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May 27, 2020

CT heads to Wall Street to jump-start its construction industry

The New York Stock Exchange.
By Keith Phaneuf, CT Mirror

Connecticut is taking a big step toward re-energizing its construction economy, seeking nearly $1.4 billion in financing from a Wall Street that appears anxious to deal.

Treasurer Shawn T. Wooden launched an $850 million bond sale last week to bolster Connecticut’s transportation program, and this week plans to secure another $500 million in financing for various other capital projects and state initiatives.

Meanwhile, the four Wall Street credit rating agencies generally praised the state’s fiscal preparedness leading into the pandemic, though long-term fiscal challenges still loom large.

“This provides us with a year of stability and that is very important right now for the construction industry in Connecticut,” said Don Shubert, president of the Connecticut Construction Industry Association.

The state lost about 3,400 construction jobs in 2019. And while the state Department of Transportation has made work-at-home adjustments to weather the pandemic storm and keep projects moving forward, Shubert said, many other states have scaled back capital programs considerably as they’ve struggled to secure financing.

The transportation bonds will finance upgrades to the Gold Star Memorial Bridge on Interstate 95 in New London, the “Mixmaster” junction of I-84 and Route 8 in Waterbury, the interchange of I-91 and Route 15 in Wethersfield and East Hartford, and the New Haven Rail Yard master complex.

Bonding also will support replacement of the Walk Bridge in Norwalk and a portion of Connecticut’s rail fleet.

“Given the effects of the COVID-19 on our economy, maintaining our credit ratings and outlooks is an important independent assessment of Connecticut’s fiscal stability,” Wooden said. “What matters most is that maintaining our credit standing allows us to continue to access funding for strategic investments for our state at attractive interest rates, saving taxpayers’ money.”

Wooden projects the interest rate on the transportation bonds, which are being financed over 20 years, is 2.97%.

Wall Street, in general, took a positive assessment of Connecticut’s readiness to move beyond the pandemic — at least relative to that of most other states.

“Connecticut has a diverse and mature economic base anchored by a large finance sector and important manufacturing and education and health sectors,” Fitch Ratings Service wrote. “The state is the wealthiest in the U.S. as measured by per capita personal income.”

The state’s position also is strengthened by a $2.5 billion emergency budget reserve, various mechanisms in law to limit spending, “and a willingness to raise revenues” when necessary, Fitch analysts added.

“Connecticut enters the current recession in a significantly better position than in the past,” S&P Global wrote in its assessment. While the current rainy day fund equals about 13% of annual operating costs, Connecticut had enough in the bank just three years ago to cover only 1%.

Fitch, S&P and the other two ratings agencies — Moody’s Investors Service and Kroll Bond Rating Agency — each offer a 10-tier system for ranking their top, “investment grade” bonds.

Ratings agencies generally place Connecticut in the middle of their investment grade rankings, though Kroll assigned the state a AA+ mark — its second-highest grade — for its transportation bonds.

Wall Street is worried about CT’s long-term fiscal issues
Despite its great wealth, Connecticut also has significant budgetary and economic challenges and the rating agencies noted this.

Connecticut struggled over the past decade with a very sluggish recovery from the last recession, and Moody’s analysts said their grade “reflects a lagging economy that is highly dependent on volatile revenue sources and recent consecutive years of population loss.”

Equally concerning to Wall Street, simply put, is that Connecticut carries a lot of debt.

With more than $58 billion in unfunded pension and retirement healthcare liabilities — problems amassed over eight decades — Connecticut owes far more in this area, per person, the nearly all other states.

And when it comes to bonded debt per capita, Connecticut also is among the national leaders.

S&P Global was particularly cautious in its outlook for the state budget’s Special Transportation Fund [STF,] which plays a crucial role in the rebuilding of Connecticut’s aging highways, bridges and rail lines.

The STF covers the payments each year on the state’s transportation bonding debt. By borrowing and spending those funds, Connecticut then qualifies for $700 million per year in federal transportation grants.

But before they offer low interest rates, Wall Street investors want to see twice as much revenue flowing into the STF as debt payments going out — for the current year and for four years into the future.

Even before the pandemic, the transportation fund was in trouble. Lamont could not convince legislators to approve tolls to bolster revenues.

Despite reaffirming Connecticut’s bond rating, S&P Global analysts were skeptical STF’s revenues would remain adequate, warning the state’s projections “may prove somewhat optimistic.”

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