According to a Connecticut Center for Economic Analysis report released Wednesday, the state has approximately $6 billion tied up in authorized but unissued bonds — funds that could be released to finance a host of government initiatives.
The CCEA report suggests that these funds, if used to finance infrastructure projects, could lead to major economic growth in Connecticut. Critics of the report, including the secretary of Connecticut’s Office of Policy and Management Benjamin Barnes, argue that immediate implementation of these funds is neither possible nor wise, considering the lack of confidence in Connecticut bonds shown recently by private rating agencies.
The amount of authorized but unissued bonds has risen from $3 billion to $6 billion in recent years. When combined with federal matching funds, the state may have a pool of funds as large as $7 billion to invest in major infrastructure projects, the CCEA reported. These bonds, once issued, would constitute a significant increase in the general obligations of Connecticut, which as of August 2013 had about $19.3 billion in outstanding debt.
According to the CCEA report, the proceeds from this stockpile of bonds, if used to fund government projects, would add 16,000 to 28,000 new jobs to the Connecticut economy.
“Every dollar spent on infrastructure reaps many times its value in economic growth,” Gian-Carl Casa, undersecretary for legislative affairs at the Office of Policy Management, said in an email Thursday. “The combination of infrastructure investments and strong financial management promotes economic growth while enhancing the state’s fiscal position and long-term stability.”
An investment of $1 billion, Casa explained, can generate as much as $3.4 billion in gross domestic product, $1.1 billion in personal earnings and add approximately 28,500 jobs to the state workforce.
Some state officials said the delayed bond issuance is explained by severely understaffed infrastructure projects due to a substantial loss of senior government workers in 2009.
According to Fred Carstensen, one of the co-authors of the CCEA study, former Connecticut governor Jodi Rell adopted new pension plans that gave employees an incentive to retire. Nearly 4,000 engineers and other highly skilled government workers left the workforce, leaving a significant void of institutional knowledge.
“I heard several stories about the teams of professionals disrupted or destroyed by the departures,” Carstensen said.
According to Forbes.com, Connecticut has the single most significant looming skilled labor shortage of any state, with 63.7 percent of its workers over the age of 45 and another 27.3 percent over the age of 55.
Barnes responded to the CCEA report on Friday in an open letter to Carstensen.
“Large capital projects are sometimes delayed for … technical, legal or logistical reasons,” Barnes wrote. “I am not aware of any instance in which the administration has intentionally cancelled or delayed for financial reasons.”
In some cases, all state funding needs to be secured long before the state enters into a contract for a project, Barnes added.
“All of the $3.2 billion in un-bonded authorizations for transportation are available to commit to projects, and virtually all of it has been committed to those projects,” Barnes wrote.
Tables included in Barnes’ letter showed that overall capital disbursements have increased by about 50 percent over the past four years and project delivery times have been shortened. However, Barnes wrote, the state could not, and should not, commit all of these bonds to projects all at once.
“There is no magic button that will make all these projects get done right away,” Barnes added.
State Treasurer Denise Nappier said in an August press release that nearly $900 million in bonds were sold over the summer. Borrowing much more all at once could undermine investors’ confidence in Connecticut bonds, Barnes wrote.
Confidence in state bonds has been waning in recent years. In January 2012, Moody’s downgraded Connecticut bond ratings from Aa2 to Aa3 due to Connecticut’s low funding ratios for pension plans and the state’s exceptionally high fixed costs for debt, pension and other post employment benefits relative to the state’s budget. In July 2013, Fitch Ratings changed its outlook on Connecticut’s General Obligation Bonds from “Stable” to “Negative.”
“The Negative Outlook reflects the state’s reduced fiscal flexibility at a time of lingering economic and revenue uncertainty,” according to the Fitch report.
In response to the Fitch Ratings downgrade, State Senate Minority Leader John McKinney said: “The facts speak for themselves. Connecticut bond ratings are worse than they were when Governor Malloy took office, they have not recovered, and they are heading in the wrong direction.”
The Office of Fiscal Analysis projected in August a Connecticut State General Fund deficit of $712 million in the fiscal year of 2016.