Are the UConn Health Center's lease payments for a new Ambulatory Care Center backed by the State of Connecticut, or could the legislature cut off appropriations and stop the payments?

Plain-English summary

The University of Connecticut Health Center wanted to finance a new $203 million Ambulatory Care Center through a sale-leaseback structure: a special purpose entity (SPE), formed by the UConn Health Center Finance Corporation, would build and own the ACC, then lease it to the Health Center, and pledge those lease payments to the lender as security for the construction loan. The lender wanted assurance that those lease payments were a real obligation of Connecticut, not a year-by-year discretionary appropriation that could be turned off.

The AG concluded the obligation was real and state-backed. The University of Connecticut is constitutionally and statutorily established as a state agency (Conn. Const. Art. VIII § 2; Conn. Gen. Stat. §§ 10a-102, 10a-109v). The Health Center is part of that agency under § 10a-104(c). Its lease payments create legal obligations of the state. Assuming the Health Center lacks a valid defense to a default claim, the obligation may be enforced through the process provided by law. A direct suit against the state is possible if authorized; in that suit, the state's rights and liability would equal those of a private entity in parallel circumstances.

The opinion concludes that these lease payments are not subject to legislative non-appropriation risk because they create legal obligations of the state. A claim against the Health Center could proceed as provided by law.

Currency note

This opinion was issued in 2012. 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: What's "appropriation risk"?
A: Here, it means the risk that the legislature might not appropriate money for the Health Center's lease payments. The AG concluded that the payments create legal obligations of the state and are not subject to that risk. A claim for default would proceed as provided by law.

Q: What's a "special purpose entity" doing in this structure? A: The SPE is a subsidiary corporation of the UConn Health Center Finance Corporation. According to the transaction described to the AG, its limited role after construction was to own the ACC physical plant and collect and remit the Health Center's lease payments to the lender. It would pledge and assign those payments as security for the loan.

Q: What is § 4-160(i)?
A: The AG cited this provision for the point that a judgment against the state may be satisfied under applicable law. The opinion conditions enforcement on the Health Center lacking a valid defense and says a direct suit against the state may be brought if authorized.

Q: Would a lender automatically win a default claim against the state? A: No. The AG's enforcement analysis assumes the Health Center has no valid defense to a default claim. A claim would proceed through the legal process for claims against the state, and a direct suit against the state requires authorization.

Background and statutory framework

UConn 2000 (the legislative initiative funding modernization of the University) and its successor statutes establish UConn (including the Health Center) as a body corporate and politic and "an instrumentality and agency of the state" (§ 10a-109v). The Board of Trustees created the Health Center board (§ 10a-104(c)) and the Health Center's operating funds (§ 10a-105), which generally include state revenue appropriations and other listed sources.

Public Act 11-75 added Conn. Gen. Stat. § 10a-109e(f), the specific authorization for an Ambulatory Care Center lease and the framework for the sale-leaseback structure. The opinion identifies Conn. Gen. Stat. §10a-254(13) as authority for the Finance Corporation to form the subsidiary corporation described in the transaction.

The opinion's claim-process analysis refers to Ch. 53, Conn. Gen. Stat., which governs claims against the state, and § 4-160(i), which addresses satisfaction of judgments. Assuming no valid defense, the Health Center's lease obligation could be enforced through the process provided by law. If a direct suit against the state were authorized, its rights and liability would equal those of a private entity in parallel circumstances.

Citations and references

Statutes and constitution:

• Conn. Const., Art. VIII, § 2
• Conn. Gen. Stat. § 10a-102
• Conn. Gen. Stat. § 10a-109v
• Conn. Gen. Stat. Ch. 53 (claims against the state)
• Conn. Gen. Stat. § 4-160
• Public Act No. 11-75 (UConn 2000 Act amendments)

Source

• Landing page: https://portal.ct.gov/AG/Opinions
• Original PDF: https://portal.ct.gov/-/media/ag/opinions/2012/herbstopinion091112-pdf.pdf?rev=6988b87f2bfb44e5878ae1c906d9ead0

