Market Appreciates Connecticut’s New Found Fiscal Discipline
HARTFORD, CT — Connecticut’s new found fiscal discipline and increased rainy day fund revitalized interest from bondholders when Connecticut sold $889.2 million in general obligation bonds last week.
“While we have a ways to go, the municipal finance marketplace has taken notice that Connecticut’s fiscal position has turned a corner,” State Treasurer Denise Nappier said.
This is the second bond sale since the General Assembly made adjustments to the budget on May 9. The adjustments included a bond covenant that locks in the spending, bonding, and volatility caps.
The bond sales included $400 million 2018 Series E Bonds to retire Bond Anticipation Notes issued in December 2017, $239.2 million 2018 Series F Refunding Bonds, and $250 million 2018 Series A (Taxable) Bonds issued for new projects. The refunding will provide debt service savings of $29.6 million over the next nine years.
The 2018 Series E and F Bonds were offered to individual investors on a priority basis during a one-day retail order period on Tuesday, August 14. Total orders received on these bonds were $364.6 million – the highest amount on record for general obligation bonds during Nappier’s tenure– edging the prior record of $364.3 million received in November 2008.
A total of $1.25 billion of orders were received from retail and institutional investors for the 2018 Series E and F Bonds. A total of $778 million in orders were received for the $250 million of 2018 Series A Taxable Bonds. Because orders exceeded bonds available in some maturities, the state was able to reduce interest rates on the bonds in the final pricing. The overall interest cost was 3.63 percent on the $400 million 20-year tax-exempt bonds and 3.75 percent on the $250 million 10-year taxable new money bonds.
“This bond pricing indicates that the market recognizes the state is now demonstrating its commitment to right its ship by exercising discipline in the management of its fiscal affairs,” Nappier said.
The $250 million of taxable new money bonds will be used for construction of the Innovation Partnership Building at the UConn Technology Park in Mansfield; renovation and construction of housing units in various towns across the state; economic development assistance under the First Five program; and funding the Small Business Express Program and the Bioscience Innovation Fund.
Ahead of the sale, each of the four credit rating agencies reaffirmed their credit ratings and outlooks for Connecticut, which are: Moody’s “A1” with a stable outlook; Standard & Poor’s “A” with a stable outlook; Fitch “A+” with a stable outlook; and Kroll “AA-” with a negative outlook.
In its rating report, Kroll analysts said the bipartisan budget adopted in May “continues to be structurally imbalanced.” It goes onto point out Connecticut’s economy has not recovered as quickly as the region or the nation.
“Between 2010 and June 2018, total State employment grew 5.36 percent, as compared to 10.81 percent for the region and 11.86 percent for the U.S.”
S&P Global analyst David Hitchcock pointed out that Connecticut made improvements in its fiscal discipline with spending, borrowing, and volatility caps. He said those practices, which were locked in place by the bond covenants for five years, will likely improve Connecticut’s credit.
The Aug. 15 bond sale was the second sale made under the new bond covenant which requires the state to pledge to address its long-term liabilities and rebuild its rainy day fund.
The covenant prohibits Connecticut from altering these fiscal restraints except in cases where the governor has declared an emergency and three-fifths of each chamber of the General Assembly votes in support of a change for that year.