In 2016 Connecticut borrowed $327.4 million for public projects, which included $4 million in fees for Connecticut agencies to oversee the projects, essentially borrowing to pay the cost of its employees.
Those fees have added up to more than $61 million since 1999. Each year the state pays interest on these costs.
So-called agency fees are tacked on to a bond help pay the cost of the project. For example, a $20 million bond taken out in 2016 to help pay for renovations to 165 Capital Avenue, included a $2.1 million fee for Department of Administrative Services to oversee the project.
Jeffrey Beckham, spokesman for the DAS, confirmed the fees are to pay agency employees. “The DAS fees are for the agency’s Project Management staff costs and depending on the client, it could include building inspections.” He added that any outside management costs “would be allocated out of project funds under a different line item.”
As of 2015, Connecticut had $22.5 billion in long-term bonded debt – an increase of 39 percent since 2008.
Payments on that bonded debt – known as debt service – is one of the fastest growing items in the budget, contributing to the deficit, according to the Office of Fiscal Analysis. Debt service is expected to reach $2.2 billion in 2017 – which amounts to 12 percent of all General Fund expenditures – and grow by $244.6 million in 2018, according to OFA’s Fiscal Accountability Report.
Growth in debt service accounts for 20 percent of the $1.2 billion projected deficit in 2018.
Rep. Vincent Candelora, R-Guilford, who serves on the revenue and bonding committee, said he doesn’t like the practice of adding agency fees to bonds. “It’s shifting funds to pay for employees,” Candelora said. “In isolation it doesn’t sound like a big deal but when you go across the board collectively its problematic and its a big issue.”
However, Chris McClure, spokesman for the Office of Policy and Management, defended the practice, saying it has been in place “for decades,” and “is permissible” to offset project costs.
“The alternative,” McClure said, “would be to pay for multiple years of costs out of the General Fund, which is seemingly bad financial practice at a time when interest rates are low, historic infrastructure investment has been weak, and the economy is growing very slowly.”
Connecticut’s ability to bond took several hits this year as three credit-rating agencies downgraded the state’s credit rating. S&P Global Ratings also revised its outlook for Connecticut from “stable” to “negative” on November 30.