Bad Things Will Happen Oct. 1, But A Cash Flow Problem Won’t Be One of Them
Connecticut has a more than $2 billion cash balance and revenue appears to be conforming to the forecast so far this fiscal year, according to Marcia Van Wagner, vice president and senior credit officer, and Dan Seymour, vice president and senior analyst with Moody’s Investors Service.
“The budget standoff does pose some liquidity risk, because about half of the state’s available cash balances consist of bond proceeds,” Van Wagner and Seymour said in a comparison of Connecticut and Pennsylvania. “Because the absence of a budget prevents the certifications necessary for the state to issue additional debt, this resource will shrink as capital projects continue to draw down bond proceeds.”
The two believe that state legislators will “come to agreement on the budget well before the risk of a liquidity crunch would materialize, and whether the state would even need to tap these balances is uncertain.”
However, it also pointed out that Connecticut’s long-term problems are more stark.
The budget stalemate comes at a time when tax receipts are coming in below projections and fixed costs are growing.
“While the state has taken action to address some of its most pressing financial challenges in recent years, the state’s long-term obligations remain formidable,” Moody’s analysts said.
They pointed out that Connecticut’s economy is also lagging.
Connecticut’s employment is barely growing. It has only recovered about 78 percent of the total payroll jobs lost during the Great Recession and it has only grown 6,000 payroll jobs this year, according to the last report from the U.S. Bureau of Labor Statistics.
“We expect Connecticut to be one of the last states to recoup its recessionary job losses, in 2019,” analysts said in their Monday report.
Over the past five years, Connecticut’s economic growth ranks 44th out of 50 states, with the energy states representing most of the slower-growing ones.
Connecticut has also lost population three years in a row through July 2016, which means it has the third-highest rate of population loss of any state during that time.
If Connecticut lawmakers can’t pass a budget that Gov. Dannel P. Malloy will sign before Oct. 1, then the deal they were able to strike to increase hospital taxes could disappear and the city of Hartford will be one step closer to bankruptcy. Since the federal fiscal year begins on Oct. 1, in order to make the hospital tax retroactive to July, lawmakers have to have a deal in place so it can access the increased federal reimbursement for the scheme.
Hartford Mayor Luke Bronin has said that without a state budget, the city will file bankruptcy in the first week of November, but cash flow gets difficult for the city in early October because the state decided not to distribute the September grant for tax exempt property such as state buildings and hospitals.
In a series of press conferences Monday, Malloy and legislative leaders said they don’t expect it will get to that point because they plan to get together and work on a budget.