State of Connecticut

Notes to the Financial Statements

June 30, 2011

Note 18 Long-Term Notes and Bonded Debt

a. Economic Recovery Notes
Public Act 09-2 authorized the issuance of $915.8 million of General Obligation Economic Recovery Notes in December, 2009. The notes funded a major part of the deficit in the State's general fund as reported by the Comptroller to the Governor for the fiscal year ended June 30, 2009.

Economic recovery notes outstanding at June 30, 2011 were $915.8 million. The notes mature on various dates through 2016 and bear interest rates from 2.0% to 5.0%.

Future amounts needed to pay principal and interest on economic recovery notes outstanding at June 30, 2011, were as follows:

Year Ending
June 30, Principal Interest Total
2012 $167,860 $40,568 $208,428
2013 174,570 33,854 208,424
2014 182,705 25,724 208,429
2015 191,280 17,146 208,426
2016 199,380 9,044 208,424
Total $915,795 $126,336 $1,042,131

b. Primary Government - Governmental Activities
General Obligation Bonds
General Obligation bonds are those bonds that are paid out of the revenues of the General Fund and that are supported by the full faith and credit of the State. General obligation bonds outstanding and bonds authorized but unissued at June 30, 2011, were as follows (amounts in thousands):

Final Original Authorized
Maturity Interest Amount But
Purpose of Bonds Dates Rates Outstanding Unissued
Capital Improvements 2011-2030 2.00-6.414% $1,924,881 $526,926
School Construction 2011-2029 2.00-6.777% 4,485,842 63,901
Municipal & Other
Grants & Loans 2011-2030 1.00-6.701% 739,204 371,228
Housing Assistance 2012-2031 0.38-5.460% 169,130 36,906
Elimination of Water
Pollution 2011-2028 1.00-6.034% 259,225 569,353
General Obligation
Refunding 2011-2023 2.00-6.00% 3,710,302 -
Pension Obligation 2014-2032 4.20-6.27% 2,276,578 -
Miscellaneous 2011-2038 3.00-6.75% 122,505 545,246
13,687,667 $2,113,560
Accretion-Various Capital Appreciation Bonds 106,673
Total $13,794,340

Future amounts needed to pay principal and interest on general obligation bonds outstanding at June 30, 2011, were as follows (amounts in thousands):

Year Ending
June 30, Principal Interest Total
2012 $1,010,624 $687,972 $1,698,596
2013 937,636 624,949 1,562,585
2014 907,333 569,561 1,476,894
2015 883,139 517,995 1,401,134
2016 879,755 477,420 1,357,175
2017-2021 3,555,128 1,848,534 5,403,662
2022-2026 2,813,027 1,383,070 4,196,097
2027-2031 2,326,765 471,167 2,797,932
2032-2036 369,745 23,723 393,468
2037-2041 4,515 335 4,850
Total $13,687,667 $6,604,726 $20,292,393

Transportation Related Bonds
Transportation related bonds include special tax obligation bonds and general obligation bonds that are paid out of revenues pledged or earned in the Transportation Fund. The revenue pledged or earned in the Transportation Fund to pay special tax obligation bonds is transferred to the Debt Service Fund for retirement of principal and interest.

Transportation related bonds outstanding and bonds authorized but unissued at June 30, 2011, were as follows (amounts in thousands):

Final Original Authorized
Maturity Interest Amount But
Purpose of Bonds Dates Rates Outstanding Unissued
Infrastructure
Improvements
2011-2030 2.00-6.500% $3,357,595 $2,099,925
3,357,595 $2,099,925
Accretion-Various Capital Appreciation Bonds -
Total $3,357,595

Future amounts required to pay principal and interest on transportation related bonds outstanding at June 30, 2011, were as follows (amounts in thousands):

Year Ending
June 30, Principal Interest Total
2012 $274,275 $156,551 $430,826
2013 309,825 143,309 453,134
2014 262,365 130,555 392,920
2015 227,070 119,429 346,499
2016 209,740 109,694 319,434
2017-2021 910,055 411,880 1,321,935
2022-2026 708,580 210,361 918,941
2027-2031 455,685 53,696 509,381
$3,357,595 $1,335,475 $4,693,070

Variable-Rate Demand Bonds
As of June 30, 2011, variable-rate demand bonds included in bonded debt were as follows (amounts in thousands).

