As Connecticut prepares to come to market this week with a $575 million general obligation bond sale, debate simmers over how much bonding is appropriate for the state.
Later this week, state Treasury officials expect to price the GO bonds, which will help the state balance its budget under generally accepted accounting principles.
The two-year, $44 billion budget Gov. Dannel Malloy signed in June authorized up to $750 million for such borrowing. Malloy promised conversion to GAAP when he ran for governor in 2010.
Ramirez & Co. is the lead manager for the bond sale.
On Friday, the Connecticut Bond Commission approved $435 million for about 35 projects, including $22 million in tax increment financing for a Bass Pro Shops retail facility in Bridgeport and improvements to Interstate 95 along the highway’s 110 Connecticut miles.
While the items passed easily, Democratic and Republican officials continued to joust over the state’s debt load. Senate Minority Leader John McKinney, R-Fairfield, said the administration of Malloy, a Democrat, is on pace to shatter a $1.8 billion bonding limit that he promised rating agencies he would not exceed.
“With the approval of the September agenda items, Governor Malloy will have borrowed $391 million more than the $1.398 billion the commission bonded in calendar year 2012 a staggering 28% increase and counting at a time when Connecticut already has the highest per capita debt in the nation,” McKinney said.
The bond panel is scheduled to meet twice more by year’s end.
Fitch Ratings in July lowered its outlook on Connecticut GOs to negative. Fitch and Standard & Poor’s rate the bonds AA. In January 2012, Moody’s Investors Service downgraded Connecticut GOs to Aa3 from Aa2.
Fitch on Monday afternoon reaffirmed the rating and outlook.
“The negative outlook reflects the state’s reduced fiscal flexibility at a time of lingering economic and revenue uncertainty. The enacted budget for the new biennium delays repayment of deficit borrowing, adds to an already high debt load, and fails to rebuild the state’s financial cushion,” Fitch wrote.
McKinney’s comments drew a sharp response from state budget director Ben Barnes.
“If Sen. McKinney wants his comments about bonding to be taken seriously, he should show his math,” said Barnes, whose formal title is director of the Office of Management and Budget.
“Point of fact: We have less bonded debt than when the governor took office, and we’ve slowed the rate of general fund spending growth to rates we’ve not seen in years.”
Day Pitney LLP is bond counsel for the sale. Wiggin and Dana LLP and Bryant Miller Olive PC are co-underwriters counsel.
Later in October, Connecticut plans to sell $325 million in Series 2013A GO economic recovery variable-rate remarketed refunding notes.