At first glance, the two candidates battling to succeed 20-year state Treasurer Denise L. Nappier have a lot in common.

Democrat Shawn Wooden and Republican Thad Gray largely see eye-to-eye when it comes to the state’s massive pension debt, the state’s growing reliance on borrowing to cover debt payments, and even the financial bailout for Hartford.

But when it comes to having the proper background to do the job, the candidates each say their rival is lacking.

Wooden, 49, says he has the right mix of public- and private-sector experience. A partner at Day Pitney LLP who leads the law firm’s public pension fund investment practice, Wooden also served as president of the Hartford City Council from 2012 through 2015.

But Gray says Wooden’s tenure in city government is not a positive.

Gray, 58, who lives in Salisbury, retired in August 2017 from his post as chief investment officer of the Manhattan-based Abbott Capital Management, where he spent 28 years.

Contrasting track records

Shawn Wooden accepting the endorsement for treasurer. mark pazniokas /

“My opponent doesn’t have any professional investment experience,” Gray told the CT Mirror this week, adding this is essential for managing a pension system that holds $34 billion in assets.

Gray also asserts that Wooden was City Council president at a time when Hartford slipped dangerously close to fiscal insolvency, and saw its bond rating downgraded repeatedly. In the winter of 2017-18 the state provided a major fiscal bailout that will pay off most of the capital city’s bonded debt.

“I think the facts speak for themselves,” Gray said.

But Wooden counters that Gray’s depiction of his track record is both inaccurate and incomplete.

“Everybody talks about these issues, but I’m the only one who’s been on the front lines in a financially strapped situation and had to put forth a budget,” Wooden said.

Many factors — deep pockets of poverty, declining state aid, huge quantities of tax-exempt state and nonprofit property, and debt refinancing schemes executed before Wooden’s tenure — contributed to Hartford’s fiscal woes. 

And when former Mayor Pedro Segarra’s administration proposed short-changing contributions to the city’s pension funds, Wooden said he and other councilors nixed the idea.

“I pushed back against the mayor on that, a mayor of my own party,” he said, adding that the stakes are even larger for state government. “The next treasurer’s got to play a role in fixing what I think is one of the top challenges facing the state.”

On this issue, Wooden and Gray agree.

Managing CT’s massive pension debt

Connecticut has more pension debt, per person, than most other states.

Its pension fund for teachers holds enough assets to cover 56 percent of its long-term obligations. The state employees’s pension is just 38 percent funded.

These low ratios stem from seven decades of inadequate savings between 1939 and 2010. More importantly, analysts project pension contribution costs in the state budget will surge dramatically over the next 15 years, likely stealing dollars from education, health care, transportation, municipal aid and all other priorities.

“Budgetary stability is absolutely critical to the future of our state,” Wooden said. “This is about every taxpayer in the state of Connecticut and everyone ought to care.”

“My job as treasurer is to act as the state’s fiscal conscience,” Gray said, adding that he would use the bully pulpit far more than Nappier did to draw attention to practices that helped Connecticut amass its current, huge debt burden. “It doesn’t matter to me if (Republican gubernatorial nominee) Bob Stefanowski or (Democratic nominee) Ned Lamont is sitting in the governor’s chair.

“The problems that we have is the culture in Hartford. I want to be an agent of change in terms of that culture.”

Thad Gray addresses the Republican State Convention on Saturday after winning the endorsement for State Treasurer. Clarice Silber /

To affect that change, Gray says Connecticut must do more than contribute the actuarially recommended amount each year to its pension programs. The state also has to recognize that some other assumptions about its pension funds don’t make sense, he adds.

The fiscal health of those pension funds relies — in part — on the average return the treasurer’s office will make every year by investing pension proceeds. The state employees’ pension program assumes investment returns will average 6.9 percent over the coming decades. The teachers’ pension assumes an 8 percent return.

Gray says both of these are unrealistic and excessive.

“The treasurer has to have a benchmark that can be hit, that is attainable,” he said. “This clearly is a huge issue.”

Gray has Wall Street on his side on this issue.

Moody’s Investors Service, a major credit rating agency, proposed a new methodology in July 2012 that used the return of high-quality corporate bonds as its new guideline, noting that their average yield was 5.5 percent in 2010 and 2011.

Unlike some other states, Connecticut doesn’t allow the treasurer to set these returns on investment assumptions, commonly referred to as “discount rates.” That authority rests with the State Employees Retirement Commission and with the Teachers Retirement Board.

But Gray said the next treasurer must be ready to work with the legislature and to use the bully pulpit. And that could mean reform in this area.

Gray says although these pension boards have representatives from state government administration and from unions, they “are heavily dominated by organized labor. I think we need to have more balanced perspectives on those boards.”

Wooden agrees with Gray that the discount rates need to be adjusted to more conservative levels.

But he did not express any concerns about the current make-up of these pension boards.

“Those with a great stake in the outcomes ought to have a seat,” Wooden said. “Right now I’m not advocating changing that system.”