Original opinion text

55 Elm Sireet
P.O. Box 120
Ilariford, CT 06141-0120

GEORGE C. JEPSEN
ATTORNEY GENERAL

Office of The Attorney General
State of Connecticut

September 11, 2012

Susan Herbst

President

University of Connecticut
Gulley Hall

352 Mansfield Road, Unit 2048
Storrs, CT 06269-2048

Dear President Herbst:

You have asked for this Office’s opinion concerning the State of Connecticut’s responsibility for lease payments by the University of Connecticut Health Center (the “Health Center”) under a proposed lease (“the Lease”) between the Health Center as tenant and a special purpose entity, as landlord, for an Ambulatory Care Center, as contemplated by Conn. Gen. Stat. §10a-109e(f), as amended by section 4 of Public Act No. 11-75 (the “ACC”). The special purpose entity (“SPE”) will be a subsidiary corporation established by the University of Connecticut Health Center Finance Corporation pursuant to Conn. Gen. Stat. §10a-254(13).

You subsequently advised that this SPE’s limited role, following construction of the ACC, will be to serve as owner of the ACC’s physical plant and collect and remit the Health Center’s Lease payments to the lender (the “Lender”) financing the ACC’s $203M construction cost (the “Loan”). As security for the Loan, the SPE will pledge and assign the Health Center’s required Lease payments to the Lender, until the Loan is satisfied.

Specifically, you have asked this Office to confirm that: (i) the financial obligations of the Health Center under the Lease are not subject to appropriation risk; and (ii) in the extraordinary unlikely event that the Health Center were to default on its Lease obligations, these obligations would become general, unrestricted legal obligations of the State of Connecticut and unrelated to any appropriation to the Health Center. Your July 25, 2012 request further states: “While potential lenders generally understand that the Health Center is an agency of the state of Connecticut, they want some form of written assurance that their loan of $203 million is secure.”

As more particularly described below, we conclude that (1) although in the normal course required payments under the Lease will be made from available Health Center funds, the Lease payment obligations of the Health Center create legal obligations to the State of Connecticut; and (2) as a legal obligation of the State of Connecticut, required payments under the Lease are not subject to the risk of legislative non-appropriation for the Lease payments.. Rather, like any claim against the State, a claim against the Health Center could proceed as provided by law.

The Health Center is a state agency. Indeed, the University of Connecticut is a constitutionally and statutorily created state university. Conn. Const., Art. VIII. §2; Conn. Gen. Stat. §10a-102. As noted in §10a-109v of the University of Connecticut 2000 Act, the University is defined as having “perpetual succession as a body politic and corporate and an instrumentality and agency of the state.” Conn. Gen. Stat. §10a-109v (emphasis added).

The University of Connecticut Board of Trustees has, in turn, created a “board of directors for the governance of The University of Connecticut Health Center” pursuant to Conn. Gen. Stat.
§10a-104(c), and established operating funds pursuant to Conn. Gen. Stat. §10a-105, with ensuing provisions for what comprises the fund including, generally, “appropriations from general revenues of the state.” Conn. Gen. Stat. §§10-105(b), (c). These statutory provisions make clear that the University of Connecticut, including all of its constituent units, is a state agency.

As your staff has described to us, the ACC financing transaction requires, as security for the Loan, an assignment to the Lender of the Health Center’s Lease payments. As such, claims against the Health Center are subject to the same framework as any other claim against the State. See Conn. Gen. Stat. Ch. 53.

Thus, assuming the Health Center lacks a valid defense to any such action brought against it for a default under the Lease, as a state agency, the Health Center’s obligation to make payments under the Lease can be enforced through the comprehensive process afforded by law that protects parties aggrieved by the state when it has acted in a wrongful manner and money damages are appropriately awarded. If authorized, a suit may be brought directly against the state, with the state’s rights and liability being coextensive with and equaling the same rights and liability of a private entity that has failed to honor its Lease obligations in parallel circumstances; and judgment entered against the state may be satisfied in accordance with applicable law. See Conn. Gen. Stat. § 4-160(i).

We trust that the foregoing has answered your questions :

George Jepsen
Attorney General