Republican lawmakers sounded the alarm bells Friday after reading State Treasurer Denise Nappier’s Jan. 3 report which said the state‘s common cash pool was running low.
“It is outrageous that the Democrats rammed through the largest tax increase in history and we are borrowing millions for state employee salaries and to keep the lights on,“ House Minority Leader Lawrence F. Cafero Jr., R-Norwalk, said Friday.
What’s happening is the state is spending more than the amount of revenues coming in and it’s betting that it can borrow money from capital infrastructure projects before the bill comes due, Cafero said.
Under the state’s laws, transferring money from bond proceeds within the common cash pool is legal, but Republicans have for years objected to the practice, which they believe allows the state to hide its actual fiscal health.
Nappier said she wished Republicans had contacted her before firing off the press release Friday because the money transferred from the bond account has already been returned.
“Temporary transfers are conducted in accordance with a formal and structured process that is part of the state’s longstanding, cost-effective and sanctioned practice for managing fluctuations in the state’s flow of cash to and from separate funds,” Nappier said. “As always, those monies are returned to the bond proceeds accounts when other cash balances improve.”
Nappier called Cafero’s press release “political gamesmanship.”
But it was the statement from the Office of Policy and Management Secretary Ben Barnes that Cafero and Rep. Vincent Candelora, R-North Branford, found more offensive
Barnes bristled at the notion that Cafero would say the state was “borrowing to cover daily expenses.”
“Anyone in business knows that cash and operations are not the same thing, and so should Rep. Cafero,“ Barnes said in a statement. “The budget passed by the legislature was balanced, and continues to be balanced today. The assertion that the state is using ‘borrowing to cover operating gaps’ is false.”
Cafero said for Barnes to allege “the reason that the state has less cash on hand is that for decades we have not balanced our budget according to Generally Accepted Accounting Practices,” is simply an attempt to distract someone from the issue which is the state’s cash position. The state’s cash flow and the budget document are two totally different things, Cafero said.
Candelora, a former member of the Bond Commission, said Friday that this type of transfer has only occurred two times in the recent past: once in 2003 and once in 2009. Both events occurred when the stock market underperformed and the global economy tanked.
“Historically this has never happened at a time when revenues are projected to be on target,” Candelora said.
Both Barnes and the state comptroller are projecting that the state will end the fiscal year with more than a $80 million surplus.
In an interview Friday night Barnes said the procedure Nappier used “was completely legal, completely acceptable by law by IRS tax regulations, completely standard practice.”
“We took in on one type of income tax we take in tens of millions of dollars in tax receipts,” Barnes said.
“It’s a cash management practice. We did not borrow money for operating expenses, those monies were covered by current revenues,” Barnes said.
He said the need to do this at a time when revenues to the state are projected to be healthy is the result of years, and years of poor long-term financial decisions that were made by past administrations.
He said if the state had a rainy day fund it wouldn’t have a problem with cash flow, but that was gone before the Malloy administration took office.
“It took us years to get into this situation, it’s going to take us years to get out,“ Barnes said.