State Treasurer Denise L. Nappier Wednesday curbed her public debate with fellow Democrat Gov. Dannel P. Malloy over a controversial approach to financing projects at the University of Connecticut.
But the treasurer also remains concerned that expanding a quasi-public entity’s power to finance projects at UConn could cost millions of extra dollars down the road.
“While I stand by the concerns I have raised, our different positions on this issue ought not to take away from the consistent support I have shown for the many significant steps taken by Governor Malloy that have improved our state’s overall fiscal health,” she wrote in a statement.
Nappier, a Hartford Democrat currently serving her fourth term as the state’s chief fiduciary officer, added that “the spirited exchange … between Governor Malloy’s administration and mine is evidence that reasonable minds can and often disagree.”
Malloy’s budget director, Office of Policy and Management Secretary Benjamin Barnes said Wednesday that “I have enormous respect for the work (Nappier) has done,” and that the administration only wanted to ensure UConn “has all of the tools it needs to develop facilities down the road.”
The “exchange” Nappier referenced is centered on a new statute that takes effect next week regarding the Connecticut Health and Educational Facilities Authority, a quasi-public, nonprofit organization created by the legislature that finances capital projects for health care institutions and higher education institutions.
A June 20 article in The Journal Inquirer of Manchester quoted Malloy responding to the treasurer’s concerns by saying “we’re trying to streamline government and so everybody’s got to pull together and get over what appear to be humps.”
Nappier responded in a June 21 letter published in the Manchester newspaper on June 26 that the “convoluted statements” attributed to Malloy “fail to grasp the real concerns I raised over the expanded bonding authority he wants for CHEFA.”
The authority had been empowered to finance capital projects only at the Connecticut State University system and at other nonprofit independent higher education institutions in the state. But under the new law, it now can issue bonds for projects at UConn and at all in-state public colleges and universities.
But the quasi-public authority finances projects in a slightly different way then state government generally does.
Most state bonding is secured by and repaid with tax dollars or other revenues collected in state budgets.
But when CHEFA issues bonds to finance capital projects that will be repaid with higher education revenues — such as student fees or student loan repayments — it sets up a special debt service reserve fund typically equal to about 10 percent of the total bond issue.
That reserve fund is considered security for the loan, and the debt doesn’t count against state government’s bonding limit, though the state still is obligated to cover the debt should the reserve fund prove insufficient to handle any problem.
And Barnes testified to legislators last spring that expanding the authority’s reach would translate into reduced borrowing costs.
But Nappier warned lawmakers that this was “unnecessary, costly and may confuse investors and undermine their confidence” in existing UConn bonds.
The state’s flagship university already has authority to issue bonds to finance its capital reconstruction program. Launched in 1996, UConn 2000 already has pumped nearly $1.9 billion in total into the main campus in Storrs and branch locations.
And these bonds are backed both by university revenues and by the state budget, Nappier added, making the bonds “especially desirable since both sources are revenue streams that bond-holders know.”
CHEFA also charges administrative fees on bonds that the treasurer’s office does not, Nappier wrote. She estimated that for every $200 million bonded through this new arrangement, it could cost the state an extra $8 million.
“Why set up a second, parallel process for issuing bonds when a proven program is already in place?” Nappier added. “The answer is that this expanded authority cannot be justified based on cost or need.”
CHEFA Executive Director Jeffrey A. Asher could not be reached for comment Wednesday afternoon.
But Barnes said the CHEFA approach to bonding “is a common form of financing” for government projects and could provide lower interest rates for UConn than it might obtain through the traditional process.
“This just gives UConn another option,” Barnes said.
Rep. Roberta Willis, D-Salisbury, co-chairwoman of the Higher Education Committee, said Wednesday, “I still have concerns about the possible increased costs of this type of bonding,” but that legislators consented because the administration and CHEFA both urged approval.
Willis added that if Nappier remains worried, “I would hope that we would look at it again next year.”