Md. interest costs reflect rise in rates

May 19, 1994|By John W. Frece | John W. Frece,Sun Staff Writer

The higher cost of money hit Maryland taxpayers in the wallet yesterday as the state borrowed $120 million at an interest rate nearly a full percentage point higher than the rate obtained just three months ago.

"This is a big jump in the interest rates," said state Comptroller Louis L. Goldstein after he and the Board of Public Works agreed to sell $120 million in general obligation bonds at 5.359 percent. It was the highest rate since the state sold bonds at 5.377 percent in January 1993.

Mr. Goldstein said he had expected bids to be around 5.1 percent. "I had no idea it would be this high," he said.

The higher rate at yesterday's sale means taxpayers will pay nearly $11 million more in interest over the 15-year life of the bonds than if the bonds had been sold three months ago, Mr. Goldstein said. In February, the state sold $184.2 million in bonds at 4.478 percent.

Much of the blame for the rate increase falls to the Federal Reserve Board, which has pushed up short-term rates four times since Feb. 4, sparking a rise in rates across a spectrum of maturities. But some longer-term rates have fallen since Tuesday, when the Fed increased the federal funds rate and the discount rate by a half-point each.

"They say [the higher rates] will stop inflation," Mr. Goldstein added. "This is just going to make a lot of money for the banks but not do much for the economy."

With all three major bond rating agencies continuing Maryland's triple-A bond rating -- one of only five states to retain the triple-A from all three -- the bond sale attracted bids from four syndicates.

The winning bid came from a syndicate headed by Goldman Sachs, which included a number of Maryland companies, including: Legg Mason Wood Walker Inc.; Alex. Brown & Sons Inc.; Ferris, Baker Watts Inc.; First National Bank of Maryland; W.R. Lazard, Laidlaw and Meade Inc.; and Muriel Siebert & Co.

Proceeds from the sale will be used to build jails in Anne Arundel, Calvert, Caroline and Charles counties; water quality projects; general state construction; and for a variety of state and local cultural, educational and health facilities.

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