Senator Frantz urges Governor Malloy to Reduce Borrowing

Article as it appeared in the Journal Inquirer

Republicans urge Malloy to reduce borrowing
By Mike Savino
Journal Inquirer
Monday, December 14, 2015

Republicans on Friday urged Gov. Dannel P. Malloy to scale back borrowing amid expectations that the Federal Reserve will raise interest rates this week.

“We know that something’s going to happen in the next week or two weeks to the Fed funds rate, which is undoubtedly going to affect the entire set of bond markets,” Sen. Scott L. Frantz, R-Greenwich, and a member of the State Bond Commission, said Friday.

Frantz asked Malloy, who heads the commission, if he has plans to scale back borrowing from this year’s level, pointing to expectations that the Federal Reserve will raise rates on borrowing.

The Federal Reserve hasn’t increased rates since lowering them to nearly zero following the 2008 recession.

In the past, Malloy has defended the level of borrowing by saying he was trying to secure funding for various projects while interest rates remain favorable.

He raised his self-imposed “soft” bond cap to $2.5 billion this year, up from $1.5 billion last year, and Friday’s agenda brought state borrowing to within $5,482 of that limit.

Malloy gave no indication of what next year’s limit will be — he said he’d likely set a bond cap in January or February — but he also said he viewed the borrowing as part of the effort to address the state’s needs.

“I view this bonded indebtedness as investment, and it’s not simply running up debt for the purposes of running up debt,” he said.

Malloy also said the legislature determines how much the state borrows for school construction. At $650 million this year, the governor called the expense the largest portion of bonding that isn’t backed by a specific revenue source.

Republicans, though, have complained that bonding for other purposes has increased dramatically, particularly for various operating expenses.
Rep. Christopher Davis, R-Ellington, also on the bond commission, said a portion of the $2.5 million that the commission authorized Friday for the Connecticut Science Center will go to operating expenses.

The $650 million in bonding for school construction this year returns the state to the levels in 2009 and 2010, but makes up a significantly smaller portion of total borrowing — 26 percent this year, compared to roughly half in the two years before Malloy took office.
Republicans also raised concerns that, according to the Office of Fiscal Analysis, the state’s debt service is expected to rise $275 million between fiscal years 2017 and 2018.

Republicans included a $1.8 billion statutory bond cap as part of failed amendments during Tuesday’s special session, when the legislature approved a package to save $350 million in this year’s budget.

“The idea that we can live within our means is achievable, and that’s why we proposed a $1.8 billion bonding cap just a few days ago,” Davis said.

He also said he’s concerned about borrowing in the future as Malloy seeks to implement his 30-year, $100 billion plan to overhaul the state’s transportation system.

Republicans have floated their own $37.4 billion plan to fund transportation that would fit within current borrowing levels, but Malloy has criticized that plan, saying the proposal doesn’t identify any projects and ignores the state’s needs.

Malloy also has been looking for revenue sources to fund his plan, and Friday he mentioned Fitch Ratings’ decision over the summer to upgrade its outlook of Connecticut’s finances from “negative” to “stable.”

Fitch cited a policy change in June’s budget that designates a half a percent of the sales tax for transportation costs, including bonding.

Malloy also said he believes the state is in a better position to take on debt in part because of his efforts to reduce unfunded costs elsewhere, particularly changing pension obligations shortly after taking office to reduce the state’s share for newly hired employees.

“I absolutely appreciate that we are in a better situation to make long-term investments in the infrastructure of Connecticut because we took those steps, and quite frankly we’ll continue to take those steps,” Malloy said.