Connecticut Taps Investors to Fund $1.2 Billion Gap: Muni Deals

Connecticut is asking investors to help plug a $1.2 billion general-fund deficit as bonds of the nation’s wealthiest state beat the municipal market for the first time in three years.

The $575 million general-obligation sale this week will go toward filling the gap created when the state implemented generally accepted accounting principles, or GAAP, starting this fiscal year, deal documents show. Legislation passed in 2011 mandated the shift.

The offering by the home state of hedge-fund capital Greenwich is among the $4.2 billion of long-term municipal issues scheduled for this week, data compiled by Bloomberg show. That’s down from $5.3 billion last week, even as benchmark yields are the lowest in three months.

The budget shortfall accounted for 6.2 percent of general-fund revenue in the year ended in June, and officials plan to eliminate the deficit by the end of fiscal 2028, according to bond documents. The state of 3.6 million people, with $14.7 billion in general obligations, may borrow more to close it, documents show.

The borrowing, with a final maturity of 2027, will “jump-start the repayment” of the deficit, showing investors “the state’s commitment to fiscal responsibility,” said Gian-Carl Casa, undersecretary for legislative affairs in Hartford, in an e-mail. The bonds “are evidence that the state is addressing its long-term fiscal health.”

Income Leader

Standard & Poor’s rates Connecticut debt AA, third-highest, while Moody’s Investors Service ranks it a step lower at Aa3. Per capita personal income of about $58,000 in 2011 was the nation’s highest, according to S&P.

Amid job losses in the finance industry, Connecticut was the only state to see its economy shrink last year, according to the U.S. Bureau of Economic Analysis. Its residents bear the country’s third-highest burden of state and local levies, helping drive demand for Connecticut tax-exempt securities.

Debt from Connecticut has lost 1.6 percent in 2013, less than the decline of 2.9 percent for the entire $3.7 trillion municipal market through Sept. 26, Barclays Plc data show. The performance puts it on pace to outperform all local securities for the first time since 2010.

Governments are borrowing with benchmark yields at the lowest since June. Individuals pulled about $159 million from muni-focused mutual funds in the week through Sept. 25, the smallest withdrawal since May, Lipper US Fund Flows data show.

To contact the reporter on this story: Romy Varghese in Philadelphia at rvarghese8@bloomberg.net Brian Chappatta in New York at bchappatta1@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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