OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 (860) 240-0200

http: //www. cga. ct. gov/ofa

sSB-415

AN ACT CONCERNING THE OPERATIONS OF THE DEPARTMENT OF ENERGY AND ENVIRONMENTAL PROTECTION, THE ESTABLISHMENT OF A COMMERCIAL PROPERTY ASSESSED CLEAN ENERGY PROGRAM, WATER CONSERVATION AND THE OPERATIONS OF THE CLEAN ENERGY FINANCE AND INVESTMENT AUTHORITY.

OFA Fiscal Note

State Impact:

Agency Affected

Fund-Effect

Clean Energy Finance and Investment Authority

GF – See Below

Note: GF=General Fund

Municipal Impact: None

Explanation

The bill renames the Clean Energy Finance and Investment Authority to the Connecticut Clean Energy Authority (CCEA) and allows it to issue revenue bonds. This will not result in a state or municipal liability for the bonds because the language specifies that the debt is not the responsibility of the State of Connecticut or any municipality.

The bill also permits CCEA to issue up to $100 million in bonds backed by a special capital reserve fund (SCRF) account. If the CCEA was unable to maintain the SCRF at its minimum capital reserve level, the bill requires that the SCRF be refilled from General Fund resources. This would result in: (1) a negative impact on General Fund cash flow and (2) a loss of short-term interest on the amount transferred to the SCRF. The SCRF level for $100 million is the lesser of: (1) one year's principal and interest on the bonds or (2) ten percent of the issue ($10 million).

The table below shows the amount of outstanding debt backed by SCRF accounts as of February 1, 2011. The minimum capital reserve is: (1) the amount that must be maintained in the SCRF and (2) the maximum annual General Fund liability for the SCRF if no funds were available from the issuing authority to pay debt service.

SCRF bonds are a contingent liability of the state, which do not count against the state's statutory limit on General Obligation (GO) bonds in CGS Sec. 3-211.

Amount of Debt Backed by Special Capital Reserve Funds and Minimum Capital Reserve Requirements as of February 1, 2011
($-millions)

Issuing Authority

Outstanding SCRF-backed

Debt

Minimum Capital Reserve Required for SCRF

Connecticut Development Authority (CDA)

4. 6

1. 5

Connecticut Health and Educational Facilities Authority (CHEFA)

265. 3

28. 4

Connecticut Higher Education Supplemental Loan Authority (CHESLA)

189. 2

19. 4

Connecticut Housing Finance Authority (CHFA)

3795. 5

286. 2

Connecticut Resource Recovery Authority (CRRA)

35. 8

10. 9

City of Waterbury Special Capital Reserve Fund

35. 3

6. 8

The bill allows CCEA to qualify for an allocation of private activity bonds, which has no state fiscal impact because these bonds are not a financial obligation of the state.

The bill expands the state treasurer's procedures for approval of bonds backed by SCRFs to apply to bonds issued by CCEA. This provision is conforming and has no fiscal impact.

Lastly, the bill transfers a number of the Department of Energy and Environmental Protection's powers and responsibilities to PURA. These provisions have no fiscal impact.

Background

The state permits quasi-public authorities to issue SCRF-backed bonds because the SCRF provides a higher level of repayment security, which results in a lower rate of interest on the bond issuance.

A SCRF is a debt service reserve fund that is set up at the time the bonds are issued, in an amount equal to the lesser of either one year's principal and interest on the bonds or ten percent of the issue. If the borrower makes the scheduled debt service payments, the interest earnings on the reserve fund will pay the interest on the bonds that created it and the principal will go to retire the final maturity of the bond issue. If the borrower is unable to pay all or part of the scheduled debt service payments, the reserve may be drawn upon to pay debt service. The reserve provides up to a year's adjustment time to deal with a revenue shortfall. When the SCRF has been drawn down in part or completely, a draw on the General Fund is authorized and the reserve is fully restored. The draw on the General Fund is deemed to be appropriated and is not subject to the constitutional or statutory appropriations cap. All that is required is a certification by the issuing authority of the amount required. If draws on a SCRF continue, the annual draws on the General Fund required to refill it also continue.

The Out Years

The annualized ongoing fiscal impact identified above would continue into the future subject to inflation.

1 CGS Sec. 3-21 imposes a ceiling on the amount of General Fund-supported debt that the Legislature may authorize that is equal to 1. 6 times net General Fund tax receipts projected by the Finance, Revenue and Bonding Committee for the fiscal year in which the bonds are authorized.