ATLANTA -- As other states sink into fiscal crisis, West Virginia flexed its economic muscle last week when it announced it plans to pay off, two years early, a $259 million bond issue sold in 1986.
The revenue bonds were issued to cover a loan from the federal government that was used to pay the unemployment claims of out-of-work West Virginians. At the time, the state was unable to cover its portion of those benefits.
Because debt service on the bonds has been backed by a payroll surcharge assesed workers and employers in the state, early retirement of the borrowing on Oct. 1 will save West Virginians about $80 million, said Thomas Heywood, Gov. Gaston Caperton's chief of staff, on Friday.
In addition, he said, early retirement of the bonds will save $21.2 million in interest costs.
"We are very pleased to be able to retire this debt two years ahead of schedule, and think it is a strong indication of the state's return to fiscal health," Mr. Heywood said. "This early retirement is purely and simply a function of our improved employment situation."
The West Virginia official said both employment and wage levels have been much stronger than state officials originally expected in 1987, when the debt service payments began. This strength has generated unanticipated receipts from the payroll surcharge, speeding up the retirement of outstanding unemployment debt.
For example, in 1988 the revenues generated by the surcharge allowed unforeseen redemptions of $17.7 million of bonds; in 1989, $25.7 million; in 1990, $27.3 million; and this yeawr, $31.7 million. Currently, $63.9 million of the bonds remain outstanding. Under the original schedule, the debt would not have been fully retired until Oct. 1, 1993.
Last week, the governor decided that the benefits of the bond retirement would go directly to an elimination of the wage assessment surcharge.
"West Virginia workers and employers have made great sacrifices to pay off the debts of the past," said Gov. Caperton in a prepared statement. "I am determined that they receive the benefits of our improving economy."
In legislation that set up the borrowing, state lawmakers stipulated that the bond issue be secured by a 35 cents per $100 assessment on employee's wages and a 60 cents per $100 levy on employers based on employees', earnings, up to $21,000.
The state has been on the rebound since hitting rock bottom in the late 1980s, after recession and the collapse of energy prices decimated its coal mining and manufacturing industries. By early 1989, it faced an estimated $278 million budget imbalancve and $230 million in unpaid bills.
Also at that time, the state had been set back by a $271 million trading loss that its consolidated investment pool suffered in 1986 and 1987. Those losses forced the resignation of former Treasurer A. James Manchin and led Gov. Caperton to sue the Wall Street firms that had served as investment advisers to the fund.
Since that time, West Virginia's economic prospects have improved as world energy prices have stabilized and the state has revitalized its industrial plant.
According to Mr. Heywood, the good news of the early bond retirement is another instance of the recent favorable economic trends in West Virginia.
He said he expects West Virginia to show a $45 million surplus once the state closes the books on its 1991 fiscal year, which ended June 30. Last year, the state had a $67 million surplus.
Mr. Heywood also noted that next June, West Virginia will pay off, on schedule, a $135 million dedicated consumer sales tax bond issue sold in 1989 to cover unpaid state bills. In addition, he said that for the first time in a decade, West Virginia is now current on its Medicaid payments to health-care providers.
Mr. Heywood said the state would point to its fiscal improvement to argue for a higher rating on its approximately $450 million of general obligation debt, currently rated A1 by Moody's Investors Service and A plus by Standard & Poor's Corp.
"We think a case can be made for a rating in the double-a range," he said.
George Leung, managing director of state ratings at Moody's, noted that West Virginia's economy has improved in the last several years and the early retirement of the unemployment compensation bond issue would be a plus.
Mr. Leung declined, however, to predict if an upgrading is in the works.