Outstanding Issuance Maturity
Bond Type Principal Year Year
General Obligation $30,000 1997 2014
General Obligation 100,000 2001 2021
General Obligation 280,000 2005 2023
Total $410,000

The State entered into various remarketing and standby bond purchase agreements with certain brokerage firms and banks upon the issuance of the bonds.
The bonds were issued bearing a weekly interest rate, which is determined by the State's remarketing agents. The State has the option of changing at any time the weekly interest rate on the bonds to another interest rate, such as a flexible rate or a daily rate. Bonds bearing interest at the weekly rate are subject to purchase at the option of the bondholder at a purchase price equal to principal plus accrued interest, if any, on a minimum seven days' notice of tender to the State's agent. In addition, the bonds are subject to mandatory purchase upon (1) conversion from the weekly interest rate to another interest rate and (2) substitution or expiration of the standby bond purchase agreements. The State's remarketing agent is responsible for using its best efforts to remarket bonds properly tendered for purchase by bondholders from time to time. The State is required to pay the remarketing agents a quarterly fee of .05 percent per annum of the outstanding principal amount of the bonds.

The standby bond purchase agreements require the banks to purchase any unremarketed bonds bearing the weekly interest rate for a price not to exceed the amount of bond principal and accrued interest, if any. The State is required to pay the banks a quarterly fee ranging from .11 percent to .15 percent per annum of the outstanding principal amount of the bonds plus interest. These fees would be increased if the credit rating for the bond insurers were to be downgraded, suspended, or withdrawn. The standby bond purchase agreements expire as follows:
1997 GO expires in the year 2014,
2001 GO expires in the year 2015, and
2005 GO expires in the year 2015.

These agreements could be terminated at an earlier date if certain termination events described in the agreements were to occur.

c. Primary Government - Business-Type Activities
Revenue Bonds
Revenue bonds are those bonds that are paid out of resources pledged in the enterprise funds and component units.

Enterprise funds' revenue bonds outstanding at June 30,
2011, were as follows (amounts in thousands):

Final Original Amount
Maturity Interest Outstanding
Funds Dates Rates (000's)
Uconn 2012-2033 2.0-6.0% $162,243
State Universities 2012-2036 2-6.0% 284,530
Clean Water 2012-2028 2-5.% 839,018
Drinking Water 2012-2027 2-5.% 60,087
Bradley International Airport 2012-2033 [1] 169,090
Bradley Parking Garage 2012-2024 6.125-6.6% 41,250
Total Revenue Bonds 1,556,218
Plus/(Less) premiums, discounts
and deferred amounts:
Uconn (1,621)
State Universities 2,386
Clean Water 49,714
Bradley International Airport (2,699)
Other 3,162
Revenue Bonds, net $1,607,160
[1] variable percent of one month LIBOR

The University of Connecticut has issued student fee revenue bonds to finance the costs of buildings, improvements and renovations to certain revenue-generating capital projects. Revenues used for payments on the bonds are derived from various fees charged to students.

The Connecticut State University System has issued revenue bonds that finance the costs of auxiliary enterprise buildings, improvements and renovations to certain student housing related facilities. Revenues used for payments on the bonds are derived from various fees charged to students.

Bradley International Airport periodically issues revenue bonds to finance the cost of improvements to the airport. These bonds are secured by and are payable solely from revenues generated by the airport and other receipts, funds or monies pledged in the bond indenture. As of June 30, 2011 the following bonds were outstanding:

  1. 2001 Bradley International Airport Refunding Bonds in the amount of $16.7 million.
  2. 2011 Bradley International Airport Refunding Bonds in the amount of $152.4 million.

In 1994, the State of Connecticut began issuing Clean Water Fund revenue bonds. The proceeds of these bonds are to be used to provide funds to make loans to Connecticut municipalities for use in connection with the financing or refinancing of wastewater treatment projects. Details on these agreements are disclosed under the separately issued audited financial statements of the fund.

