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 legislative sessions, 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; 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; securitization to
preserve Conservation and Clean Energy Programs; the establishment of a Housing
Trust Fund bonding program; 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, and the creation
of a new quasi-public agency to manage Bradley International Airport.
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 2011 Highlights
Highlights of the Debt Management Division’s accomplishments and important initiatives in fiscal year 2011 include:
New Money Bonds - During fiscal year 2011, the Debt Management Division issued $1.4 billion of new money bonds to fund local school construction, State grants and economic development initiatives, transportation infrastructure projects, clean water fund loans and grants, and improvements at State universities. In addition, the Division issued $581.2 million in General Obligation bonds to repay maturing General Obligation bond anticipation notes.
Refunding Bonds – To take advantage of refunding savings, the Division issued $47.0 million of General Obligation refunding bonds, $137.7 million of Special Tax Obligation refunding bonds, and $152.4 million of Bradley International Airport refunding bonds, for a total of $337 million in refunding bonds. Since January 1999, debt refundings and defeasances have produced $664 million in debt service savings.
Credit Rating Agency Matters - Fiscal year 2011 continued to be a challenge in the area of credit ratings. The Division communicated throughout the year with the credit rating agencies and the investment community to provide frequent and timely updates regarding the State budget and economy. The Division coordinated several major interagency credit rating agency presentations which served to introduce the new Administration and their fiscal agenda, the benefits of a major union concession package, as well as detailed analysis regarding the State’s fiscal situation and employee post-retirement plans.
State Budget Matters and Deficits – The Division took necessary steps to submit written and oral testimony to gain approval from the Department of Public Utility Control for the issuance of Economic Recovery Revenue bonds payable from charges on electric bills to close a projected budget gap in accordance with legislation passed the prior year. The Division closely monitored a court challenge of the financing which was heard by the State Supreme Court which rules in favor of the State. As the State’s fiscal condition improved, the issuance of the bonds was no longer necessary and the Division worked to create and advance the legislation that repealed the bonding.
American Recovery and Reinvestment Act (ARRA) – The Division continued to lead and completed a statewide program with other state agencies to implement the cost-effective bonding options available to the State and its municipalities for a limited time under the ARRA.
The Division issued an additional $920.4 million of “Build America Bonds” in four series including the limited but most advantageous bonding options known as Recovery Zone Bonds and Qualified School Construction Bonds which provide for the highest level of federal interest subsidy. Build America Bonds provide for the issuance of taxable bonds and the federal government reimburses 35%, or more, of the interest expense, providing a savings as compared with traditional tax-exempt bonds.
These Build America Bond issues allowed the State increased market access to new bond investors. Altogether, under the ARRA initiative $1.9 billion of bonds were issued which will result in total State savings of $223.7 million over the life of the bonds.
Transportation Bonding Program - The Division completed the issuance of $737.7 million of Special Tax Obligation bonds including $600 million to fund new and ongoing transportation infrastructure improvements and $137.7 million of refunding bonds for savings. The $600 million portion of the financing was the largest new money bond sale in the history of the transportation program and the State again utilized Build America Bonds which resulted in the lowest interest cost in the history of the program at 3.22%, saving the State more than $30 million versus an all tax-exempt sale. The $137.7 million tax-exempt refunding bonds will provide more than $8.9 million of debt service savings over the life of the bonds. The Division also consulted with the Office of Policy and Management, the Department of Transportation, and the Legislature on budget, credit rating, and bonding matters impacting the Special Transportation Fund.
Bradley International Airport - The Division continued to work closely with the Department of Transportation on matters concerning Bradley International Airport with two major accomplishments this fiscal year. First was the sale of $152 million of General Airport Revenue Refunding Bonds which refunded most of the Airport’s outstanding bonds. Following a competitive search, the bonds were sold as direct placements to two banks and structured as variable rate securities to match two forward starting interest rate swap agreements providing an interest rate below where a traditional fixed-rate bond could be sold. The sale will provide cash-flow savings to the Airport of nearly $1.5 million annually for the next 20 years and nearly $30 million of total debt service savings.
Second, was the key leadership role the Division played in the development and passage of Public Act 11-84 which created the new quasi-public agency, the Connecticut Airport Authority, to assume management and operation of Bradley International Airport and the five other State-owned airports. The Act authorizes and specifies the transition of control over these airports to the new Authority. The legislation authorizes the issuance of bonds backed solely by the new Authority’s revenues and allows for the transfer of the outstanding Bradley Airport bonds. The Authority is governed by a new 11-member board, including the State Treasurer.
Clean Water Fund and Municipal Finance Issues –The Division issued $182.9 million for Clean Water Fund bonds to fund new clean water and drinking water projects and began developing proposals to expand the use of the State revolving fund strategy for critical infrastructure work. The Division worked closely with the Departments of Energy and Environmental Protection and Public Health to successfully commit funding for program participants throughout the state including the Metropolitan District and the Mattabassett District. The Division completed recommendations to the City of Bridgeport on its funding requirements relative to its pension obligation bonds and reached an agreement with the City and OPM on a legislative proposal.
Quasi-Public Agencies – The Division continued to coordinate with the State’s quasi-public agencies including consulting with the Connecticut Housing Finance Authority on the issuance of bonds for the supportive housing and emergency mortgage assistance programs, with the Connecticut Health and Educational Facilities Authority on the refunding of Childcare Program bonds, with the Connecticut Development Authority on deploying various new bonding options included in the ARRA to local projects as well as and with the Connecticut Higher Education Supplemental Loan Authority on bonding, credit issues and organizational issues.
University of Connecticut - The Division continued its support of the University of Connecticut bond financing program and continued to collaborate on policy and procedures for lease financing and tax reporting issues. The Division also consulted with the University on a variety of finance issues related to the UCONN 2000 bonding program and approval of additional funding authorizations for significant economic development initiatives including the new John Dempsey Hospital and a new Research Triangle on the Storrs campus.
2011 Division Performance
The Division focused on several important initiatives during the fiscal year including completion of the plan to maximize the benefit for the State from bonding options authorized under the American Recovery and Reinvestment Act, continuing to work with the Cash Management Division to monitor and efficiently manage the State’s overall state cash resources, and providing expertise to assist with new initiatives put forward by the new Administration including development of legislation to provide for the transition of Bradley International Airport operations to a new quasi-public authority.
Fiscal year 2011 continued to be a year of challenges in the area of credit ratings. Following a major industry recalibration of municipal credit ratings the prior year, the continued weak economy as well an increased focus by the rating agencies on long-term liabilities required significant analysis by the Division to ensure the State’s obligations are put in context and that the State’s strong financial management is emphasized. The Division communicated throughout the year with the credit rating agencies and the investment community to provide frequent and timely updates regarding the State budget and the economy.