Yesterday, State Treasurer Erick Russell provided testimony in support of a debt reduction measure that would save the state’s Special Transportation Fund (STF) an estimated $60 million per year. The measure comes in response to an expected $52 million deficit in the STF come fiscal year 2026.
The measure, included as a part of Gov. Ned Lamont’s budget recommendations, proposed that the state’s STF’s balance be limited to 18 percent of its current appropriations with any excess be used to pay forward outstanding debt. Russell stated that this measure was proposed via collaboration between Gov. Lamont, the Treasurer’s Office and the Department of Transportation (DOT). The budget recommendations were presided over during yesterday’s Finance, Bonding and Revenue Committee meeting.
“Connecticut is earning a reputation for its responsible and creative financial problem-solving and this is a continuation of that work,” said Russell. “This proposal explicitly requires that the excess be utilized for long-term savings, not short-term budget relief.”
Secretary of the Office of Policy and Management Jeffrey Beckham also provided written testimony in support of the measure.
“Although there is expected to be some loss in interest income beginning in FY 2026 in the STF due to smaller cash reserves, the proposal is expected to result in an annualized debt service savings of just under $60 million,” reads Beckham’s testimony.
According to the General Assembly’s own website, the STF was founded in 1983 as a fund separate from the state’s General Fund to be used specifically for transportation projects such as highway, bridge or rail upgrades. The fund’s primary revenue streams have historically been gasoline taxes, followed by sales tax on specific goods (such as car sales), traffic and vehicle related fines and federal grants. Approximately 66 percent of infrastructure projects funded by the STF are funded through the issuance of special tax obligation bonds. These bonds are then paid back by the STF’s aforementioned revenue streams.
According to this year’s Fiscal Accountability Report, the STF is projected to face a $52.2 million deficit in fiscal year 2026, but will still have $966 million in cumulative fund balance on hand. That deficit is projected to increase to $281.8 million by 2028, cutting into the cumulative fund balance. The report states that the state’s gas tax revenue has decreased from 2014 to 2023 by 1.2 percent. Gas tax revenue is expected to continue decreasing as a result of high fuel prices decreasing fuel consumption and increased use of electric vehicles, greatly handicapping the STF’s ability to pay off its debts.
“Rising costs and interest rates will put pressure on the solvency of the fund,” concludes the report. “Without the introduction of alternative financing, additional revenue, or reductions in needed transportation investments, the expected increase in costs will not be sustainable.”
Russell estimated that $500 million will be available at the end of fiscal year to pay outstanding debt that would “otherwise be sitting on the state’s balance for another decade.” With this measure, the state would save money in the long term by avoiding interest costs. Russell said these bonds typically have annual interest rates of 5 percent. In doing so, Russell estimated the state would immediately save $22 million at the end of fiscal year 2025, and save $60 million a year for the next 9 years.
Russell went on to say that the implementation of this measure would reflect positively to investors and credit rating agencies alike on the state’s fiscal responsibility, making it easier and cheaper to secure outside funding for transportation projects in the future. Russell also assured the Committee that limiting the STF’s budget would not impact the DOT’s project readiness in the future.
“The proposal maintains significant reserves to ensure DOT has funding on-hand to meet these urgent needs while utilizing funding that would otherwise sit idle in the Fund to pay down debt,” said Russell. “As DOT officials continue their work to launch more projects in coming years, they will benefit from the alleviation of long-term liabilities and the budget savings this will create.”
“I worry a little bit about robbing Peter to pay Paul, so to speak,” said Sen. Christine Cohen (D-Branford). “I wonder if you could get into a little bit more about how we would address the STF being in the red in future years, and why it’s not better to leave that excess in the STF as we look out and see this going into the red in the future.”
Committee Co-Chair Sen. John Fonfara (D-Hartford) also had trouble seeing the utility in spending instead of saving these excess funds with the knowledge that the STF will soon be in a deficit.
“Why is that a wise thing to do from the standpoint of facing deficits in the future?,” asked Fonfara.
Russell said that the implementation of such a measure would level out the state’s savings on a long-term basis, as opposed to pushing the budgetary deficit out in the short term.
“What we expect is when we pay these down, that will flatten that debt service over the next 10 year window, which will reduce or eliminate some of those deficits that would be existing in the next 10 year period,” said Russell.
Russell said that the STF funds are already going to be used primarily to pay off debts. Per the STF’s own website, “state law requires that STF resources be used first to pay debt service on special tax obligation bonds issued for transportation purposes.” Russell explained that by leveraging the current budgetary excess to pay these extant bonds down now, it would reduce the severity of the fund’s expected deficits by avoiding unnecessary yearly interest payments.
Fonfara then asked how the STF’s deficits could be permanently solved, to which Russell acknowledged the necessity for alternative revenue streams in the future.
“I think that long term we’re going to have to take another look to ask if this is a sustainable method, or if we need to think about restructuring where those revenues are coming from,” said Russell.
State Rep. Stephen Meskers (D-Greenwich) and Sen. Ryan Fazio (R-Greenwich) both spoke positively of the proposal. Since yesterday’s committee meeting was a public hearing, no vote was held by the committee to deem the bill favorable or reject it.
Republish our articles for free, online or in print, under a Creative Commons license.