In 2000, Bradley Parking Garage bonds were issued in the amount of $53.8 million to build a parking garage at the airport.

Future amounts needed to pay principal and interest on revenue bonds outstanding at June 30, 2011, were as follows (amounts in thousands):

Year Ending
June 30, Principal Interest Total
2012 $114,397 $66,889 $181,286
2013 115,433 63,755 179,188
2014 105,023 58,922 163,945
2015 110,008 54,293 164,301
2016 110,729 49,308 160,037
2017-2021 433,483 184,104 617,587
2022-2026 369,495 87,111 456,606
2027-2031 159,210 23,131 182,341
2032-2036 38,440 1,817 40,257
Total $1,556,218 $589,330 $2,145,548

d. Component Units
Component units' revenue bonds outstanding at June 30, 2011, were as follows (amounts in thousands):

Final Amount
Maturity Interest Outstanding
Component Unit Date Rates (000's)
CT Development Authority 2012-2020 4.40-5.250% $15,800
CT Housing Finance Authority 2012-2049 0.40-6.625% 4,134,969
CT Resources Recovery Authority 2012-2016 5.125-5.50% 8,050
CT Higher Education
Supplemental Loan Authority
2012-2028 1.70-6.00% 184,250
Capital City Economic
Development Authority
2012-2033 2.50-7.00% 100,155
UConn Foundation 2012-2029 3.875-5.00% 6,505
Total Revenue Bonds 4,449,729
Plus/(Less) premiums, discounts, and deferred amounts:
CDA 6
CRRA (10)
CHESLA 770
CCEDA (326)
Revenue Bonds, net $4,450,169

Revenue bonds issued by the component units do not constitute a liability or debt of the State. The State is only contingently liable for those bonds as discussed below.

Connecticut Development Authority's revenue bonds are issued to finance such projects as the acquisition of land or the construction of buildings, and the purchase and installation of machinery, equipment, and pollution control facilities. The Authority finances these projects through its Self-Sustaining Bond Program and Umbrella Program. As of June 30, 2011 no bonds were outstanding under the Umbrella Program. Bonds issued under the Self-Sustaining Bond Program are discussed in the no-commitment debt section of this note. In addition, the Authority had $15.8 million in general obligation bonds outstanding at year-end. These bonds were issued to finance the lease of an entertainment/sports facility and the purchase of a hockey team.

Connecticut Housing Finance Authority's revenue bonds are issued to finance the purchase, development and construction of housing for low and moderate-income families and persons throughout the State. The Authority has issued bonds under a bond resolution dated 9/27/72 and an indenture dated 9/25/95. As of December 31, 2010, bonds outstanding under the bond resolution and the indenture were $4,068.6 million and $66.4 million, respectively. According to the bond resolution, the following assets of the Authority are pledged for the payment of the bond principal and interest (1) the proceeds from the sale of bonds, (2) all mortgage repayments with respect to long-term mortgage and construction loans financed from the Authority's general fund, and (3) all monies and securities of the Authority's general and capital reserve funds. The capital reserve fund is required to be maintained at an amount at least equal to the amount of principal, sinking fund installments, and interest maturing and becoming due in the next succeeding calendar year ($292.3 million at 12/31/10) on all outstanding bonds. As of December 31, 2010, the Authority has entered into interest rate swap agreements for $970.2 million of its variable rate bonds. Details on these agreements are disclosed under the separately issued audited financial statements of the Authority.

Connecticut Resources Recovery Authority's revenue bonds are issued to finance the design, development and construction of resources recovery and recycling facilities and landfills throughout the State. These bonds are paid solely from the revenues generated from the operations of the projects and other receipts, accounts and monies pledged in the bond indentures.

