OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 (860) 240-0200

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

EMERGENCY CERTIFICATION

SB-503

AN ACT AUTHORIZING AND ADJUSTING BONDS OF THE STATE FOR CAPITAL IMPROVEMENTS, TRANSPORTATION AND OTHER PURPOSES AND AUTHORIZING STATE GRANT COMMITMENTS FOR SCHOOL BUILDING PROJECTS.

OFA Fiscal Note

State Impact:

Agency Affected

Fund-Effect

FY 17 $

FY 18 $

Treasurer, Debt Serv.

GF - Savings

See Below

See Below

Treasurer, Debt Serv.

TF - Cost

See Below

See Below

Note: GF=General Fund; TF=Transportation Fund

Municipal Impact:

Municipalities

Effect

FY 17 $

FY 18 $

Various Municipalities

Revenue Loss

See Below

See Below

Various Municipalities

Revenue Gain

See Below

See Below

Explanation

The bill adjusts certain existing bond authorizations, and also authorizes new bonds, for purposes supported by both General Obligation (GO) and Special Tax Obligation (STO) bonds. The bill also approves state grant commitments for school construction projects.

Bond Authorizations and Cancellations

As further detailed in Table 1 below, GO authorization levels are reduced by a net amount of approximately $642.3 million. Special Tax Obligation authorization levels are increased by a net amount of approximately $68.6 million as a result of the bill.

Table 1: Increases and Reductions to GO and STO

Bond Authorizations (in millions)

Description

Amount $

General Obligation (GO) Bonds

Authorizations

358,606,676

Reductions

(1,000,922,420)

TOTAL GO BONDS

(642,315,744)

 

Special Tax Obligation (STO) Bonds

Authorizations

70,375,000

Reductions

(1,730,000)

TOTAL STO BONDS

68,645,000

GO Bond Analysis

The net reduction of approximately $642.3 million to GO authorizations represents a reduction of approximately 25% of the unallocated GO authorization balance of $2.6 billion after the March 2016 State Bond Commission meeting.

An issuance of 20-year bonds, at current market conditions, for the amount of the net reduction in GO authorizations would yield a cumulative debt service cost of approximately $945.8 million, including $303.5 million in interest. The actual level and timing of savings to the Treasurer's Debt Service account by avoiding such issuance is dependent upon the timing of avoided or reduced bond issuances. However, given that approximately $6 billion in legislatively authorized bonds remain unissued, any savings to the Debt Service account are likely to be minimal in the short term.

STO Bond Analysis

The net increase in STO authorizations of approximately $68.6 million represents an increase of 24% over the current unallocated balance of approximately $288.7 million after the March 2016 State Bond Commission meeting.

An issuance of 20-year bonds, at current market conditions, for the amount of the net increase in STO authorizations would yield a cumulative debt service cost of approximately $101 million, including approximately $32.4 million in interest. However, the level and timing of such cost to the Treasurer's Debt Service account is dependent upon the timing of actual bond issuance.

School Construction Analysis

The bill approves a total of more than $381.6 million in state grant commitments for school construction projects, including: (1) $270.8 million for 17 new projects on the education commissioner's project priority list, (2) $16.2 million for seven previously-authorized projects that have changed substantially (more than 10%) in cost or scope and (3) more than $94.6 million for various notwithstanding provisions.

The grants-in-aid will be financed through the issuance of more than $381.6 million in GO bonds, which will be authorized in future fiscal years. The projected debt service cost to the General Fund to issue more than $381.6 million at a 4.5% interest rate for a 20-year term is more than $561.9 million, which is composed of more than $180.3 million in interest and more than $381.6 million in principal. The bill does not authorize new GO bonds for these school construction projects at this time.

Additionally the bill forgives the repayment by local and regional school districts to the state of a total of $7.9 million through the inclusion of various notwithstanding sections.

Section 262 of the bill provides that the Commissioner of Administrative Services shall add each school building project that was on the listing of eligible school building projects submitted on or before December 15, 2015, and was not authorized by the General Assembly during the 2016 regular session, to the list of eligible school building projects submitted on or before December 15, 2016. This results in no fiscal impact as such projects would still require legislative approval.

Section 310 allows schools that have received a school construction grant over the past twenty-five years (all local and regional school districts), to delay the implementation of the revised high school graduation requirements until FY 19. This will result in a significant cost savings for local and regional school districts. It is anticipated that local and regional school districts would have incurred costs ranging from $14 million to $21 million (statewide) to implement the expanded high school graduation requirements. Additionally, the delay will result in a cost savings to the State Department of Education (SDE). It is anticipated that SDE would have incurred costs of up to $3 million to develop the model curriculum and prepare local and regional school districts for the change in curriculum.

Section 322 results in a potential revenue gain to the state as it would require independent institutions of higher education that operate magnet schools which received state school construction funding to potentially refund the unamortized balance of the state grant. This would be required should the Commissioner of Education determine that the private use of the building exceeds the in-kind or supplemental benefit to magnet school students.

Section 323 results in a potential significant cost to the state and in turn a potential significant revenue gain to local and regional school districts that expanded an existing, or created a new regional school district. The cost is associated with utilizing the school construction reimbursement rate of the poorest member school district rather than the weighted average of all the member school districts.

The Out Years

As discussed above, the fiscal impact to out years is dependent upon the timing of bond issuances by the Treasurer.

The preceding Fiscal Impact statement is prepared for the benefit of the members of the General Assembly, solely for the purposes of information, summarization and explanation and does not represent the intent of the General Assembly or either chamber thereof for any purpose. In general, fiscal impacts are based upon a variety of informational sources, including the analyst's professional knowledge. Whenever applicable, agency data is consulted as part of the analysis, however final products do not necessarily reflect an assessment from any specific department.