Notes to the Financial Statements

June 30, 2013

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, 2013 were $573.4 million. The notes mature on various dates through 2016 and bear interest rates from 2.5% to 5.0%. Future amounts needed to pay principal and interest on economic recovery notes outstanding at June 30, 2013, were as follows (amounts in thousands):

Year Ending
June 30,    Principal    Interest    Total
2014    $182,705    $25,723    $208,428
2015    191,280    17,147    208,427
2016    199,380    9,043    208,423
Total    $573,365    $51,913    $625,278

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, 2013, were as follows (amounts in thousands):

     Final    Original       Authorized
   Maturity    Interest    Amount    But
Purpose of Bonds    Dates    Rates    Outstanding    Unissued
Capital Improvements    2014-2032    1.50-5.632%    $1,970,766    $700,140
School Construction    2014-2033    2.00-5.750%    4,812,690    84,346
Municipal & Other             
Grants & Loans    2014-2032    0.45-6.398%    1,083,784    742,734
Housing Assistance    2014-2031    1.13-5.460%    207,095    150,550
Elimination of Water             
Pollution    2014-2027    3.10-5.09%    206,431    240,208
General Obligation             
Refunding    2014-2025    1.00-5.50%    3,485,486    -
Pension Obligation    2014-2032    4.20-6.27%    2,276,578    -
Miscellaneous    2014-2038    3.00-6.00%    111,520    561,246
         14,154,350    $2,479,224
Accretion-Various Capital Appreciation Bonds          73,878    
      Total    $14,228,228    

Future amounts needed to pay principal and interest on general obligation bonds outstanding at June 30, 2013, were as follows (amounts in thousands):

Year Ending          
June 30,    Principal    Interest    Total
2014    $1,032,033    $664,007    $1,696,040
2015    1,006,493    610,791    1,617,284
2016    974,244    567,993    1,542,237
2017    929,638    526,311    1,455,949
2018    922,387    487,359    1,409,746
2019-2023    3,978,578    1,957,956    5,936,534
2024-2028    3,138,612    1,194,584    4,333,196
2029-2033    2,161,760    278,337    2,440,097
2034-2038    9,440    1,587    11,027
2039-2043    1,165    35    1,200
Total    $14,154,350    $6,288,960    $20,443,310

Transportation Related Bonds
Transportation related bonds include special tax 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, 2013, were as follows (amounts in thousands):

     Final   Original      Authorized
   Maturity   Interest    Amount    But
Purpose of Bonds    Dates    Rates   Outstanding    Unissued
Infrastructure             
Improvements    2014-2033    2.00-5.740%   $3,461,875   $2,744,521
         3,461,875   $2,744,521
Accretion-Various Capital Appreciation Bonds       -  
      Total   $3,461,875    

Future amounts required to pay principal and interest on transportation related bonds outstanding at June 30, 2013, were as follows (amounts in thousands):

Year Ending          
June 30,    Principal    Interest    Total
2014    $290,615    $162,703    $453,318
2015    251,275    150,268    401,543
2016    227,705    139,468    367,173
2017    210,070    129,253    339,323
2018    212,925    119,248    332,173
2019-2023    994,585    448,739    1,443,324
2024-2028    833,590    222,341    1,055,931
2029-2033    441,110    42,233    483,343
   $3,461,875    $1,414,253    $4,876,128

Variable-Rate Demand Bonds
As of June 30, 2013, variable-rate demand bonds included in bonded debt were as follows (amounts in thousands).

Bond Type     Outstanding 
Principal  
Issuance
Year  
Maturity
 Year
General Obligation      $10,000   1997    2014
   Total  $10,000     

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 1997 GO series standby bond purchase agreement expires in the year 2014.

The agreement 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, 2013, were as follows (amounts in thousands):

   Final    Original    Amount
   Maturity    Interest    Outstanding
Funds    Dates    Rates    (000's)
Uconn    2013-2030    1.5-5.5%    $131,465
State Universities    2013-2017    2.0-6.0%    281,893
Clean Water    2013-2031    1.0-5.0%    743,360
Drinking Water    2013-2028    2.0-5.0.%    41,030
Bradley International Airport    2013-2033    [1]    141,555
  2013-2024    6.5-6.6%    37,395
Total Revenue Bonds       1,376,698
Plus/(Less) premiums, discounts     
and deferred amounts:     
Uconn       15,994
State Universities       5,771
Clean Water        67,066
Bradley International Airport        (2,244)
Other      2,217
Revenue Bonds, net        $1,465,502
[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, 2013, 2011 Bradley International Airport Refunding Bonds in the amount of $141.6 million were outstanding.

In 2000, Bradley Parking Garage bonds were issued in the amount of $53.8 million to build a parking garage at the airport. As of June 30, 2013, $37.4 million of these bonds are outstanding.

