Notes to the Financial Statements

June 30, 2015

Note 17 Long-Term Notes and Bonded Debt

  1. Bond Anticipation Notes
    In February 2015 the State issued General Obligation 2015 series A Bond Anticipation Notes (BANS) to restore fund balances in its Capital Project Funds that had fallen below expectations just prior to the completion of a public debt offering one month later. All BANS were retired upon the $400 million issuance of General Obligation 2015 series A bonds on March 13, 2015.
  1. Economic Recovery Notes
    In December 2009, Public Act 09-2 authorized the issuance $915.8 million of General Obligation Economic Recovery Notes which were used to fund a major portion of the State's General Fund deficit at that time. In October 2013, a portion of these notes were refunded when the State issued $314.3 million of General Obligation Refunding Notes which were issued in four series as variable-rate remarketed obligations (VRO) that ultimately mature on January 1, 2018. Any series of these notes may be converted by the State at any time from the VRO rate, which is determined by the remarketing agent on a daily basis, to another interest rate mode - such as an adjusted SIFMA rate mode.

If the State decides to convert the interest rate mode, each holder is required to tender their notes for conversion while the State has agreed to make available supplementary information describing the notes following the conversion. If any tendered VRO's of a series are not successfully remarketed they may continue to be owned by their respective holders until the VRO Special Mandatory Redemption Date. That series of notes in that case would bear interest at a higher stepped-up rate. The liquidity available to purchase tendered notes is only provided by remarketing resources and the State's general fund. In the opinion of management, the higher cost precludes the likelihood of conversion by the State. The original VRO interest rate modes remain in effect at the end of the fiscal year.

Total Economic Recovery and VRO Notes outstanding at June 30, 2015 were $520.3 million. The notes mature on various dates through 2018 and bear interest rates from 3.0 to 5.0 percent. Future amounts needed to pay principal and interest on these notes outstanding at June 30, 2015 were as follows (amounts in thousands):

Year Ending
June 30, Principal Interest Total
2016 $ 167,690 $ 18,570 $ 186,260
2017 175,465 9,360 184,825
2018 177,120 3,958 181,078
Total $ 520,275 $ 31,888 $ 552,163

c. 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, 2015, were as follows (amounts in thousands):

Final Original Authorized
Maturity Interest Amount But
Purpose of Bonds Dates Rates Outstanding Unissued
Capital Improvements 2016-2035 1.00-5.75% $ 2,731,827 $ 870,919
School Construction 2016-2035 1.00-5.750% 4,680,451 5
Municipal & Other
Grants & Loans 2016-2035 0.713-5.632% 2,083,597 832,966
Housing Assistance 2016-2031 0.25-5.460% 335,245 203,753
Elimination of Water
Pollution 2016-2031 2.91-5.09% 214,914 351,208
General Obligation
Refunding 2016-2038 1.50-5.50% 3,384,252 -
GAAP Conversion 2016-2027 1.00-5.00% 560,430 151,500
Pension Obligation 2016-2032 4.55-6.27% 2,230,543 -
Miscellaneous 2016-2034 3.00-5.125% 86,340 41,701
16,307,599 $ 2,452,052
Accretion-Various Capital Appreciation Bonds 94,938
Total $ 16,402,537

Future amounts needed to pay principal and interest on as General Obligation bonds outstanding at June 30, 2015, were as follows (amounts in thousands):

Year Ending
June 30, Principal Interest Total
2016 $ 1,212,674 $ 734,445 $ 1,947,119
2017 1,165,498 690,011 1,855,509
2018 1,144,193 643,884 1,788,077
2019 1,078,001 593,026 1,671,027
2020 1,039,125 548,177 1,587,302
2021-2025 4,936,353 2,340,309 7,276,662
2026-2030 3,886,270 1,008,985 4,895,255
2031-2035 1,839,220 176,500 2,015,720
2036-2040 6,265 422 6,687
Total $ 16,307,599 $ 6,735,759 $ 23,043,358

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, 2015, were as follows (amounts in thousands):

Final Original Authorized
Maturity Interest Amount But
Purpose of Bonds Dates Rates Outstanding Unissued
Infrastructure
Improvements 2016-2034 2.00-5.740% $ 4,089,540 $ 3,027,462
4,089,540 $ 3,027,462
Accretion-Various Capital Appreciation Bonds -
Total $ 4,089,540

Future amounts required to pay principal and interest on transportation related bonds outstanding at June 30, 2015, were as follows (amounts in thousands):

Year Ending
June 30, Principal Interest Total
2016 $ 256,845 $ 195,687 $ 452,532
2017 249,260 184,219 433,479
2018 254,900 172,593 427,493
2019 247,795 160,738 408,533
2020 246,625 148,754 395,379
2021-2025 1,207,280 568,070 1,775,350
2026-2030 1,071,840 275,894 1,347,734
2031-2035 554,995 55,203 610,198
$ 4,089,540 $ 1,761,158 $ 5,850,698

d. 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, 2015, were as follows (amounts in thousands):

Funds Final
Maturity
Date
Original
Interest
Rates
Amount
Outstanding
(000's)
UConn 2015-2030 1.5-5.5% $118,974
State Universities 2015-2036 2.0-6.0% 322,630
Clean Water 2015-2031 1.0-5.0% 799,931
Drinking Water 2015-2028 2.0-5.0% 82,234
Bradley Parking Garage 2015-2024 6.5%-6.6% 33,010
Total Revenue Bonds     1,356,779
Plus(Less) premiums and discounts:      
Uconn     20,828
Clean Water     80,554
Other     9.355
Revenue Bonds, net     $1,467,516

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.

