Could UConn pay construction vendors directly from UConn 2000 bond proceeds?

Plain-English summary

In September 1997, Connecticut’s AG advised the University of Connecticut that it could pay UConn 2000 project vendors directly from proceeds of bonds issued under that program, subject to statutory approvals. The university president had noted that the direct-payment authority excluded claims funded by a state bond issue. The AG found the UConn 2000 securities were university bonds, so that exclusion did not apply.

The opinion compared the bonds’ legal obligations. UConn 2000 securities pledged the university’s full faith and credit and its resources. State general obligation bonds instead pledged the state’s full faith and credit. The program statute also said UConn’s borrowing was not a debt of the state. The treasurer’s role in selling the bonds did not change their issuer, and a state commitment to help service some debt did not turn the university bonds into state bonds. The AG read the program’s independent financing authority together with the payment statute and kept its required approvals in place.

University finance staff at the time

The opinion allowed direct payments from UConn 2000 proceeds because those bonds were university obligations. It expressly preserved the approvals required for payments under § 3-25(b).

Project vendors and treasury staff at the time

The identity of the bond issuer controlled the payment question. Treasury participation in selling the securities and a state debt-service commitment for some bonds did not alter that classification.

Currency note

This opinion was issued in 1997. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: Could UConn pay a UConn 2000 construction vendor from bond proceeds without routing the payment as a state bond claim?
A: Yes, subject to the statutory approvals. The AG said these proceeds came from university bonds rather than a state bond issue.

Q: Did the state treasurer’s role in selling the bonds make them state bonds?
A: No. The opinion treated the treasurer’s role as collaborative and the securities as obligations of the university.

Q: Did state support for debt service change the answer?
A: No. The AG said a state payment commitment to the university for some bonds did not convert them into state-issued bonds.

Background and statutory framework

The AG compared the payment exception in Conn. Gen. Stat. § 3-25(b) with the UConn 2000 security language in § 10a-109g(c) and the state general obligation bond rule in § 3-20(p). He concluded that the source of the vendor payment was a university bond issue.

Citations and references

Statutes: Conn. Gen. Stat. § 3-25(b); Conn. Gen. Stat. § 10a-109g(c); Conn. Gen. Stat. § 3-20(p).

Source

• Landing page: https://portal.ct.gov/AG/Opinions
• Opinion page: https://portal.ct.gov/ag/opinions/1997-formal-opinions/philip-e-austin-university-of-connecticut-1997015-formal-opinion-attorney-general-of-connecticut

Original opinion text

Philip E. Austin, University of Connecticut, 1997-015 Formal Opinion, Attorney General of Connecticut

Attorney General's Opinion

Attorney General Richard Blumenthal

September 26, 1997

Philip E. Austin

President

University of Connecticut

352 Mansfield Road

Gulley Hall, U-48

Storrs, CT 06269-2048

Dear President Austin:

You have asked whether the University of Connecticut possesses the legal authority to pay directly vendors of UConn 2000 projects. You noted that if the bond proceeds had as their source a State bond issue, the University could not make such direct payments. That is because Conn. Gen. Stat. § 3-25(b) allows the chief executive officer of a constituent unit of public higher education to make payment of any proper claim against the constituent unit other than, inter alia, "any payment the source of which includes the proceeds of a state bond issue." You are advised, for the reasons set forth below, that the source of payment for the UConn 2000 infrastructure program is bonds issued by the University of Connecticut, not by the State. Accordingly, the University may make direct payments to vendors.

In order to respond to your inquiry, it is necessary to review the language of Public Act 95-230, now codified as Conn. Gen. Stat. § 10a-109a-109y, to determine whether the bonds described in the Act are, in reality, State bonds. In doing so, we are mindful that when interpreting a statute, it is critical to utilize its language. University of Connecticut v. Freedom of Information Commission, 217 Conn. 322, 328 (1991). The UConn 2000 program, which is contained in the aforementioned legislation, is a massive undertaking to rebuild the infrastructure of the University of Connecticut. The statute that is most pertinent is Conn. Gen. Stat. § 10a-109g(c), which provides, in relevant part:

Securities issued by the university may be issued under an indenture of trust or bond resolution, shall be general obligations of the university, for which its full faith and credit shall be pledged, payable out of any revenues or other assets, receipts, funds or moneys of the university and may be additionally secured by a pledge or revenues to be derived from the operation of a project, by assured revenues and by other assets other than a mortgage, subject only to any agreements with the holders of particular assets, revenues, receipts, funds or moneys, unless the university shall otherwise expressly provide by the indenture or resolution that such securities shall be special obligations of the university payable solely from any revenues or other assets, including project revenues, such assured revenues that may be restricted by the terms of receipt thereof to a particular project or projects to be financed by such special obligations subject only to any agreements with the holders of particular securities pledging any particular assets, revenues, receipts, funds or moneys.

