May 24, 2018

CT's $500M bond issue first to bear fiscal caps

The state treasurer says Connecticut's upcoming $500 million bond issue will bear for the first time fiscal covenants in keeping with state budgetmakers' efforts to force the state to live within its means.

Wall Street applauded the move, with Fitch Ratings grading the upcoming debt issue an "A+."

State Treasurer Denise L. Nappier said Friday the June 6 bond sale includes $400 million of new general obligation (GO) debt, plus $100 million to refinance existing obligations.

Last fall, the legislature and the governor approved legislation mandating four distinct financial measures that must be met over the next five years.

All state debt issued from May 15, 2018 to July 1, 2020, must bear the following covenants:

  • A "volatility cap" requires that estimated and final tax payments to the state that exceed $3.15 billion in fiscal 2018 must be transferred into the state's budget reserve fund. For fiscal 2019 and beyond, the volatility cap will be tied yearly to growth in Connecticut's personal income.

  • A "revenue cap" limits the volume of revenue that can be appropriated, equal to 99.5 percent of estimated revenue in fiscal 2020, after that falling a quarter point a year until it reaches 98 percent in fiscal 2026.

  • A "statutory spending cap" limiting annual growth in state spending cannot exceed the rate of increase in personal income or inflation, whichever is greater.

  • A "bond cap" restricts bond allocations to $2 billion a year; and bond allotments and bond issuance to $1.9 billion a year each, with annual adjustments tied to the. Consumer Price Index.

"This bond covenant is a declaration to the municipal finance marketplace of Connecticut's seriousness in addressing its fiscal challenges," Nappier said. "Every bond issued with this covenant will include a pledge that the state will address its long-term liabilities, rein in spending and borrowing, and rebuild its budget reserve fund.''

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