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Letter: State Treasurer Responds To Letter From Wilton's Gail Lavielle

WILTON, Conn. -- The Wilton Daily Voice accepts signed letters to the editor. Send letters to

To The Editor: 

Dear Editor:

I write in response to a letter by state Rep. Gail Lavielle, featured in the Nov. 5 edition of The Wilton Daily Voice. In that letter, she raised concerns over the recent issuance of bonds to pay a portion of the State’s GAAP deficit and to restructure Economic Recovery Notes – both of which were approved by the Connecticut General Assembly during its last session. I believe Rep. Lavielle left out some important facts, and that the public deserves a fuller description of these transactions.

Rep. Lavielle says the issuance of the GAAP conversion bonds is “like taking cash out on a credit card to pay the bills.” In fact, the bills that created the State’s GAAP deficit were paid long ago, which has resulted in a negative balance for the State’s General Fund for GAAP purposes. What that has meant, in practical terms, is that we have had to use cash balances of other funds to cover that negative balance for many years.

By issuing bonds, the proceeds will be used to help cover the negative cash balance in the General Fund. These proceeds can never be used to pay a bill or be treated as revenue because of a specific covenant included with the bonds – a promise even more ironclad than state statute. And that really is the essential element of this more disciplined approach to addressing this structural GAAP deficit: a plan is in place that has already cut the GAAP deficit in half, with the remaining repayment “deemed appropriated” over the next 15 years. So rather than leave it up to the legislature to decide whether to pay down the GAAP deficit in any given budget cycle, there is a long-term structured plan to do so.

Her statement that “this fills up the state’s coffers, but it doesn’t strengthen its cash position,” just doesn’t make sense. The strength of our cash position is a direct function of what’s in our coffers. The fact is that this bond issue has already significantly improved the State’s cash position, and we can now cancel a stand-by line of credit that, thankfully, we never needed to draw upon.

In addition, establishing a comprehensive plan to eliminate the GAAP deficit sends a message to the credit rating agencies and others that Connecticut is serious about fixing a chronic long-term problem. Moody’s Investors Service specifically cited our state’s commitment to eliminating the GAAP deficit as a “credit strength,” and described the GAAP proposal as a “significant accomplishment” during the last legislative session.

Finally, Rep. Lavielle questions whether it was “responsible” to employ a variable rate structure in extending certain Economic Recovery Notes. The real answer can be found in the current markets: we took advantage of very low short-term interest rates that are available in today’s market. The variable rate structure came at a lower cost to the State than fixed rate obligations. And, because the variable rate bonds are callable at any time, the State has the option to pay the ERNs off early and, if interest rates rise, the State can quickly convert them to fixed rates. Future interest rate risk is mitigated by the fact that the bonds will be paid over just three to four years, and don’t have nearly the same risks of a variable rate structure over a longer term.

In closing, I share Rep. Lavielle’s concerns over the State’s fiscal health and overall discipline. That is why I believe these two transactions were optimally structured so that the State can meet its obligations in a cost-effective and prudent manner.


Denise L. Nappier State Treasurer

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