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). When a state agency contracts for a lease, the resulting obligation runs to the State of Connecticut. Default exposes the state to a lawsuit through the same claims process that any state-defendant case would use (Chapter 53 and § 4-160(i)). The state's defenses and liability are coextensive with what a private party in a parallel lease default would face.

The opinion's structural point: lease payments here are not subject to legislative non-appropriation risk because they are not annually-discretionary appropriations. They are contract obligations of the state, enforceable through normal claims procedures even if the legislature does not appropriate funds for them.

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: The risk that a state agency's payment obligations under a long-term lease or financing depend on the legislature appropriating funds each year. If the legislature does not appropriate, the agency cannot pay, and the lender's recourse against the state is limited. Many state lease transactions are explicitly subject to appropriation, which means lower credit quality from a lender's perspective. The opinion here concluded these particular ACC lease payments were not appropriation-subject because the underlying obligation runs directly to the state.

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. Its limited role after construction is to own the ACC physical plant and collect the Health Center's lease payments, then forward them to the lender. The structure isolates the financing from other Finance Corporation activities and gives the lender a clean assignment of the lease payment stream.

Q: What is § 4-160(i)?
A: A provision that addresses how judgments against the state are satisfied. The AG cited it to confirm that, once a default occurred and a judgment was entered, the state had a defined process for paying the judgment, parallel to private-party lease default consequences.

Q: Could the legislature change this in the future?
A: The opinion did not address whether the Legislature could pass a future statute disclaiming the lease's full-faith-and-credit character. State legislatures cannot, however, retroactively impair contracts under the Contract Clause of the U.S. Constitution, which limits a legislature's ability to undo obligations already in place.

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. Section 10a-254(13) authorizes the Finance Corporation to form subsidiary corporations to carry out specific functions, which is how the SPE comes into being.

The opinion's claim-process analysis runs through Chapter 53, Conn. Gen. Stat., which governs claims against the state, and § 4-160(i), which addresses satisfaction of judgments. The bottom line: this lease, while structured through an SPE for security purposes, is a state obligation enforceable through the state's standard claims and judgment process, with the state's rights and liabilities coextensive with those of a private party in a parallel default.

Citations and references

Statutes and constitution:

• Conn. Const., Art. VIII, § 2
• Conn. Gen. Stat. § 10a-102
• Conn. Gen. Stat. § 10a-109v
• Conn. Gen. Stat. Chapter 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