Hence, it is clear that bonds issued pursuant to UConn 2000 are secured by the full faith and credit of the University, not the State. There is a clear contrast between the security behind UConn 2000 bonds and bonds that are general obligations of the State. The latter are governed by Conn. Gen. Stat. § 3-20(p), which provides, in its entirety:

Bonds issued in accordance with the provisions of this section pursuant to any bond act are secured by the full faith and credit of the state, and as part of the contract of the state with the holders of said bonds, appropriation of all amounts necessary for punctual payment of principal of and interest on such bonds is hereby made and the treasurer shall pay such principal and interest as the same become due.

The conclusion that UConn 2000 bonds are not bonds issued by the State is buttressed by Conn. Gen. Stat. § 10a- 109g(h), which provides, in pertinent part:

Money borrowed and securities issued and delivered by the university shall not constitute a debt or liability of the state or of any municipality or any political subdivision of the state, but shall be payable solely from the resources of the university described in and pursuant to the indenture of trust or resolution under which they are issued, and all such securities shall contain on their face a statement to that effect.

Hence, in enacting the UConn 2000 legislation, the General Assembly went to great lengths to distinguish between UConn 2000 bonds and State general obligation bonds. The latter bonds are secured by the full faith and credit of the State, and are truly "state bond issue[s]," as that term is utilized in Conn. Gen. Stat. § 3-25(b). The former, secured by the University's assets, are not.

There are two additional points that need to be addressed. First, Conn. Gen. Stat. § 10a-109g(e) & (f) provide that the State Treasurer is entrusted with the responsibility of selling UConn 2000 bonds. That does not alter our conclusion. A thorough reading of those sections reveals that the relationship between the Treasurer and the University's Board of Trustees is a collaborative one. Indeed the language of Conn. Gen. Stat. § 10a-109g(f) refers to action taken by the Treasurer "in conjunction with the board of trustees of the university." The role of the Treasurer in marketing UConn 2000 bonds does not alter their status.

Second, some UConn 2000 bonds are secured by a debt service commitment of the State, as set forth in Conn. Gen. Stat. § 10a-109e(c). In Conn. Gen. Stat. § 10a-109g(a)(1), the amount of the authorized bonds to which the State debt service commitment can apply is capped at $962,000,000. The total sum of all approved UConn 2000 projects as set forth in Conn. Gen. Stat. § 10a-109e(a) is $1,250,000,000. A careful reading of those provisions reveals that the @@ted commitment is, in reality, to the University. Indeed Conn. Gen. Stat. § 10a-109e(c) provides, in part: "The university shall be entitled to rely on the amount of the state debt service commitment. . .." (Emphasis added.) The same section requires that the University covenant to continue to collect tuition (while securities are outstanding), produce revenues "sufficient to pay when due, the special debt service requirements on outstanding securities . . .," and maintain a sound physical facility, as well as academic excellence. In short a State debt service to the University for a portion of UConn 2000 bonds issued each year does not convert bonds issued by the University into bonds issued by the State.

A review of additional language contained in the UConn 2000 legislation supports the conclusion that bonds issued pursuant to the UConn 2000 program are not State bonds. The purpose of that law is expressed in Conn. Gen. Stat. § l0a-109e(a), which provides, in pertinent part:

The university may administer, manage, schedule, finance, further design and construct UConn 2000, to operate and maintain the components thereof in a prudent and economical manner and to reserve for and make renewals and replacements thereof when appropriate, it being hereby determined and found to be in the best interest of the state and the university to provide this independent authority to the university along with providing assured revenues therefor as the efficient and cost effective course to achieve the objective of avoiding further decline in the physical infrastructure of the university and to renew, modernize, enhance and maintain such infrastructure . . .. (Emphasis added.)

It is a basic premise of statutory construction that a statute will be construed "in a manner that will not thwart its intended purpose or lead to absurd results." Turner v. Turner, 219 Conn. 703, 712 (1991). Further, a statutory scheme must be read as a whole, "in light of the purpose it intends to serve." Figueroa v. C and S Ball Bearing, 237 Conn. 1, 7 (1996). The purpose of the UConn 2000 legislation is to authorize the University of Connecticut to have the independent legal authority necessary to renew its physical infrastructure. It would be anomalous for the University to have the ability to pay routine bills as set forth in Conn. Gen. Stat. § 3-25(b), yet lack the ability to pay vendors of UConn 2000 projects. "It is ... a nde of statutory construction that those who promulgate statutes or rules do not intend to promulgate statutes or rules that lead to absurd consequences or bizarre results." (Internal quotation marks omitted.) State v. Spears, 234 Conn. 78, 92 (1995). This issue calls for the application of that principle.

Therefore, it is our conclusion that proceeds of UConn 2000 bonds are not proceeds of a State bond issue. Accordingly, the University may, subject to the approvals required by Conn. Gen. Stat. § 3-25(b), make payments to vendors from the proceeds of UConn 2000 bonds.

We trust that this is responsive to the question.

Very truly yours,

RICHARD BLUMENTHAL

ATTORNEY GENERAL

Paul M. Shapiro

Assistant Attorney General

RB/PMS/gdm