Connecticut's $760 Million Deficit Bond May Be Delayed by Lawmaker's Suit

A lawsuit may delay Connecticut, the state with the highest tax-supported debt, from borrowing as much as $760 million to plug a budget deficit.

Joe Markley, a Republican elected in November to the Connecticut Senate, filed the complaint in October seeking to block regulators from imposing a surcharge on electric bills to back deficit bonds.

“It’s a very underhanded effort by the Legislature to grab some money,” said Markley. “They did it surreptitiously.”

Connecticut’s Superior Court today postponed a hearing on Attorney General Richard Blumenthal’s motion to dismiss the lawsuit, said Tara Downes, a spokeswoman. Markley plans to amend his complaint or file a new one, he said.

The Democratic-controlled Legislature in May authorized the deficit financing. Lawmakers have emptied a $1.4 billion reserve and borrowed more than $900 million in the past 18 months to offset spending gaps amid the worst recession since World War II. The state’s credit grade was lowered one level to AA by Fitch Ratings in June because of the reliance on so-called one- time fiscal fixes.

The law requires the Department of Public Utility Control to impose a surcharge on customers of Connecticut Light & Power Co., a division of Northeast Utilities, and United Illuminating Co.

Photographer: Carol T. Powers/Bloomberg

Connecticut Attorney General Richard Blumenthal. Close

Connecticut Attorney General Richard Blumenthal.

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Photographer: Carol T. Powers/Bloomberg

Connecticut Attorney General Richard Blumenthal.

The fee would begin as soon as another expires; in 1998 the companies began collecting money to cover losses after Connecticut made them sell power plants, said Philip Dukes, a spokesman for the public utility department.

Lawmakers who approved the new charge assumed customers would be oblivious, Markley said.

Taxing Power

Connecticut Light & Power customers would start paying $2.42 a month in January, Dukes said. United Illuminating customers wouldn’t begin until 2013, he said. The surcharge is to expire in 2018, he said.

Markley said the fee is unconstitutional because the Department of Public Utility Control can’t tax and because some electric customers won’t be paying it. The levy wouldn’t be imposed on customers of six municipal electric utilities because they aren’t state-regulated, he said.

Lawmakers should cancel the surcharges, said Blumenthal who is a U.S. senator-elect.

“My office has a duty to defend this claim against the state -- despite disagreeing with the policy of depriving consumers of electric rate relief,” Blumenthal said in a news release.

Trimming the Issue

Lawmakers initially planned a $1 billion sale backed by the surcharge. Governor Jodi Rell, a Republican who signed the law in May, lowered the amount to a maximum $760 million as revenue rebounded this year.

Rell, who didn’t seek re-election, last month asked Treasurer Denise Nappier to accelerate the sale to prevent lawmakers from reverting to the $1 billion plan if finances worsen. The securities couldn’t be offered without extra expense because of the lawsuit, Nappier said in a Nov. 30 letter to Rell released by her office.

“Investors will require an extraordinary call provision which could add as much as $10.5 million in added interest over the life of the bonds,” Nappier, a Democrat, wrote. “Such a provision would protect bondholders in the event that an adverse court ruling rendered us unable to implement the charges to repay the bonds.”

Connecticut is the wealthiest state, with per-capita personal income of $55,063 in 2009, according to Commerce Department data. It has the highest net tax-supported debt of all states, at $4,859 per person, according to Moody’s Investors Service.

To contact the reporter on this story: Michael McDonald in Boston at mmcdonald10@bloomberg.net;

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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