Office of State Treasurer Denise L. Nappier

    Debt Management Division   

The Debt Management Division is responsible for the cost-effective issuance and management of the State of Connecticut’s bonded debt.  The State’s strategic investment in local school construction, roads, bridges, airports, higher education, clean water, and economic development are the foundation of Connecticut’s physical and social infrastructure.  The Division uses the latest financial instruments available in the public financing market when issuing new debt.  The Debt Management Division consists of eleven professionals under the direction of the Assistant Treasurer.

The Division maintains relationships with institutional and retail investors who have shown confidence in the State’s economy by purchasing bonds and notes at attractive interest rates.  The optimization of the State’s credit rating is critical to obtaining low rates in the future.  Debt Management staff is in continual contact and actively participates in rating presentations with Moody’s Investors Service, Standard and Poor’s Ratings, and Fitch Ratings, the three major rating agencies.

During the last several years, Division staff has been involved in the drafting of new laws with the Executive and Legislative Branches and has provided financial advice on new legislative initiatives.  This has resulted in the design of new bonding programs that have been well received in the financial markets, while maintaining exemption from federal and State taxes where appropriate.  Specific examples include electric deregulation; Second Injury; UCONN 2000 and UCONN 21st Century; school construction; open space; economic development in Bridgeport, Hartford, and New Haven; municipal financial oversight; Bradley International Airport; Economic Recovery Notes; Transportation Strategy Board Project Funding; Unclaimed Property Securitization; securitization to preserve Conservation and Clean Energy Programs; the establishment of a Housing Trust Fund; the authorization of bonding backed by future federal transportation funds; and a program designed to improve the funding of the Teachers’ Retirement Fund including the issuance of bonds.

The Division manages all public financing programs for the State and coordinates the issuance of bonds with State quasi-public authorities, including the Connecticut Development Authority, the Connecticut Health and Educational Facilities Authority, the Connecticut Housing Finance Authority, the Connecticut Resources Recovery Authority, the Connecticut Higher Education Supplemental Loan Authority, and the Capital City Economic Development Authority.

    Fiscal Year 2009 Highlights   

Highlights of the Debt Management Division’s accomplishments and important initiatives in fiscal year 2009 include:

New Money Bonds - During fiscal year 2009, the Debt Management Division issued $2.1 billion of new money bonds and $581.2 million of bond anticipation notes to fund local school construction, State grants and economic development initiatives, Clean Water Fund loans and grants, improvements at State universities, and transportation infrastructure projects. 

Refunding Bonds – To take advantage of refunding savings and to restructure debt, the Division issued $74.2 million of General Obligation refunding bonds and $44.5 million of Clean Water Fund refunding bonds.  In addition, the Division issued $512.7 million of Special Tax Obligation refunding bonds in two stages.  Since January 1999, debt refundings and defeasances have produced $596 million in debt service savings.

New Federal Stimulus Bill – The Division closely monitored the receipt of federal stimulus funds for clean water, transportation, airport and other capital improvements and worked with other State agencies to implement the funds into existing bonding programs and projects.  A bond working group was developed, including financial and legal advisors, to help implement cost effective new bonding options available to the State and its municipalities under the new federal stimulus law.  The working group presented a detailed analysis of the options to the Connecticut Recovery Working Group and other State agencies in June.

Cash Flow Borrowing Plan and Implementation – As State revenues began to fall off sharply during the fiscal year, the Division worked closely with the Cash Management Division to develop a cash borrowing program.  After approval by the Governor, as required by statute, the implementation of the plan included the completion of a bank request for proposals and the negotiation and establishment of a $580 million revolving credit facility with a group of four banks.

Transportation Bonding - The Division completed the issuance of $300 million of Special Tax Obligation (STO) bonds for transportation infrastructure improvements and completed a large complex refunding of certain insured variable rate STO bonds which were negatively impacted by credit downgrades of a major bond insurance firm.  The Division also consulted with the Office of Policy & Management (OPM), Department of Transportation (DOT) and the Legislature on budget and bonding matters impacting the Special Transportation Fund as well as the Bradley International Airport bonding program, including reviewing potential refunding options and planned expansions.

Clean Water Fund and Municipal Issues - The Division completed two bond issues during the year, providing over $400 million in critically needed project funding for the State’s water infrastructure.  A new amendment to the interagency Memorandum of Agreement updated the agencies’ roles in managing the program specifically with regard to the State’s new accounting system.  The Division continued to work with the City of Waterbury and OPM staff regarding the City’s proposed issuance of $330 million of pension obligation bonds including the update of a detailed response to the City and recommendations as required by statute. 

Quasi-Public Agencies – The Division continued to coordinate and consult with the State’s quasi-public and other agencies including the Capital City Economic Development Authority on the issuance of bonds to complete the Hartford Convention Center Project; the Connecticut Housing Finance Authority on the issuance of bonds for the supportive housing program; the Connecticut Health and Education Facility Authority on potential solutions for their clients regarding credit market access; and the Connecticut Student Loan Foundation on a variety of financial issues related, in part, to changes in the federal student loan program.

Higher Education Bonding - The Division issued the first general obligation bonds under the new Connecticut State University System 2020 long-term improvement plan.  In addition, work continued with the University of Connecticut on a variety of finance issues including equipment and other leases and financing options for the UCONN Health Center.

Industry Matters - The Division continually monitored developments in the municipal credit markets impacting bond insurers, rating agencies, investment banks, and other financial institutions.  The Division led the preparation of comments on municipal finance industry matters including comments on financial and rating agency reform proposals and proposed changes to the platform and content of municipal disclosure.

Work continued on strengthening Division administration including new systems and contracting with professionals:

• The Clean Water Fund program continued with the phased installation of its new loan and grant project management accounting system.

• The Division moved forward with the full integration of the new "BuyCTBonds" website in the process of issuing bonds for all programs.

• Recommendations were developed and approved for the extension of the accounting and financial advisor contracts.  The Division negotiated a three-year extension of no fee increases with all of the vendors, then implemented the contract extension and approval process.

    2009 Division Performance     

Fiscal year 2009 proved to be one of the most challenging on record.  In the first half of the fiscal year, the Division was required to navigate the State’s debt issuances through highly volatile and nearly frozen credit markets following the near collapse of several major financial institutions.  In the second half of the fiscal year, the Division moved quickly to implement strategies to address the State’s deteriorating cash position as well as options for financing growing budget deficits resulting from the nationwide recession.

With the State’s fiscal challenges, the Division's participation in the drafting of legislation and in the formulation of budget options, including options for deficit financing and securitizations, was critical.

Major investment banks and other financial participants experienced repeated credit downgrades related to continued financial losses in the subprime mortgage markets causing dislocation in the municipal credit markets.  The Division continued to focus on positioning the State’s debt portfolio to respond to changes and evaluating options for restructuring certain forms of variable rate debt for savings as well as strategies for structuring new bond issues.  The State’s relatively conservative debt portfolio of mostly fixed rate bonds minimized the impact of the market dislocations on the State’s cost of debt.

The Division communicated throughout the year with the credit rating agencies and the investment community to provide updates regarding the State budget and the economy, the composition of the State’s debt portfolio and the State’s exposure to the credit market deterioration.