Wall Street Math: Jobs Ohio funding “resolved”
According to Gongwer (subscription required), the funding mechanism for JobsOhio – a private corporation that will take on the State’s economic development activities – has been “resolved” by yesterday’s introduction of the executive budget. We guess you can call it a resolution, but no one has explained how it is remotely a good deal for the taxpayers.
Let’s look at the math:
Profits on liquor sales generate $228 million for the state of Ohio every year. JobsOhio is set to take over liquor sales oversight and own that revenue stream. They, in turn, will sell 30 years worth of that revenue — worth around $6.8 billion — to a group of investors (recruited by a Wall Street firm, who will of course take a cut) in return for a lump sum payment to the state.
According to the administration, they expect to receive about $1.5 billion in return for this $6+ billion in state revenue. Of that, around $300 million will fund JobsOhio, $700 million will defease the bonds that are currently back by liquor profits and $500 million will go to the state general fund to plug the current budget hole.
How many problems do you see here?
- We are selling nearly $7 billion in revenue for $1.5 billion
- If there are $700 million in outstanding bonds against liquor profits floated by the state, it will likely cost far more than $700 million to pay them off and float new bonds. And they clearly intend to float new bonds, as the liquor-backed economic development programs funded by the bonds — including the facilities establishment fund at ODOD — are fully funded for both years in the Governor’s budget.
- JobsOhio is an unproven entity, the legality of whose business model is questionable according to the Ohio constitution. How attractive, in these credit markets, will its bonds be to investors? At best, we’re probably talking junk bond ratings, perhaps explaining why the State is paying such an insane premium to get anyone to invest.
Really – this is the plan. And people said Strickland’s plan to securitize proceeds from the tobacco settlement (a hugely UNCERTAIN revenue stream, bonded at a time when credit markets were at their peak) was a bad deal for the state! What will they say about this?
We intend to go to the committee hearing today and hear whether the administration’s explanation makes any more sense the 2nd day. Otherwise it seems like an incredible waste of taxpayer assets just to get a little under $300 million of (one-time) walking-around money into the pocket of Mark Kvamme.
- Ohio Budget Watch: Liquor Control securitization looks like a great deal for Wall Street/bad deal for Ohio
- Kasich wants to sell $6.8bil in liquor revenue for $1.5 bil. using Wall Street's Money - Ohio (OH) - City-Data Forum
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