Connecticut Treasurer Denise Nappier urged lawmakers to pass a bill allowing the state to use premiums on general obligation bonds to fund previously authorized capital projects.
Nappier told the General Assembly's finance, revenue and bonding committee that the legislation would reduce debt levels and future debt-service costs.
"This proposal represents a compelling opportunity to more effectively manage our state's debt that will ultimately help to protect and strengthen the state's credit worthiness," she said.
Bond premiums are an upfront payment by investors to the state in exchange for the state paying a higher stated interest rate on a given bond. Today, bond premiums are being used to pay current interest on outstanding bonds. Under the legislation, overall debt levels would be lowered over time and future debt service costs reduced.
Two months ago, Nappier criticized Gov. Dannel Malloy, a fellow Democrat, for what she termed overreliance on bond premiums in the two-year, $40 billion budget Malloy submitted to the General Assembly.
Nappier, state treasurer since 1999 and former treasurer of capital city Hartford, proposes a July 1, 2017, effective date for the legislation to "allow the state time to adjust to the new practice from a budget perspective."
Had this law been in place when the state issued $300 million of GO bonds in December, she said, Connecticut could have funded the $300 million in projects by issuing $267 million in bonds, resulting in $11.6 million of nominal savings over the 20-year life of the bonds.
Moody's Investors Service rates Connecticut's $15 billion of general obligation debt Aa3. Fitch Ratings and Standard & Poor's rate the bonds AA.
"Our GO bond program is by far the largest bond program my office manages and therefore it generates the most bond premiums," said Nappier.
"This bill would make our GO program conform with our other smaller bond programs for transportation, [University of Connecticut] and clean water — where premiums are in fact used to fund capital projects and thereby reduce the dollar amount of bonds issued."
Connecticut on Wednesday — Earth Day — is scheduled to issue $250 million to finance wastewater and drinking water infrastructure projects statewide in its first all-green bond sale.