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.

Future amounts needed to pay principal and interest on revenue bonds outstanding at June 30, 2013, were as follows (amounts in thousands):

Year Ending
June 30,    Principal    Interest    Total
2014    $108,757    $55,487    $164,244
2015    108,703    51,237    159,940
2016    112,595    46,490    159,085
2017    96,313    42,279    138,592
2018    90,205    38,431    128,636
2019-2023   407,915 137,733 545,648
2024-2028    296,170    58,494    354,664
2029-2033    145,280    12,476    157,756
2034-2038    10,760    303    11,063
Total    $1,376,698    $442,930    $1,819,628

d. Component Units
Component units' revenue bonds outstanding at June 30, 2013, were as follows (amounts in thousands):

   Final Interest  Amount
   Maturity   Rate  Outstanding
Component Unit    Date      (000's)
CT Housing Finance Authority   2013-2055    0.10-9.36%    $4,186,602
CT Higher Education          
Supplemental Loan Authority   2013-2035    1.70-7.00%    167,660
CT Regional         
Development Authority   2013-2035    2.50-7.00%    94,805
UConn Foundation   2013-2029    1.90-5.00%  26,030
CT Innovations Inc.   2013-2020    4.75-5.25%    8,705
Total Revenue Bonds          4,483,802
Plus/(Less) premiums, discounts, and deferred amounts:
CHFA          (9,209)
CHESLA          840
CRDA          (325)
Revenue Bonds, net       $4,475,108

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.

Following the merger of the operations of the Connecticut Development Authority, Connecticut Innovations, Incorporated (CII) assumed responsibility for the former authority's Special Obligation Industrial revenue bonds. The bonds were issued to finance such projects as the acquisition of land, the construction of buildings, the purchase and installation of machinery, equipment, and pollution control facilities. These activities are financed under its Self-Sustaining Bond Program which is described in the no-commitment debt section of this note. In addition, CII has $8.7 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, a special needs indenture dated 9/25/95, and other bond resolutions dated October 2009. As of December 31, 2012, bonds outstanding under the bond resolution, the indenture, and other bond resolutions were $3,715.8 million, $64.2 million, and $397.4 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 resolution and indenture capital reserve funds are 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 on all outstanding bonds. The required reserves are $282.0 million per the resolution and $4.6 million per the indenture at 12/31/12. As of December 31, 2012, the Authority has entered into interest rate swap agreements for $834.4 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.

Capital Reserves
Each Authority has established special capital reserve funds that secure all the outstanding bonds of the Authority at year-end. 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.

The Capital Region 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, 2013, were as follows amounts in thousands):

Year Ending          
June 30,    Principal    Interest    Total
2014    $165,327    $123,787    $289,114
2015    145,602    120,209    265,811
2016    129,000    116,577    245,577
2017    180,330    124,577    304,907
2018    140,306    112,442    252,748
2019-2023    802,094    497,229    1,299,323
2024-2028    861,000    365,751    1,226,751
2029-2033    913,990    228,604    1,142,594
2034-2038    721,525    103,040    824,565
2039-2043    360,610    26,783    387,393
2044-2048    40,031    62,236    102,267
2049-2053    23,987    7,918    31,905
Total    $4,483,802    $1,889,153    $6,372,955

No-commitment debt
Under the Self-Sustaining Bond program, acquired from its combination with the Connecticut Development Authority, Connecticut Innovations, Inc., 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, 2013 were $731.6 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, 2013, were $8,030.2 million, of which $292.1 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, 2013 was $60.6 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 fiscal year the State Issued General Obligation and Special Tax Obligation bonds of $194.9 million at an average coupon interest rate of 3.6 percent to advance refund $210.5 million of General Obligation and Special Tax Obligation bonds with an average coupon interest rate of 5.1 percent. The proceeds of the refunding bonds were used to purchase U.S. Government securities which were deposited into irrevocable trust accounts with an escrow agent to provide for all future payments on the refunded bonds. Thus, the refunded bonds were removed from the State's financial statements as they are considered defeased.

Although the advance refunding resulted in a $15.5 million accounting loss, the State in effect reduced its aggregate fund level debt service payments by $21.1 million over the next 11 years. The present value of these savings represents an economic gain (difference between the present values of the debt service payments of the old and the new bonds) of $19.9 million. The above loss is being netted against the new debt and amortized over the life of the new or old debt, whichever is shorter.

In prior years, the State placed the proceeds of refunding bonds in irrevocable trust accounts to provide for all future debt service payments on defeased bonds. The assets of the trust accounts and the liability for defeased bonds are not included in the State's financial statements. As of June 30, 2013, the outstanding balance of bonds defeased in prior years was approximately $938.0 million.