Connecticut Higher Education Supplemental Loan Authority's revenue bonds are issued to provide loans to students, their parents, and institutions of higher education to assist in the financing of the cost of higher education. These loans are issued through the Authority's Bond fund. According to the bond resolutions, the Authority internally accounts for each bond issue in separate funds, and additionally, the Bond fund includes individual funds and accounts as defined by each bond resolution. Each Authority has established special capital reserve funds that secure all the outstanding bonds of the Authority at year-end, except as discussed next. These funds are usually maintained at an amount equal to next year's bond debt service requirements. The State may be contingently liable to restore any deficiencies that may exist in the funds in any one year in the event that the Authority is unable to do so. For the Connecticut Resources Recovery Authority, the amount of bonds outstanding at year-end that were secured by the special capital reserve funds was $8.1 million.

The Capital City Economic Development Authority revenue bonds are issued to provide sufficient funds for carrying out its purposes. The bonds are not debt of the State of Connecticut. However, the Authority and the State have entered into a contract for financial assistance, pursuant to which the State will be obligated to pay principal and interest on the bonds in an amount not to exceed $9.0 million in any calendar year. The bonds are secured by energy fees from the central utility plant and by parking fees subject to the Travelers Indemnity Company parking agreement.

Future amounts needed to pay principal and interest on revenue bonds outstanding at June 30, 2011, were as follows amounts in thousands):

Year Ending
June 30, Principal Interest Total
2012 $18,850 $11,409 $30,259
2013 140,900 128,848 269,748
2014 133,582 123,727 257,309
2015 136,662 135,700 272,362
2016 140,498 118,359 258,857
2017-2021 802,782 637,872 1,440,654
2022-2026 815,323 388,058 1,203,381
2027-2031 837,265 254,335 1,091,600
2032-2036 775,355 126,842 902,197
2037-2041 504,305 28,447 532,752
2042-2046 107,535 2,325 109,860
2047-2051 7,795 28,398 36,193
2052-2056 805 51 856
2057-2061 28,072 - 28,072
Total $4,449,729 $1,984,371 $6,434,100

No-commitment debt
Under the Self-Sustaining Bond program, the Connecticut Development Authority issues revenue bonds to finance such projects as described previously in the component unit section of this note. These bonds are paid solely from payments received from participating companies (or from proceeds of the sale of the specific projects in the event of default) and do not constitute a debt or liability of the Authority or the State. Thus, the balances are not included in the Authority's financial statements. Total bonds outstanding for the year ended June 30, 2011 were $1,034.8 million.

The Connecticut Health and Educational Facilities Authority has issued special obligation bonds for which the principal and interest are payable solely from the revenues of the institutions. Starting in 1999, the Authority elected to remove these bonds and related restricted assets from its financial statements, except for restricted assets for which the Authority has a fiduciary responsibility. Total special obligation bonds outstanding at June 30, 2011, were $7,570.5 million, of which $291.6 million was secured by special capital reserve funds.

The Connecticut Resources Recovery Authority has issued several bonds to fund the construction of waste processing facilities by independent contractors/operators. These bonds are payable from a pledge of revenues derived primarily under lease or loan arrangements between the Authority and the operators. Letters of credit secure some of these bonds. The Authority does not become involved in the construction activities or the repayment of the debt (other than the portion allocable to Authority purposes). In the event of a default, neither the authority nor the State guarantees payment of the debt, except for the State contingent liability discussed below. Thus, the assets and liabilities that relate to these bond issues are not included in the Authority's financial statements. The amount of these bonds outstanding at June 30, 2011 was $71.3 million.

The State may be contingently liable for those bonds that are secured by special capital reserve funds as discussed previously in this section.

e. Debt Refundings
During the year, the State issued $184.7 million of general obligation and special tax obligation refunding bonds with an average interest rate of 4.42 percent to advance refund $187.2 million of general obligation and special tax obligation bonds with an average interest rate of 4.85 percent. The reacquisition price exceeded the carrying amount of the old debt by $18.5 million. This amount is being netted against the new debt and amortized over the life of the new or old debt, whichever is shorter.

The State advanced refunded these bonds to reduce its total debt service payments over the next eleven years by $24.1 million and to obtain an economic gain (difference between the present values of the debt service payments of the old and new bonds) of $26.5 million. As of June 30, 2011, $1,732.8 million of outstanding general obligation, special tax obligation, and revenue bonds had been advanced refunded and are, accordingly, considered defeased.