Connecticut's State Bond Commission approved $546 million in general obligation bonds, stirring concerns over the state's growing debt load.
The authorization includes $25 million for the first block of transportation projects under a major initiative by Gov. Dannel Malloy.
Tuesday's action brings the state nearly within 5% of the $2.5 billion "soft bond cap," a limit the governor, who also chairs the bond panel, revealed to credit rating agencies in February. The soft cap refers to a limit on general obligation spending.
"We're only seven months into the year. I don't know if we can honor that pledge," said Sen. Scott Frantz, R-Greenwich, a ranking member of the legislature's finance revenue and bonding committee and a member of the state bond panel. "Connecticut has record debt levels. Both long-term unfunded liabilities and bonded indebtedness are some of the worst in the nation."
Projects approved Tuesday under the run-up to Malloy's five-year, $30 billion transportation plan included $7 million to install real-time public location devices on all public transit statewide and $4 million for a dockyard at the Metro-North Railroad Danbury branch line in Norwalk.
"Over the next five years, Connecticut will invest billions in transportation so we can revitalize our aging system," Malloy told reporters at the state capitol in Hartford.
Fitch ratings last week removed its negative outlook on Connecticut GOs, restoring a stable outlook while affirming its AA rating. Moody's Investors Service and Kroll Bond Rating Agency maintained Aa3 and AA ratings, respectively, with stable outlooks. Standard & Poor's maintained its AA rating, with a negative outlook that it assigned in March.
Connecticut has scheduled a $500 million competitive GO sale for Tuesday, split equally between taxable and tax-exempt bonds.
Acacia Financial Group, Inc. and A.C. Advisory, Inc. are co-financial advisors.
Day Pitney LLP is lead bond counsel and lead disclosure counsel; Robinson & Cole LLP is lead tax counsel.
According to Frantz, Fitch focused on the governor's willingness to raise taxes to secure debt service short-term when it should have taken a longer view.
"From a technical viewpoint, they might be right," said Frantz. "But what they were not doing, shamefully, is focusing an eye on long-term economic patterns. Interest rates are low - thus all the borrowing - but you still have to pay back the principal over time. The additional borrowing eventually becomes structural debt, and when interest rates go up, it will be very difficult to service our obligations."
Connecticut, which approved its $40 billion biennial budget on June 30, has continued financial pressures, according to Loop Capital Markets.
"The recent passage of the fiscal 2016 budget highlights these competing tensions, which are expected to continue for the foreseeable future," Loop vice president Rachel Barkley said in a report.
Barkley cited rising fixed costs as a percentage of spending - driven by pension and other post-employment benefits liabilities - and repayment for deficit-financing bonds and Teachers' Retirement System pension obligation bonds. Out-year projections, said Barkley, still foresee budget gaps "although this is not uncommon for states."
As of the fiscal 2014 actuarial valuation, the state's three pension plans have an aggregate funding level of 50.4%. According to Loop, the actuarially determined unfunded liability of $26 billion eclipses the state's outstanding bonded debt of roughly $19 billion.
