The state has fully paid the outstanding liability related to the Economic Recovery Notes that were originally issued during the administration of Gov. M. Jodi Rell in 2009. At that time, the state borrowed money to cover its operating expenses when it closed the fiscal year with a deficit of more than $900 million and a depleted rainy day fund.
That situation is similar to today’s as Connecticut faces the specter of again depleting its reserves to address a budget deficit, which ultimately could involve borrowing money, as did the Rell administration.
In 2009, Rell and the General Assembly were faced with a deficit of more than $900 million while the state and national economy were in the midst of the Great Recession. Concurrently, there were zero dollars remaining in the budget reserve fund, leaving the Economic Recovery Notes as the only means by which Connecticut could close the deficit.
Gov. Dannel Malloy and State Treasurer Denise Nappier announced that the final payment on the debt was completed on Jan. 1. The state paid a total of $1.09 billion, which included $923.8 million of principal and $166.3 million in interest over the course of repayment.
During that period, the bonds were refinanced in two separate instances, in 2013 and in 2014. The refinancing of the debt lowered the interest costs from $170.1 million to $166.3 million and extended the repayment period from seven years to just over nine years. Those changes allowed the state to lower its annual payment to approximately $178 million from a projected $208 million.
“Completing payment on the Economic Recovery Notes closes a regrettable chapter in Connecticut’s financial history,” Malloy said. “Surely, reasonable minds agree that we must avoid repeating this costly decision. It is my sincere hope that present and future state leaders learn from this experience and take the necessary steps to keep the budget in balance during the course of the fiscal year.”
“It is always good news when we are able to retire state debt, but we must remember why we incurred this debt in the first place,” Nappier said. “Keeping the budget balanced and building up the budget reserve fund remain daunting tasks but ones we must adhere to. We must employ innovative ways to address the state’s fiscal problems, such as the recently adopted tax-secured bonding program, which my administration proposed as a way to earn higher credit ratings and to lower borrowing costs while rebuilding the reserve fund.”