State government’s credit card still carries a large balance, but it’s no longer on pace to shatter its limit. That’s due to dozens of projects being scrapped and modest revenue growth that expanded Connecticut’s borrowing capacity.
And though the next governor and legislature still must deal with a projected $3.4 billion budget shortfall, this will give officials some new options to help balance the books, the co-chairman of a key legislative bonding panel said Tuesday.
“We needed some fiscal discipline to get here and we need more discipline going forward,” Sen. Donald J. DeFronzo, D-New Britain, who heads the Finance, Revenue and Bonding Committee’s bonding subcommittee, said. “But this does give us flexibility to relieve a bit of pressure on the appropriations side of the budget.”
State government borrowed $30 million earlier this fiscal year, and is scheduled to do so again in 2010-11 to finance its main road reconstruction grant program for cities and towns. It also issued bonds during previous economic downturns to finance grant programs related to capital projects.
But DeFronzo and others were quick to note that increasing borrowing capacity can help solve the upcoming fiscal crisis, but is hardly a solution on its own.
“I hope that from this point on, we look to bond things that are going to create jobs or help achieve the strategic development needs of this state,” DeFronzo said.
Just over $200 million of that $620 million in new bonding capacity already is targeted for use. The legislature and Rell agreed to commit $207 million in additional bonding to support a $362 million plan to build a new hospital tower and research facilities at the University of Connecticut Health Center in Farmington. The project would make the financially troubled center part of a regional health network and underwrite improvements to network hospitals in Hartford, New Britain and Bristol.
The $207 million is dependent on the state successfully competing for $100 million in federal funds that U.S. Sen. Christopher J. Dodd inserted in the federal health care reform law. The state already has dedicated $55 million toward the project.
Sen. Tony Guglielmo of Stafford, the ranking Republican senator on the bonding subcommittee, said 2011 will be a watershed test for state government’s latest attempt at borrowing discipline.
“Obviously we haven’t unlocked the secret yet because whenever we have had a little capacity in the past, we’ve used it,” he said, adding lawmakers have to accept that the days of plentiful borrowing for local projects are over. “Once the pressure relaxes here, are we going to go back to the bad old ways? …We can’t afford to.”
Two major factors contributed to the increase in the state’s borrowing capacity: cancellation of some $570 million in previously approved bonding, and an increase in revenue projections for next year.
Gov. M. Jodi Rell, who is not seeking re-election, collaborated with the legislature during the regular 2010 session to cancel more than $430 million in tentatively approved bonding for dozens of projects, many dating back to 2005.
“Some of the projects awaiting these funds are worthwhile, but so many more are not and keeping them all on the books hurt our credit rating,” said the Republican governor, who signed a major bonding cancellation measure into law over the weekend. “We simply have to say ‘no’ to the borrowing that has maxed out the state’s credit card.”
Much of the canceled funding involved community, or regional initiatives in legislators’ home districts, projects commonly referred to as “pork-barrel” spending by critics.
DeFronzo said legislators from both parties responded in unprecedented fashion to the problem, agreeing in a state election year to forgo projects that had already been touted back home. “Nobody I’ve spoken to can remember a de-authorization effort of this magnitude,” he said.
Another $140.5 million in bonding for the UConn 2000 project to improve the Storrs campus also was canceled in anticipation of the borrowing for the health center expansion.
While legislators and Rell were looking to scale back borrowing, the limit on the state’s credit card received a boost as fiscal analysts upgraded their revenue expectations for the upcoming fiscal year.
State government has a statutory cap that restricts borrowing as tax revenues shrink. But projections for General Fund tax revenues for 2010-11, which had stood at $10.56 billion when the legislative session opened in February, have since grown to $10.92 billion. That development alone added $630 million to the state’s borrowing limit.
Connecticut’s reputation on Wall Street and its ability to finance capital projects at low interest rates both were put at risk last fall. Two major bond rating agencies, Moody’s Investor Services and Fitch Ratings, assigned a “negative outlook” to state government in late 2009, a move generally perceived as a warning before a bond rating is lowered.
The rating agencies also complained about the large amounts of revenue from one-time sources – such as the budget reserve and emergency federal stimulus grants – being used to support ongoing programs.
With more than $19 billion in outstanding bonded debt, Connecticut also ranked second in the nation in debt per capita last year, the legislature’s nonpartisan Office of Fiscal Analysis said.
Both Moody’s and Fitch recently raised the state’s bond rating, and Moody’s lifted its negative outlook, according to a statement from Nappier’s office.