The Connecticut General Assembly was expected to vote on $945 million of deficit borrowing last night to close the budget gap for fiscal 2009, which ended on June 30.
The House yesterday approved a bill authorizing the sale of the notes and the Senate was expected to vote on the measure last night. The state closes its books on fiscal 2009 today.
The state would likely go market in the fall with an issue to sell a portion of the debt, a state treasury official said. The debt would be the general obligation of the state and will likely have final maturities out to 2016 though the structure has not been finalized, the official said.
Lawmakers have chosen to borrow to close out the 2009 fiscal year rather than dip into its $1.4 billion rainy-day fund, which it plans to use instead to help close a $8.55 billion budget gap in the fiscal 2010 to 2011 biennium.
Connecticut has borrowed to close deficits in the recent past, selling $220 million of five-year notes in 2002 for that purpose.
Fitch Ratings analyst Douglas Offerman said he couldn't comment on the borrowing because he didn't have enough information yet.
"They have a history of doing these borrowings for deficits after the year ends and issuing debt and then paying it down early," he said. "The state has some volatility in revenues, a lot of that is like many high wealth states because of the importance of personal income tax to the state's overall revenue make-up."
The economic downturn has laid bare the state's long-term structural challenges caused by the imbalance of recurring spending and recurring revenues, Offerman said.
The state does plan to borrow in fiscal 2010-11 to help close the gap in the budget, which is now two months late. The budget bill under consideration yesterday included a provision to securitize lottery revenue and possibly other revenue streams to be determined at a later date to raise net proceeds of $1.3 billion.
The state could issue bonds or notes or other debt instruments backed by lottery proceeds on the public market or it could privately place the debt or sell it to the state pension funds, according to the bill.
The affluent state relies heavily on the financial and insurance sectors which have been hit hard by the recession and credit crunch. Connecticut has lost 70,000 jobs since May 2008. Income tax, which includes capital gains, was expected to fall $1.27 billion short of the $7.68 billion estimated for fiscal 2009, according a report released by the state comptroller's office last month. Sales taxes have also fallen short of projections by $427 million to $3.32 billion.
After a weekend of negotiations, the assembly was voting on bill that compromised with proposals made last week by Gov. M. Jodi Rell. Rather than eliminate the state estate tax, as Rell proposed, the budget bill would increase the threshold at which the tax applies to $3.5 million from $2 million. The bill would also delay her proposed one-half percentage point reduction in sales tax to 5.5% until January 2010.