NASHVILLE - Hoping to conserve cash, the Bredesen administration plans to issue $170 million in bonds to pay for infrastructure commitments for the Volkswagen plant in Chattanooga, Finance Commissioner Dave Goetz said Tuesday.
The state also plans to issue another $92 million in bonds to meet its commitments on the recently announced Hemlock Semiconductor project in Clarksville, Tenn.
That would bring the total bonds issued to $262 million.
The state, which has suffered major tax revenue losses in the recession, has no large wad of cash for either project except its $750 million rainy day fund, Mr. Goetz said.
"We could take it out of the rainy day fund," the commissioner said. "That would be the only other source. It would seriously deplete the rainy day fund at a time when we're already going to be dependent upon it."
The state needs to conserve rainy day funds to cushion cuts of up to $900 million in the budget, he said. Officials hope a federal stimulus package winding its way through Congress will help offset the need to cut.
But without federal assistance, Tennessee may have to use $329.7 million from the rainy day fund or cash from about $500 million in TennCare reserves to accommodate revenue drops in the current 2009 fiscal year, according to state estimates.
fast-track approval sought
The bond issue will require approval by the General Assembly, he said.
"We're going to try and pass the bond bills necessary to do this as quickly as possible, within the next two weeks, so we in fact can go ahead," Mr. Goetz said. "There's a lot of work to be done to prepare for the sale. We need to get the sale executed so the work can continue, so we can recoup the cash that we have put forth previously to have closing (balanced books) in the current year."
About $88 million of the VW bond issue would reimburse the state for money it already has spent or is spending, he said.
vw's strength cited
Mr. Goetz and Economic and Community Development Commissioner Matt Kisber emphasized to House Finance Committee members that the German manufacturer's "campus approach" is "going to put Tier 1 suppliers, their most important suppliers right with them" at the site, adding to the overall investment in the Chattanooga area.
Rep. Steve McManus, R-Cordova, asked what would happen if the Volkswagen plant were to close down. Commissioner Goetz noted that the state would have to pay the general obligation bonds, but the property could be used for other industrial purposes.
Commissioner Kisber told Rep. McManus that Volkswagen "is one of the world's most profitable automobile companies, and one of the things that made this project extremely attractive is they are in an extremely strong financial position and have substantial market share worldwide."
a legislative novelty
The commissioner later conceded that going into debt for state commitments on an economic development project is a departure that could require explanations to many lawmakers.
"This is a change in policy," he said.
But House Democratic Caucus Chairman Mike Turner, of Nashville, the bill's sponsor, said he doesn't anticipate major problems.
Not all the state commitments will be bonded out. For example, the state has committed to provide job training that it still would have to pay cash for, Commissioner Kisber said. The same goes for $2 million the state has agreed to put toward joint marketing with Volkswagen.
The bonds would leave the state this year putting $10 million in cash toward the VW project and $8.3 million in cash on the Hemlock deal in the current year, according to a schedule provided by Mr. Goetz.
$28 million debt service eyed
The state's annual debt service on the bonds would come to $28.8 million for Volkswagen and $10.1 million for Hemlock, which plans to invest $1.2 billion in a Clarksville factory to produce polysilicon, a raw material used to manufacture solar cells and semiconductor devices.
Tennessee officials have committed to provide about $229 million for added infrastructure, training and marketing at the VW assembly plant at Enterprise South industrial park, which is expected to employ some 2,000 workers and generate huge investments by major VW suppliers.