Barney, 4.8110925 percent.  All the bidders complied with the bid specifications and used the Surebid surety bond as a good faith deposit.  The number we were looking for going in, the highest rate we could accept, was 4.83 percent.  The 4.7925044 percent TIC bid submitted by Merrill Lynch as the apparent low bidder generates a savings ratio of 5.48 percent.  (Note:  after adjustments and allowance for issuance costs, the finalized TIC is 4.796537 percent.)

Mr. Kerr noted that the market is in a stable situation right now.  Hopefully the underwriters are getting the opportunity to make a little money and the state is getting a decent rate for its refunding bonds and getting the refunding savings that it wants to see.  The average annual debt service savings on this sale is about half a million dollars throughout the life of the refunding issue.  The savings doesn’t all translate directly into debt limit bonds, because these packages are a combination of debt limit bonds and reimbursable bonds.

Mr. Kerr asked Mr. Dean Torkelson, financial advisor from Seattle-Northwest Securities, if he had any comments.  Mr. Torkelson said it was unfortunate the dollar amount of the refunding couldn’t have been larger, but that the remaining balance should be considered as a portfolio of opportunity.  It was an interesting sale in that the market was a little rocky going in, yet the spread per $1,000 of bonds was about $2.11.  That was as strong a bid as he’d seen in a competitive sale for the state for an issue of this length.

Mr. Kerr stated that as of 30 minutes, ago he had received verbal notification that the CPA firm Grant Thornton had verified the issue and ensured that the amount of bonds sold will adequately fund the escrow to cover the debt service on the refunded bonds.

Mr. Kerr said that negative arbitrage had been a drag on savings during the past several months, but the condition had gone away as the government market interest rates increased.  The state was able to invest in SLGs (special securities made available by the Treasury department) that really helped the efficiency of our refunding compared with open market escrow securities.

Mr. Dan Gottlieb, bond counsel from Gottlieb Fisher & Andrews, stated that the refunding was in good order and came in according to plan.  Adjustments that had to be made met the needs of the state and the requirements of law.

Mr. Kerr presented proposed Resolution No. 885 to the committee.

Resolution No. 885 providing for award of sale of up to $93,120,000, more or less, State of Washington Various Purpose General Obligation Refunding Bonds, Series R-99A, authorized by Chapter 39.42 and 39.53 RCW.

Chairman Murphy moved to accept the TIC bid of 4.796537 percent from Merrill Lynch and adoption of Resolution No. 885.  Lieutenant Governor Owen seconded the motion and the resolution was adopted.

Mr. Kerr stated that the next State Finance Committee meeting was scheduled for March 23, 1999, to consider new money bids.

There being nothing further to come before the committee, the meeting was adjourned at 11:39 AM.

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