With the State Bonding Commission set to meet on Tuesday for the first time since April, a recent report to the governor from the Connecticut Office of the State Treasurer calculates that the state doesn’t have much room left to borrow.
By law, the state’s borrowing is capped at 1.6 times the general fund tax revenue estimated by the legislature’s Finance Revenue and Bonding Committee each fiscal year. When debt reaches that limit, the legislature can’t approve more debt. Even at 90 percent of the limit, the governor and legislature are required to look at possible rollbacks of authorized, but unissued bonds.
As of July 1, the state’s borrowing was at 84 percent of that limit, according to State Treasurer Shawn Wooden. However, if the legislative committee were to adopt consensus revenue estimates from April 30, the state’s borrowing will have reached 99.3 percent of the debt limit – about $160 million under the limit and $2.2 billion over the 90 percent cap for review, according to the treasurer’s report.
The Connecticut General Assembly hadn’t yet approved the new revenue estimate for the year when it abruptly suspended session on March 12.
That means that the state is still operating on revenue projections set in June 2019 when the biennial budget was approved, explained Sen. Kevin Witkos, R-Canton, the ranking senator on the Finance Revenue and Bonding Committee.
According to the July 1 report from the state treasurer, the April consensus projections lowered expected revenues by about $2.7 billion below the June 2019 estimate.
Witkos said that the committee needs to approve updated revenue estimates, and that Gov. Ned Lamont should take immediate steps to address the debt issue.
“It shouldn’t surprise anyone that our tax revenues are in a downward spiral because of the COVID-19 issues, and we’ve done nothing to prepare for that,” Witkos said. “There is no reason why the Finance, Revenue and Bonding Committee can’t get together virtually to adjust the projected revenue.
If debt reaches the 90 percent cap, Connecticut statute requires the governor to review approved but unissued bonds and recommend which approvals the legislature should repeal. The statute does not require that the legislature repeal bonds, according to the Treasurer’s Office.
Chris McClure, spokesman for the governor’s Office of Policy and Management, said in an emailed statement that the office is operating under the adopted revenue estimates, as the statutes require.
“If the legislature adopts a new schedule, and adjustments are needed, we will work with them to find the best possible solution,” McClure said. “If that includes necessary adjustments to bond authorizations, we are able to do so at any time – including in the next regular session.”
Wooden’s semi-annual report is required on Jan. 1 and July 1 each year, and wasn’t making specific recommendations to the legislature or Governor’s Office, according to the Treasurer’s Office.
Complicating the matter, a 2017 bond covenant prevents the legislature from raising the debt limit until 2023. If debt exceeds 100 percent of the limit, the legislature won’t be able to authorize or issue new debt from the general fund, or approve new projects for bonding from the general fund, according to Wooden’s letter.
The only exception is a declaration of financial emergency, which would require a three-fifths vote of approval from each chamber of the General Assembly. Barring that, Witkos said he expects Tuesday to be the last Bond Commission meeting of the year.
Witkos said he expects the legislature will have to go back into special session this year to approve a deficit mitigation plan, which is required when a budget deficit surpasses one percent of general fund spending.
“There will be zero room for any bonding,” Witkos said. “That’s why, in my mind, this will probably be the last [Bond Commission] meeting we’ll have in 2020.”