McKinney: “State Bond Sales Not Cause for Celebration”

October 31, 2013

Hartford, CT – State Senate Minority Leader John McKinney (R-Fairfield) today took exception to statements by Connecticut State Treasurer Denise Nappier and Office of Policy and Management (OPM) Secretary Ben Barnes, in which both Malloy administration officials characterized the state’s issuance of $875 million in new general obligation bonds as “important parts of our efforts to deal honestly and directly with the debts and liabilities built up over many years…”

Senator McKinney said, “The Malloy administration is gambling with borrowed money and not being honest with Connecticut taxpayers about the terms of their bets.” He noted that, while the issuance of $875 million in new bonds generates “savings on paper” in the current budget, it could cost taxpayers as much as $200 million in interest – a fact conspicuously absent from the press releases and statements issued today by OPM and the treasurer’s office.

Referring to the sale of $560.4 million in General Obligation GAAP Conversion Bonds and $314.3 million of General Obligation Refunding notes, Senator McKinney said, “These transactions are by no means cause for celebration. Quite the opposite, they should be cause for great concern.”

Senator McKinney is particularly concerned by the use of variable-rate obligations in the sale of the refunding notes. According to the treasurer’s press release, Connecticut is the first state in the country to issue Variable-Rate Remarketed Obligations. Senator McKinney said, “This type of financial instrument can be risky. While the use of variable interest rates will provide the state with low interest costs in the short-term, the long-term cost of these bonds is anyone’s guess. Moreover, since Connecticut is going to be the first state in the nation to engage in this type of borrowing, I would like the treasurer to come before the legislature to explain its pros and cons, answer questions, and tell us why she believes this is in the best option for our state and taxpayers. Without further assurance, I am not willing to agree that variable-interest borrowing is a fiscally responsible way to manage the people’s money.”

Senator McKinney also noted that the governor made a promise two years ago to begin appropriating dollars for the state’s GAAP deficit in this current fiscal year, an approach Senator McKinney supported. Regrettably, that promise was broken. Senator McKinney said, “Appropriating real dollars to reduce the state’s GAAP deficit would have been an honest and direct way of dealing with the problem, and I would have supported those efforts. But that’s not what the governor is doing. Instead, he is borrowing in order to kick that commitment down the road another two years.”