A Lovely Trip to the Bond Market for Connecticut

Connecticut’s borrowing habit is a matter of great debate — is it prudent or profligate? — but for the time being at least, reports that Wall Street is punishing the state are not just exaggerated, but wrong, according to state Treasurer Denise L. Nappier.

The latest bond sale, $400 million, was wildly oversubscribed by buyers, Nappier said Monday, leading to what her office called “some of the lowest interest rate spreads of any sale of its kind in the nation.”

The bond sale, set to close later this month, included $176 million at the fixed rate of 3.22 percent and $224 million at variable rates based on a spread to an index of the Securities Industry and Financial Markets Association. Those variable-rate bonds were so popular that the state’s overall borrowing rate was 2.29 percent.

Even better, the four major bond rating agencies all have Connecticut at AA or, in the case of Moody’s, Aa3, which is still strong but represents a downgrade the firm issued in early 2012.  That downgrade led to hand-wringing at the state Capitol and fears of further declines, but the agencies all say Connecticut is “stable,” Nappier declared.

Just under half the latest bond sale is for school construction and the rest is for grants and various capital projects. “Notwithstanding the general concern surrounding our state’s borrowing practices, debt can be a worthwhile component of a comprehensive fiscal solution to help jump start our economy,” Nappier said.

That’s true, but the danger for Connecticut is not that it will slip below the performance of other states. Rather, the danger is that the state, with a heavy reliance on bonding, sees borrowing rates rise but does not see the economic growth that’s supposed to come with higher interest payments.