Does Connecticut Have a Cash Flow Problem?
by Christine Stuart | Aug 17, 2010 11:52am
(7) Comments | Commenting has expired
Posted to: State Budget, State Capitol
A dispute dating back to 2009 bubbled up to the surface at Monday’s state Bond Commission meeting. The disagreement pitted Republican Gov. M. Jodi Rell against Republican lawmakers, who don’t believe that state Treasurer Denise Nappier is being honest about the state’s cash position.
“We do not, according to the Treasurer, have a cash flow problem,” Rell said. “These were dollars that were already going to be borrowed.”
Rell was referring to the $520 million in general obligation bonds approved Monday by the state Bond Commission.
Back in 2009 when the state’s revenues were lagging, Rell gave Nappier the authority to use $581 million short-term bond anticipation notes, which today were rolled over into $520 million in long-term general obligation bonds. The last time this type of financial transaction occurred was back in the 1990s. The Treasurer asked and received authority to use short-term bonds in 2002-03, but never needed to issue them.
The short-term bonds or BANs were used as a stop gap measure to pay for some operating expenses in anticipation of bond authorizations when less tax revenue was coming into the state’s cash pool. Republican lawmakers see the transaction as borrowing to cover previously borrowed debt.
“At the time, the Treasurer’s office asked for that authority to prevent a cash flow problem,” Rell added as she looked around for Nappier to see if she wanted to explain the complex financial transaction further.
Earlier at the Bond Commission meeting Nappier contended that it wasn’t “rocket science,” and rolling over the BANs into long-term debt will help that state’s cash position while meeting all of its debt service requirements.
Rep. Vincent Candelora, R-North Branford, said his concern is that the state is borrowing from capital projects to pay for its operating expenses.
Candelora, a member of the Bond Commission, said he voted against all the items on the agenda Monday because he’s concerned “we’re potentially using our bond funds to operate government.”
He said Nappier’s office even admits in an Aug. 9 memo that “without the issuance of those bonds, our cash position would fall to approximately $600 million in December, equivalent to just over one week of overall state expenditures.”
House Minority Leader Lawrence Cafero said sometimes you can’t control the amount of taxes coming into the pool, but you can control the spending coming out of the pool and that’s where the legislature should be focusing its energy.
He said at least state’s like California don’t mix their cash into one big pool so when taxes are lagging and they need to borrow money to cover it, they use tax anticipation notes to pay for the spending. He said that approach is more honest than commingling all the cash in one pool, like Connecticut does.
He said at the moment Connecticut is not being honest because it’s saying we’re borrowing money for a new railroad system, but we’re going to use the money to pay the electric bill first.
House Speaker Chris Donovan said it’s the Treasurer’s job to figure out how to move the cash around.
“You pay certain bills at certain times, and that’s the Treasurer’s job,” Donovan said.
He said the Treasurer has assured the public and the governor that everything is going fine and the bills are being paid.
(7) Comments
posted by: JAM | August 17, 2010 12:53pm
When you’re running deficits on a cash basis of accounting, by definition you have a cash flow problem. In order to pay the bills, they have to borrow either from the markets or other cash accounts being held outside the budget to cover the bills (just like the feds do with social security), and eventually these have to be paid back.
This isn’t rocket science.
posted by: GoatBoyPHD | August 17, 2010 2:39pm
I suggest we make Conptroller and Treasurer professional class jobs with qualifications. A CPA or CIA w/ an advanced degree and 5 years of post-Certification experience would do. Preferably Fortune 500 experience.
This whole notion that we can take someone who graduated from Barbizon and make them a COmptroller or Treasurer is dated in an era when financial vehicles are of increasing complexity and the budgets are nearly $20 Billion a year.
The qualifications were written when CT taxed far less than $100 a taxpayer in today’s terms when the words pension accruals were unheard of.
posted by: GoatBoyPHD | August 17, 2010 4:59pm
I have the solution and it’s better than California IOUs.
http://tinyurl.com/2fovk8m
posted by: James D | August 17, 2010 9:14pm
I think the Conptroller and Treasurer should have to have been CFOs for a fashion company or maybe a boomerang factory. Or else CIA agents and such. Cars are getting harder and harder to drive and very expensive. Ches McCartney. There’s a man with lots of self-conptrol.
posted by: mpalmer | August 18, 2010 8:50am
What to bond short term.
What to bond long term.
Perhaps the issue here isn’t so much a cash flow problem as it is an issue of a lack of leadership.
posted by: DrHunterSThompson | August 19, 2010 12:03am
the real issue is that there are few qualifications for public office. let’s see, unless you are running for AG you need: 1) to be breathing, 2) ahh ,,,,,, you need to be breathing .......
ever hear the governor try to talk about something complex? ever hear the treasurer try to explain something financial??
it’s mindboggling ..
HST