State Treasurer Denise Nappier wants to shake-up the way Connecticut pays off its debt.? Her proposal follows a sharp disagreement with Governor Dannel Malloy’s budget chief over the amount that should be set aside to service state debt in the upcoming two-year budget.
Nappier has come up with what she sees as a compromise. She wants to use bond premiums to help fund new capital projects. That would reduce the total amount of bonds that have to be issued.
Bond premiums are upfront payments made by investors who want a higher interest rate on a given bond. At the moment, they are used to pay off interest on the state's debt. But if they are instead put towards paying for planned capital projects, Nappier told the legislature’s bonding committee, that could reduce the state’s outstanding obligations.
"This proposal represents a compelling opportunity to more effectively manage our state's debt, that will ultimately help to protect and strengthen the state's credit-worthiness," Nappier told legislators.
Nappier suggested a similar idea in 2005. She said that if her proposal had been taken up then, the state would now owe $420 million less in debt.
Nappier got an enthusiastic hearing from some members of the committee. Republican Vincent Candelora saw the proposal as creating a sound fiscal budgeting tool for the legislature, and told Nappier, "ideally as a legislature, we would implement this policy yesterday."
But not everyone agrees. In written testimony submitted to the committee, Ben Barnes, Secretary of the Office of Policy and Management said, "over the course of the biennium, this bill as currently drafted would increase debt service appropriations by hundreds of millions of dollars compared to the Governor's proposed budget."
Nappier concedes that $178 million would have to be added back to governor's budget, but she said that while the current system may create upfront savings, it means paying higher debt service in the long term.
