McKinney Denounces Finance Committee’s Bill That Extends Borrowing to Pay Off Debt

April 16, 2013

Hartford, CT – The Connecticut General Assembly’s Finance, Revenue and Bonding Committee today approved S.B. 842, the annual bonding bill which authorizes state bonds for capital improvements, transportation and other purposes. But, to the chagrin of State Senate Minority Leader John McKinney (R-Fairfield), the bill also delays payments on the GAAP deficit (the amount of money the state needs to transition to GAAP) and refinances state debt accumulated when the state issued Economic Recovery Notes (ERN) in 2009.

“It is astonishing to me that the Finance Committee could take a fiscally irresponsible budget proposal from Governor Malloy and make it even worse,” he said. “You would never teach your children to manage debt by paying credit cards off with credit cards, but that’s exactly what the state of Connecticut is doing and, eventually, we’re going to expect our children to pick up the tab. This is a poor start to the legislative budget process and I implore Democratic leaders to revisit this mistake. I will not support any budget that employs such irresponsible gimmicks.”

Under current law, the state is required to amortize the GAAP deficit (now estimated at $1.2 billion) over a 15 year period resulting in an annual payment of $80 million. Instead, the governor proposed issuing $750 million in GAAP deficit bonds structured so that the state would appropriate $30 million annually towards the amortization with the bonds accounting for the $50 million annual balance.

Under S.B. 842 would postpone all payments for the next two years and instead increase the annual appropriated amount by $5 million to $35 million annually over the remaining life of the bonds beginning in FY 2016.

S.B. 842 also restructures the refinancing of ERNs so that debt service paid is $46 million less than what the governor recommended over the next two years. Rather than paying what the state is legally obligated to pay in debt service on these bonds, the committee is now recommending to decrease the debt service paid on these bonds to only $12 million annually over the biennium (see table below).

According to OFA this change is projected to cost an additional $14 million in interest above the $218 million in interest it would have cost under the governor’s proposal.

According to members of the bonding subcommittee, this proposal was put forth so that the General Assembly would not have to renew the Electric Generation Tax (which is estimated to generate approximatley $70 million annually). Sen. McKinney balked at this logic too.

“I refuse to believe that the state’s only options are an unfair tax today, or borrowing and paying higher interest tomorrow. The state needs to cut spending. I certainly hope that the passage of this bonding bill isn’t an indication that the Democrats plan to follow suit with the governor and propose another unaffordable state spending increase when they announce their budget on Friday,” McKinney said.