Connecticut Treasurer Denise Nappier informed legislators that the recently passed budget bill included a last-minute change that resulted in an unexpected limit in the state’s bonding capacity.
Nappier noted the budget bill included an exemption on refunding bonds and short-term revenue anticipation notes from the $1.9 billion annual cap. However, the original language of the bill included the words “upon passage” regarding the starting date for this exemption, but that was changed to “July 1, 2018” when the bill passed on May 9.
“The effective date is important because the bond covenant pledges that no changes to the underlying statutes – including bond caps – may take effect between May 15, 2018, and July 1, 2023, and GO bonds were issued on June 20, 2018, that included the covenant,” Nappier wrote in a letter to legislative leaders. “So, instead of the exclusions taking effect upon passage on May 9th, before the statutory provisions related to the bond covenant were locked in, these exclusions may not apply for another five years.”
Nappier pointed out that the state has already issued $889 million in new money general obligation bonds, which leaves the 2019 bond capacity at slightly over $1 billion. She added that while this situation does not create immediate problems for the state, her office will need to abide by the language of the passed budget bill until the issue is resolved.
“The failure to effectively exclude refunding bonds on the cap from bond issuance may require the state to forego opportunities to refund outstanding bonds to achieve debt service savings in order to reserve capacity for new bonds to cover expenditures,” she stated.