The state began offering $851.7 million of tax-exempt and taxable general obligation bonds Friday in a pre-sale to Hawaii investors that will help fund capital projects that were appropriated in the state budget over the last four years.

The sale will continue Monday for individual Hawaii investors before being open to institutional investors Tuesday.

Proceeds will pay for highway improvements, school repairs, watershed conservation, water irrigation system improvements, University of Hawaii repair and maintenance, prison repair and maintenance, new building facilities (such as for the Department of Health and Department of Education) and information technology projects, among other things. Bonds will be available in $5,000 denominations and are rated “Aa2” by Moody’s, “AA” by Standard & Poor’s and “AA” by Fitch. All are two notches below the highest rating for each agency.

The state expects the bonds to carry a coupon of between 4 and 5 percent with durations to maturity ranging from five to 20 years.

“Bond sales are a good way for the general public and Hawaii residents in particular to both augment their investment portfolios or savings, while providing the necessary funds to build public infrastructure that we all expect and use within the state,” said Kalbert Young, director of the Hawaii Department of Budget and Finance. “The benefit to bond buyers is they can develop investment income that is exempted from income taxation.”

The amount of this bond sale is consistent with what the state has been selling over the last five years. For  three years, however, the state has conducted one sale a year, while before it may have carried out two transactions within a year totaling $600 million to $800 million.

“This pre-sale will put individual investors ahead of Wall Street to buy Hawaii bonds,” Gov. Neil Abercrombie said in a recorded message on the state’s investor relations website. “It keeps our money at home building our local economy and providing a tax-exempt investment opportunity for Hawaii residents.”

Allowing Hawaii retail investors to have priority ahead of other, non-Hawaii retail investors has been common practice for only about 10 years. Within the last three years, Hawaii has begun actively marketing its bonds for purchase by taking out ads in the media, meeting with institutional investors and speaking with brokers.

The interest on the Series EH, EI, EJ, EK and EL bonds is exempt from federal and state taxes.

Interest on the EM and EN bonds is subject to federal tax but exempt from state taxes.

Young said because of the order and sale preferences, the state will not know the total transaction amount until the sale ends Tuesday.

Bonds may be purchased only through a registered broker.