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, 2015, $33.0 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, 2015, were as follows (amounts in thousands):

Year Ending
June 30, Principal Interest Total
2016 $ 110,095 $ 58,077 $ 168,172
2017 95,758 55,823 151,581
2018 87,345 51,804 139,149
2019 86,190 48,090 134,280
2020 93,840 44,108 137,948
2021-2025 394,257 160,982 555,239
2026-2030 325,764 75,023 400,787
2031-2035 162,465 15,349 177,814
2036 1,065 21 1,086
Total $ 1,356,779 $ 509,277 $ 1,866,056

e. Component Units
Component Units' revenue bonds outstanding at June 30, 2015, were as follows (amounts in thousands):

Final Amount
Maturity Interest Outstanding
Component Unit Date Rates (000's)
CT Housing Finance Authority 2016-2055 0.15-5.50% $ 3,801,418
CT Student Loan Foundation 2016-2047 0.00-1.671% 312,100
CT Higher Education
Supplemental Loan Authority 2016-2036 0.40-5.25% 154,090
CT Airport Authority 2016-2032 %/1 mth libor 129,415
CT Regional
Development Authority 2016-2034 1.00-7.00% 89,015
UConn Foundation 2016-2029 1.90-5.00% 25,510
CT Inovations Inc. 2016-2020 4.90-5.25% 2,760
Total Revenue Bonds 4,514,308
Plus/(Less) premiums and discounts:
CHFA 17,457
CSLF (874)
CHESLA 1,588
CRDA (324)
Revenue Bonds, net $ 4,532,155

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 $2.8 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, a special needs indenture dated 9/25/95, and other bond resolutions dated October 2009. As of December 31, 2014, bonds outstanding under the bond resolution, the indenture, and other bond resolutions were $3,222.9 million, $60.5 million, and $385.4 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 any succeeding calendar year on all outstanding bonds. The required reserves are $235.6 million per the resolution and $4.6 million per the indenture at 12/31/14. As of December 31, 2014, the Authority has entered into interest rate swap agreements for $807.4 million of its outstanding variable rate bonds. Details on these agreements are disclosed under the separately issued audited financial statements of the Authority.

Materials, Innovation, and Recycling 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 Component Unit revenue bonds outstanding at June 30, 2015, were as follows (amounts in thousands):

Year Ending
June 30, Principal Interest Total
2016 $ 133,524 $ 105,994 $ 239,518
2017 141,663 105,712 247,375
2018 145,054 103,282 248,336
2019 150,844 99,854 250,698
2020 195,987 107,578 303,565
2021-2025 810,474 427,755 1,238,229
2026-2030 848,182 322,821 1,171,003
2031-2035 905,091 198,362 1,103,453
2036-2040 647,784 102,708 750,492
2041-2045 279,128 73,514 352,642
2046-2050 226,492 29,093 255,585
2051-2055 29,460 5,984 35,444
2056-2060 625 - 625
$ 4,514,308 $ 1,682,657 $ 6,196,965

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, 2015 were $491.1 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, 2015, were $8,412.2 million, of which $323.5 million was secured by Special Capital Reserve funds.

The Materials, Innovation, and Recycling Authority have 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 for 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, 2015 was $48.8 million. The State may be contingently liable for those bonds that are secured by special capital reserve funds as discussed previously in this section.

f. Debt Refundings
During the fiscal year the State issued General Obligation and Special Tax Obligation bonds of $466.9 million at an average coupon interest rate of 4.77 percent to advance refund $503.9 million of General Obligation and Special Tax Obligation bonds with an average coupon interest rate of 4.83 percent. Although the advance refunding resulted in a $24.7 million accounting loss, the State in effect reduced its aggregate fund level debt service payments by $63.9 million over the next 12 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 $48.7 million.

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.

Additional defeasance occurred during the fiscal year when the State issued General Obligation SIFMA Index bonds and notes totaling $242.4 million at an average coupon variable interest rate of 0.78 percent to advance refund $241.0 million of General Obligation bonds and notes with an average coupon interest rate of 2.4 percent. The resulting cash flow savings on the variable interest rate SIFMA index refunding bonds and notes was $2.2 million.

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, 2015, the outstanding balance of bonds defeased in prior years was approximately $747.7 million.