The key, the Hartford Democrat says, is to have a pension investment process that is “driven by data,” completely transparent and open to public scrutiny.

Gray said the treasurer’s office has undergone high turnover among senior personnel, and his first term would be spent addressing those losses.

But the next step immediately afterward, he said, is to perform a long-overdue analysis of the nearly 160 investment managers and pools in which the state has invested, he said. 

Why was each one hired? What investment returns have they produced? And what fees do they charge the state?

“When you’ve had the same person in the office for 20 years,” Gray added, “you need to take a fresh look.”

Reining in the state’s maxed out credit card

Treasurer Denise Nappier, right, at the Bond Commission last year. mark pazniokas /

Besides being concerned with Connecticut’s massive pension debt, both candidates also said the state carries a hefty amount of bonded debt that ranks among the nation’s highest on a per capita basis.

Connecticut sells bonds on Wall Street to borrow funds and finance a wide array of capital programs including municipal school construction, highway, bridge and rail repairs, building programs at public colleges and universities, open space and farmland preservation, state building maintenance, and a wide array of smaller, community-based projects.

The treasurer holds one of 10 seats on the State Bond Commission, which has sole authority to determine which bonding initiatives approved by the General Assembly will go forward.

“Overall I think we could be a little more thrifty as a state in terms of what we borrow,” Wooden said.

But the treasurer also must recognize, he said, that this bonding represents another key form of investment that shapes Connecticut’s economy, its communities, and its quality of life.

“Are we supporting a climate of job growth in our state?” Wooden said. “Are we having the best education system? Are we investing in our infrastructure? … All of these things, in my view, are critical to turning around our state’s economy.”

Gray said he also supports critical strategic investments to grow the economy, improve transportation and strengthen education.

But unless Connecticut stems annual General Obligation borrowing — G.O. bonds are the most common and are repaid with resources from the General Fund — it is on a collision course with fiscal disaster.

The annual borrowing limit, which stood at about $1.2 billion per year when Gov. Dannel P. Malloy took office in 2011, has now more than doubled.

A red flag: Borrowing to pay off borrowing

The state’s debt also has led Connecticut to rely increasingly on borrowing to pay off borrowing, a practice Gray says needs to stop.

This issue is centered on “bond premiums” — special proceeds the state receives as part of a complex process when it borrows funds for capital projects at a higher rate.

Premiums are an effective tool to market state bonds. Investors sometimes want to pay a premium, or extra funds, to acquire bonds that earn higher interest rates, particularly when rates generally are low.

The premium’s value matches the added interest costs Connecticut faces by switching from a market rate to the higher rate. If the state immediately used the premium to reduce the principal owed on its bonding, there is no added cost.

Connecticut, however, does not do that, and effectively uses the proceeds from premiums to add resources for the annual budget.

In recent years it has relied on as much as $160 million in proceeds from premiums for this purpose.

“It’s exactly like taking out a second mortgage to pay your groceries,” Gray said. “You’re digging a hole for yourself that eventually you’re not going to be able to get out of.”

Republican legislators have charged Nappier did not object loudly enough against this practice, not wanting to target Malloy, a fellow Democrat. Nappier did recommend reforms to the legislature in 2015 that would have stopped the use of bond premiums in this fashion.

Wooden said, “It’s not an appropriate use of bond premiums” and that he wouldn’t hesitate to seek reforms.

Hartford bailout went too far

Hartford Mayor Luke Bronin and Gov. Dannel P. Malloy.

The two candidates both said the state’s bailout of Hartford went beyond what lawmakers approved in November 2017.

Legislators voted in October 2017 to appropriate about $80 million in assistance for the city — $40 million in the 2017-18 fiscal year and $40 million this year. Lawmakers also agreed that the city would seek to refinance its debt over the long-term, and that the state would guarantee this refinancing.

But many lawmakers were stunned in March when they learned that under the assistance deal Malloy and Nappier signed, the state would pay about about $40 million annually for 20 to 30 years —  until the city’s entire $530 million bonded debt is retired.

Malloy and Nappier said lawmakers critical of the bailout didn’t understand that the bill they enacted authorized the state to pay off Hartford’s bonded debt.

“I don’t believe it reflects legislative intent,” Wooden said, but quickly added that, “we, as a state, do need to make sure that our urban cores are vibrant.”

If Connecticut had done nothing to help the capital city, more than Hartford’s bond rating — and its ability to borrow funds cheaply — would be in jeopardy.

Major credit rating agencies warned last winter they would consider bond rating downgrades for several major cities and for Hartford-area suburbs if the capital city were allowed to slip into bankruptcy.

“The city is so interconnected with the region and the state of Connecticut,” Wooden said.

Gray called the bailout “a complete disaster” that set “a terrible precedent.”

The agreement required no sacrifice on the part of Hartford’s bondholders. “This was a bailout for Wall Street,” he said. “Those bondholders got a windfall.”

Gray added that the agreement should have mandated greater cost-cutting measures in Hartford municipal spending. “I certainly would never have signed that if I had been treasurer,” he said.

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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