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Gov. Ned Lamont brushed off Republican concerns that the state could be approaching a borrowing limit as the Bond Commission approved another $545 million in spending on capital projects on Tuesday.
On July 1, Treasurer Shawn Wooden issued a semi-annual report on the state’s bond picture that showed the state’s borrowing was at 84 percent of its limit of 1.6 times the general fund tax revenue, as estimated by the legislature’s Finance Revenue and Bonding Committee each fiscal year.
The legislature is still operating under revenue estimates from June 2019, since it vacated the Capitol in March due to the COVID-19 outbreak and did not approve updated estimates. Based on lower projections in the most recent consensus revenue estimates from April, the state’s borrowing would be at 99.3 percent of the limit, according to the treasurer’s report.
Before the commission voted on any proposals, Rep. Christopher Davis, R-Ellington, asked Lamont and Wooden if the state would be over the limit if legislators approved updated revenue estimates and the commission continued to authorize new bonds.
Sen. Kevin Witkos, R-Canton, earlier expressed similar concerns in an interview with CT Examiner.
Wooden said the proposed bonds would not surpass the borrowing limit, even under the consensus revenue estimates.
“There is no projection currently, or with respect to, if the consensus revenues were adopted by Finance, Revenue and Bonding (Committee), that would put us over 100 percent,” Wooden said. “So, just to be very clear, under either scenario, that is not one that’s contemplated or we believe we’re at risk.”
Lamont said that the bonds coming before the commission this year have been budgeted to remain below the statutory borrowing cap, but that revenue estimates change daily and it would be a few months before there was a clear sense of the numbers.
“My instinct is that we’re gonna have a much better idea of what those revenue consensus numbers look like in say September,” Lamont said. “Perhaps the legislature will opine on that in September, and perhaps then we should make sure we have another Bond Commission meeting.”
Wooden said finances are still in uncharted territory and urged caution, but said there have been marginal improvements since the April 30 estimates after Davis asked if the state might be in a worse state than it projected three months ago.
Wooden said that there are $6.6 billion worth of projects authorized by the legislature, but not yet bonded, and $4.1 billion that had not yet been approved by the Bond Commission. He assured legislators that those numbers give the governor and legislature room to roll back authorizations if needed.
Borrowing constraints
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 a recent report by Wooden.
If debt reaches 90 percent of the cap, Connecticut statute requires the governor to review approved but unissued bonds and recommend which approvals the legislature should repeal, but the statute does not require that the legislature repeal bonds.
Under April revenue estimates, the state would be $2.2 billion over the 90 percent warning threshold, according to the Treasurer’s report. Under the June 2019 revenue estimates the legislature is still using, it is $1.68 billion below the 90 percent threshold.
Office of Policy and Management Deputy Secretary Kosta Diamantis said that what controls the spending on allocations that go through the Bond Commission is the bond allocation cap of $2.125 billion. Lamont’s administration has set its own bond issuance cap at $1.6 to $1.7 billion, he said.
“The governor’s stance and actions on allocations and issuances have well positioned the state for any anticipated decline in revenues,” Diamantis said. “I think we’re well prepared to put forth the necessary de-authorizations in concert with our strategy on allocations and issuances.”
The commission approved each provision of the $545 million bond package, which included $200 million for schools and school construction and $220 million for transportation projects.
Specific bond provisions include a $7 million grant to fund remediation of the former Norwich State Hospital in Preston, $2 million to programs to reduce the use of PFAS by firefighters and to identify and remediate existing pollution, and $4 million for the purchase, rehabilitation, repair or demolition of homes on Newhall Street in Hamden. That bonding is in addition to $5 million that was previously granted to address the New Hall Street issue.