Though Connecticut’s massive pension debt dominates the headlines, its tab for school construction, transportation work and other bonded initiatives also ranks among the heaviest burdens in the nation.
Connecticut’s bonded debt in 2022 ranked first among states at $7,988 per person – more than four times the national average of $1,808 – according to a recent report from the General Assembly’s nonpartisan Office of Legislative Analysis.
Connecticut does pay a greater share of municipal school construction costs than do many other states, which shift the burden onto county or local governments.
“We enjoy a high quality of life in this state and that does require continued capital investments for a variety of public facilities and infrastructure,” Gov. Ned Lamont’s budget spokesman, Chris Collibee, said this week.
While state government in Connecticut reimburses some communities as much as 80% of school construction costs, Collibee noted the Community Investment Fund and Urban Act program also pump huge state dollars into local and regional economic development efforts.
But he added that report still “illustrates the need for continued adherence to sound fiscal management, paying down our debts to reduce burdens on our taxpayers, and making our state more affordable for residents and businesses.”
Lamont challenged legislators when he first took office in 2019 to pare back borrowing and accept a “debt diet.”
But the governor received considerable pushback from his fellow Democrats in the General Assembly. Given the spending cap and other fiscal controls, some lawmakers say borrowing is essential to complement regular budget spending in key areas such as education and job development, particularly in poor urban centers.
But borrowing had been even greater in the mid-2010s, when state officials struggled with repeated budget deficits and interest rates were lower.
According to state Treasurer Erick Russell’s latest monthly report on borrowing, the state expects to sell $2.6 billion in bonds to Wall Street investors this fiscal year to support various initiatives.
Yet Connecticut issued nearly $3.1 billion in bonds in 2015 and almost $3 billion the year after that, according to the treasurer’s reports.
Some officials defend Connecticut’s big credit card balance on the grounds that as one of the richest states in the nation, it can afford to carry more debt than do most other states.
But the OLR analysis found that Connecticut’s debt burden is high regardless of perspective.
Connecticut’s bonded debt in 2022 represented 9.4% of personal income in the state, a ratio topped only by Hawaii at 11.2%.
And as a share of the gross state product, the total value of goods and services produced here, it was 9%, again second only to Hawaii’s 10.1%.
Connecticut did step up efforts to scale back bonded debt recently.
The General Assembly last May adopted a proposal from Lamont and Russell to eliminate a huge chunk of state debt tied to highway, bridge and rail projects.
They specifically dedicated close to $500 million from the Special Transportation Fund’s unspent reserves to retire high-interest-rate bonds — many paying $5 million — ahead of schedule.
The administration estimates the early retirement of this debt would save the state about $60 million annually by 2026 and as much as $75 million by 2028.
But House Minority Leader Vincent J. Candelora, R-North Branford, said this week that Connecticut needs to focus more on reducing its bonded debt.
The GOP leader acknowledged Connecticut does bond for some projects that other states require their municipalities or counties to fund.
But that doesn’t tell the whole story.
Rhode Island, which, like Connecticut, lacks county government, owed $3,103 per person in 2022. That’s less than half of Connecticut’s per capita burden.
Governors and legislatures here have been criticized for years for using borrowing to cover certain non-education municipal grants — which could be paid for in cash through the state budget — and to cover a generous array of annual small projects in legislators’ home districts.
Connecticut for decades also has been using borrowing to make payments on borrowing. It is expected to borrow $80 million in the current, biennial budgeting cycle for this purpose, which is akin to using one credit card to pay off another.
Other debt problems besides bonding
Rather than making a one-time gesture to reduce bonded debt faster than normal, “we want to make it more of a directive,” Candelora said.
An aggressive savings program Connecticut established in 2017 has generated more than $12 billion in state surpluses since then. Roughly one-third of that total has been used to build reserves while the rest has gone to reduce another big debt problem for Connecticut: unfunded pension obligations.
Connecticut entered 2024 with more than $37 billion in unfunded pension obligations and another $17.1 billion owed to its retiree health care program.
The pension debt, a problem that legislatures are projected to struggle with into the 2040s or early 2050s, stems from more than seven decades of inadequate savings between 1939 and 2010. By failing to save properly for pensions, Connecticut also limited investment earnings, forfeiting billions of dollars in potential income.
Similarly, the retiree health care program, which dates to the late 1970s, has suffered from insufficient savings and that continues to do so.
For example, state government and its workers collectively paid $291 million in the 2021-22 fiscal year to put toward the future retiree health care costs of present-day employees.
But the actuaries say the amount that should have been pre-paid in 2022 — if the goal was to leave no expenses for future generations to cover — was $906 million. And because that $615 million differential was left to the future, actuaries also estimate it adds another $516 million in interest costs.
The state also has been taken steps to mitigate some of the retiree health care debt problem.
Concessions plans negotiated with unions in 2009, 2011 and 2017 have increased what both workers and government must save for retiree health care.