Connecticut’s slow economic recovery has put significant stress on the state budget, which has faced billion dollar deficits on multiple occasions since 2008.
Problem is, the state’s finances are closely tied to the overall performance of the economy and stock market. When both are down, state revenues — particularly income taxes — nosedive.
But the issue could become more acute in the future.
The state budget is going to rely more heavily on income tax revenue over the next five years, which means it will be more susceptible to deficits should the economy falter.
According to revenue forecasts recently released by the Office of Policy and Management (OPM), the state expects to collect $8.8 billion in income taxes during fiscal 2014, which would make up 51.1 percent of general fund revenues. By fiscal 2018, OPM projects income taxes will generate $11.2 billion, and a much larger 58.2 percent of state revenues.
Meanwhile, revenue from federal grants and corporate taxes is expected to decline over the next five years.
To help close a $3.2 billion dollar deficit in 2011, Gov. Dannel P. Malloy raised the income tax on many residents. The top rate, for example, was bumped up to 6.7 percent from 6.5 percent. Moving forward, the state budget will rely more heavily on Connecticut wage earners.
The big issue is that income tax revenue depends on capital gains. As a result, state income taxes can fluctuate dramatically due to stock market performance, OPM data shows. That means state taxpayers will have to hope for a bull market for years to come to avoid the threat of more deficits, which could lead to further tax increases or budget cuts.
“A record high year for capital gains realizations can be immediately followed by a record low year, creating extreme volatility in state finances,” OPM said in its recent report.
St. Francis eyes $215M refi
St. Francis Hospital and Medical Center wants to refinance up to $215 million in debt as part of a complex finance deal that will involve a half dozen banks.
As part of the transaction, St. Francis wants to refinance three of its outstanding bonds: a fixed rate bond with Radian; private placement debt with RBS Citizens; and a variable rate bond backed by a letter of credit from JP Morgan, according to minutes from a recent meeting of the Connecticut Health and Education Facilities Authority, the state’s quasi-public agency that issues tax-exempt bonds on behalf of nonprofit institutions, including hospitals.
One of those bonds helped St. Francis finance its $180 million, 318,000-square-foot John T. O’Connell Tower, which opened in 2011 and houses a new emergency department and operating rooms.
St. Francis wants to refinance with six separate banks: Berkshire Bank, Union Bank, First Niagara Bank, RBS Citizens, Bank of America, and JP Morgan Chase Bank.
The banks would provide separate finance packages that would include one fixed-rate and five variable rate bond issuances, CHEFA minutes show.
Pricing, terms and amortizations will vary widely among the individual deals.
Full details, however, were not disclosed, CHEFA minutes show.
The refinancing is still in its early stages, but St. Francis would like to have it done by mid-January, CHEFA minutes show.
