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More Money Transferred To Cover State’s Obligations

by Christine Stuart and Hugh McQuaid | Dec 5, 2012 2:53pm
(6) Comments | Commenting has expired
Posted to: State Budget, Taxes, State Capitol

CTNJ file photos

Sen. John McKinney and Gov. Dannel P. Malloy

The same day state Treasurer Denise Nappier was given permission by Gov. Dannel P. Malloy to purchase a line of credit, she transferred even more money from the state’s bond investment account to the common cash pool.

In Nappier’s letter, which made headlines Tuesday, she said she made a “temporary transfer of $366 million from bond fund investment accounts.” However, later that same day it became necessary to transfer an additional $224 million.

“On Dec. 3 when the letter was prepared that was the information we had,” Christine Shaw, Nappier’s chief of staff, said Wednesday. “After we finalized the letter, the additional transfer from bond proceeds was made to ensure the state could meet its commitments.”

It doesn’t mean the state will need or even use all that borrowed money to cover operating expenses, but the transfer between the bond investment accounts is a financial maneuver watched closely by Republican lawmakers.

“It puts us in a dangerous position, and in peril of even being able to make payroll,” Rep. Vincent Candelora, R-North Branford, said.

He said that in the past year, 65 percent of bond proceeds have been used to operate government. Shaw said Tuesday that Candelora’s number is not accurate because some of the bond proceeds were not used and transferred back.

Candelora said that doesn’t matter. The transfers were made because the state was running out of cash.

“The fact that they did not disclose the $224 million is phenomenal to me,” Candelora said. “It’s the height of arrogance.”

Sen. John McKinney, R-Fairfield, said Connecticut’s cash flow problem seems to be “worse than any we’ve had ever.”

“You have over $500 million that’s been taken from bond proceeds out of the common cash pool that’s being used to pay operating expenses, and now on top of that we’re being told there will be a $550 million line of credit,” McKinney said. “That’s over $1 billion and we don’t have a plan from the governor as to how we’re going to pay that money back.”

Roy Occhiogrosso, Malloy’s senior adviser, said the plan is already in place.

Transitioning to Generally Accepted Accounting Principles, boosting state employee pensions, and other fiscal reforms implemented during Malloy’s first two years in office will help correct the problems the state is currently experiencing, Occhiogrosso said.

“There is no magic wand, and it’s not the governor’s fault,” he added.

But McKinney disagreed. “There’s no analysis of how the state will pay back the money,” he said.

In addition to transferring about $580 million from bond proceeds to the cash pool, Malloy authorized Nappier to use up to a $550 million line of credit.

It’s uncertain still if Nappier will need to issue a line of credit.

But Malloy, who campaigned on a promise not to use borrowing to pay for operating expenses, maintained that he wasn’t breaking a promise by authorizing the line of credit.

“Absolutely not. This is short term borrowing just to make sure we have sufficient amounts of money in the bank at any given time to meet demand,” he said Wednesday after an unrelated event.

Malloy said that money comes into state government at different rates depending on the time of year. He said it’s important to maintain a balance of funds to prepare for any eventuality, including the prospect that Congress will not be able to strike a deal to avoid looming tax increases and sequestration. If that’s the case, it will have an impact on Connecticut, Malloy said.

“Any money that’s borrowed under a line of credit is simply for cash flow purposes, not any other reason,” he said.

Malloy acknowledged that any interest that the state incurs from the borrowing will be paid for by taxpayers, but said that interest rates are currently very low.

“It’s pretty cheap money. To put it in perspective, the last time this was done under Gov. Rell’s administration it was three percentage points, this is 56 basis points (0.56 percent) that we’re looking at,” he said.

McKinney said it’s disappointing the governor is dismissive of using $500 million to pay operating expenses when it’s an issue upon which he campaigned.

“It’s also disappointing that what we’re doing we’ve never done before,” McKinney said.

Malloy said the borrowing the state may have to do under his leadership was different than the borrowing the state engaged in under previous governors. Previous governors have borrowed over a billion dollars while simultaneously exhausting the state’s Rainy Day Fund, he said. Malloy said if he had a Rainy Day Fund at his disposal the state would not be in the position it’s in now.

“This is all about cash flow. It’s not about borrowing to support operating costs,” he said.

Asked if taxpayers had anything to worry about regarding an open line of credit, Malloy said “No, you don’t.”

“Listen, families have lines of credit or they go out and raise cash when things are tough so they can be ready for it. This is to be ready for it. This is not borrowing to sustain operating expenses,” he said.

Regarding the deficit mitigation plan the governor must present to the legislature to close the $365 million budget deficit his administration is projecting, Malloy said he has the plan ready. However, he said he wanted the cuts to be dealt with in a bipartisan manner.

“I’ll give some guidance on how to get there,” he said.

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(6) Comments

posted by: DirtyJobsGUy | December 5, 2012  3:36pm

If anything the states sales and income tax payments should increase this time of year.  But crappy retail sales and no bonuses could impact expectations for cash flow.  There also seems to be no adult supervision of spending.

posted by: JAM | December 5, 2012  5:08pm

What is Roy O talking about?
Transitioning to GAAP ( which hasn’t happened) isn’t going to solve a cash flow problem. It may better explain it, but it won’t solve it.
Boosting pensions ( as in contributions) requires cash outflows. And the pensions are so far under water (and the assumptions so optimistic) that this problem isn’t going away for a long while.
About the only thing he said clearly is that it isn’t DPM’s fault. WOW!
And you have to love DPM’s sudden desire for bipartisanship. Wasn’t interested when he created the mess, but sure wants the cover now.
Anybody sense panic is setting in?

posted by: state_employee | December 5, 2012  5:44pm

Malloy is such a liar.  I don’t think he is capable of telling the truth, ever.

posted by: Reasonable | December 5, 2012  9:58pm

Gov. Dan “The Deficit Spender Malloy” has not only spent us into oblivion, but now he is now borrowing money to cover up “his escalating miscalculations—by calling it a respectable sounding “line of credit,” which is simply more deficit spending. On top of it, Malloy continues to be “careless with the truth”

posted by: Fisherman | December 5, 2012  11:11pm

Mr. Malloy CLEARLY doesn’t understand how a budget works. He says “Listen, families have lines of credit or they go out and raise cash when things are tough so they can be ready for it…”

Mr. Malloy… Don’t you know that your girl Toni Harp told us last session that “A state budget is NOT like a household budget”?

posted by: johnnyb | December 6, 2012  12:01am

Spending. Bills need to be paid because of spending. Departments did not have to tighten their belts with this budget, there is spending going on everywhere. As an example though it is a small part of the budget- each and every workday state employees on many levels go out to their State car and drive it to their workstation where they do what most people do these days, check their computer. Some have to park at a State facility that is near their house but either way it is nonsense. If this free ride to work program was eliminated there would be no detectable impact on State services. Buildings are being heated that no one lives in.  Many things are done because that’s the way it has always been done. No one in management wants to be the one to stop the gravy train. They all want to protect their empire. It’s not their money so why bother. When you are cutting support for blind and the mentally impaired maybe someone could wake up in Malloy’s office!