CDA upbeat on multiplier effect of $60-M bond

The CNMI government is upbeat on the possible multiplier effect of the $60-million municipal bond that is expected to be floated either next month or in September to finance major infrastructure projects under the Section 702 of the Covenant.

Development Authority Board Chair John S. Tenorio said the $60 million bond, which will be used to match federal grants for Capital Improvement Projects, may translate to over $400 million in fresh money circulating within the Northern Marianas economy in a four-year period.

Mr. Tenorio said the CNMI inevitably needs these projects, citing the value of the stimulus these new infrastructure activities are anticipated to create on the local economy.

The Governor’s CIP Task Force has completed the seven-year spending plan for $154 million in new capital infrastructure projects.
CDA expects the $60-million bond to be floated in the next two months when interest rates in the mainland United States economy start dropping, as they have traditionally been.

Underwriters held back the supposed flotation of the bond towards the end of last month in anticipation of lower interest rates either in August or in September, according to Mr. Tenorio.

CDA and its mainland U.S.-based underwriters remain in schedule with regards to selling the bond into the open market. CDA has been hard-pressed to double its efforts in getting a good deal for the $60 million bond amid the Commonwealth’s stagnant economy.

CDA’s bond underwriters in the mainland United States are already in the process of obtaining the needed rating before the bond is floated in the open market.

The municipal bond has been in the offing since last year but was not immediately floated due to economic difficulties and higher prevailing interest rates, resulting to the dragging completion of major infrastructure projects in the Northern Marianas.

Interest rates normally increase by 30 basis points or by one percent during the March-May period, adding that floating the $60 million bond when interest rates are lower would be beneficial to the Commonwealth’s depleting coffers.

The bond is being eyed for use to match available federal funds under the Section 702 of the Covenant, which guarantees U.S. funding for Capital Improvement Projects that can be tapped only if the CNMI identified local matching money.

The CNMI gets $11 million annually for CIPs. The $60 million bond has been identified to declog the bottleneck of unused CIP funds that has been accumulated by the CNMI.

In order to fortify the salability of the bond in the open market, Mr. Tenorio said government finance managers have started looking at the stability of the Commonwealth’s fiscal house, particularly its ability to generate enough revenue and its capacity to reduce outstanding budget deficit.

Paine Webber, which handled the $16 million bond floated by the Public School System last year, will also handle the flotation of the $60 million municipal bond.