Despite the suspension of 400 infrastructure projects around the state, Gov. Dannel Malloy’s $100 billion Let’s Go CT initiative is still moving forward, albeit at a slower pace, with $3.7 billion in bonding over the next five years.
A December report by the Office of Policy and Management showed Connecticut will only be able to preserve $3.7 billion in bonding going forward, but did not indicate what projects that bonding would finance.
But according to a report released by Kroll Bond Rating Agency two days after the governor’s January 10th announcement, most of that money will go to finance Malloy’s largest transportation project.
“The State plans to continue to increase Special Tax Obligation (STO) bond issuance significantly to fund the State’s Let’s Go CT! transportation initiative and other needs and projects issuance of approximately $3.7 billion over the next five years,” the report said.
Both Kroll and OPM list Connecticut’s bond issuances for the next five years in the exact same amounts: $800 million in FY 2018 and FY 2019, $750 million in FY 2020 and $650 million in FY 2020 and 2021.
The Kroll report says this bonding will largely be dedicated to Let’s Go CT. “The Let’s Go CT! initiative is the major driving force behind the State’s increased issuance of State Special Tax Obligations going forward.”
Malloy announced the suspension of $4.3 billion in projects including $2 billion in Let’s Go CT ramp up funding. However, despite the setback, Let’s Go CT is slated to continue moving forward, while other projects are put on hold.
The bonds will be issued as special tax obligation bonds rather than general obligation bonds. STO bonds are tied directly to the Special Transportation Fund’s revenue and have a higher rating than Connecticut’s GO bonds.
Connecticut currently has $4.8 billion in outstanding special obligation bonds as opposed to $14.3 billion in outstanding general obligation bonds. Total bonded debt for the state is over $23 billion.
The rapidly increasing cost of debt for past projects, which will grow by more than $200 million by 2022, is one of the primary reasons the STF is in the red, coupled with lower revenue from the gas tax and the state repeatedly raiding the STF to cover state deficits.
The cost of servicing the transportation debt means Connecticut can’t afford to bond for all the state projects it had planned, although projects with federal funding are continuing forward.
The special tax obligation bonds are rated AA+ with a stable outlook, while Connecticut’s general obligation bonds are rated AA- with a negative outlook.
According to the bond covenant outlined in the report, Connecticut agrees to maintain twice the cost of debt service on the tax obligation bonds, something that could prove difficult due to declining revenues in recent years.
Malloy has used the trouble with the Special Transportation Fund to call for increased revenue for transportation projects and to create a lockbox on the fund to prevent future legislatures and governors from using STF money to balance budgets.
Ideas have been floated from installing congestion tolling on Connecticut’s highways to increasing the state gasoline tax to better fund transportation projects.
Malloy also said that bus and train fares will likely increase and services be cut to in order to deal with the transportation funding shortfall.