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Katie Roy Testifies Before Finance, Revenue and Bonding Committee Regarding of H.B. 5590

Testimony Regarding H.B. 5590, An Act Concerning Bond Covenants and the Bond Issuance Cap

Katie Roy, Director & Founder
Finance, Revenue and Bonding Committee
Monday, April 2, 2018

Chairmen Fonfara, Frantz, and Rojas, Ranking Member Davis, and distinguished members of the Finance, Revenue and Bonding Committee:

Thank you for the opportunity to provide testimony regarding H.B. 5590 and its delay of including covenants in bonds issued by the State of Connecticut, which would bind the General Assembly to the spending and bond issuance caps that were passed as part of the bipartisan biennial budget in October.

My name is Katie Roy and I am the director and founder of the Connecticut School Finance Project, a nonpartisan, nonprofit policy organization based in New Haven. In addition to our work on education funding, our organization recently expanded its work to include examining Connecticut’s overall fiscal and economic health.

As each member of this committee knows, Connecticut faces a number of significant fiscal challenges that will likely pose problems to the State’s financial and economic health for decades.

Instituting fiscal controls designed to stabilize and strengthen Connecticut’s financial and economic outlook can be a positive step for our state, and the legislature should be commended for looking for ways to work toward a more stable and financially realistic state budget.

However, any fiscal controls Connecticut enacts must be examined thoroughly and include mechanisms that allow the General Assembly to respond appropriately, including potentially altering the controls, when recessions and/or other financially impactful and unanticipated events require swift action.

By delaying, until July 1, 2019, the inclusion of covenants in bonds issued by the State of Connecticut that would bind the General Assembly to the previously passed spending and bond issuance caps, H.B. 5590 allows for further examination of 1) the use of such bond covenants to bind the General Assembly to the spending and bond issuance caps and 2) potential alternatives that can achieve the same fiscal control desired by the General Assembly while not tying the body’s hands in a potentially problematic  manner.

Unless altered, the bond covenants at issue would be included as a part of all state bonds issued between May 15, 2018 and July 1, 2020 and would prevent future legislatures and administrations from altering the spending and bonding caps until July 1, 2028, regardless of the state’s fiscal situation, unless the governor declares an emergency or the existence of extraordinary circumstances, and at least three-fifths of the House and Senate vote to break the bond covenants.

However, prior to its inclusion in the bipartisan biennial budget, the use of bond covenants for this purpose was not the subject of a public hearing nor was any public study conducted examining Connecticut’s use of such a fiscal control and how it may affect other government functions and obligations. Delaying the implementation of the bond covenants for the spending and bonding caps for one year allows time for such a study to take place and for the General Assembly, and the people of Connecticut, to properly debate and vet this fiscal control.

Delaying the implementation of these bond covenants to allow for further study is not a partisan issue or a matter of “kicking the can down the road.” It is a matter of good governance and fiscal responsibility.

As Kim Rueben of the Urban Institute and Brookings Institution’s Tax Policy Center wrote recently, “Tying the state’s credit rating and solvency to a guarantee not to change fiscal rules that might need amending seems foolish. It’s not so much tying one’s hands as tying one’s hands are jumping off a cliff without knowing whether deep water or rocks lie below.”

Additionally, leaders from both parties, the governor’s administration, the state comptroller, and the Commission on Fiscal Stability and Economic Growth have all called for the implementation of these bond covenants to be delayed and studied further.

We join these leaders and entities in calling for a delay in implementing these bond covenants, and ask the Committee to support H.B. 5590 so the bond covenants for the spending and bonding caps may be further examined and properly debated.

Thank you again for allowing me the opportunity to provide written testimony regarding H.B. 5590, and please feel free to contact me should you have any questions.

Sincerely,

Katie Roy
Director & Founder
Connecticut School Finance Project