Republican legislative leaders claimed Tuesday that Gov. Dannel P. Malloy’s decision to use $222 million that had been reserved to pay off 2009 borrowing won’t help the state’s credit rating.
Just two months ago, the Malloy administration told the Wall Street credit agencies that it would pay off the 2009 Economic Recovery Notes.
“It is of crucial importance that the governor, at very least, be honest with the bonding agencies,” House Minority Leader Lawrence Cafero, R-Norwalk, said Tuesday.
Sen. Minority Leader John McKinney called the plan to balance the budget “fiscally irresponsible.” He said Republicans are asking the governor if he’s alerted the rating agencies that the information his administration provided in March is no longer correct.
The state makes two presentations a year to the three credit rating agencies.
“The diversion of these funds to finance operational expenses is fiscally irresponsible and will lead to another downgrade by the agencies and ultimately higher interest rates on future bond issuances,” McKinney and Cafero wrote in a letter to Malloy on Tuesday.
The duo claimed that the Malloy administration made a presentation to credit rating agencies touting legislation which required the payment of the Economic Recovery Notes.
Ben Barnes, secretary of the Office of Policy and Management, said in a phone interview Tuesday evening that payment of the notes obviously “didn’t make a difference to them.”
He said the same information was included in a previous presentation to the three rating agencies. One of the three, Moody’s Investor Services, downgraded the state.
“Our efforts to pre-pay the Economic Recovery Notes didn’t carry much weight with the rating agencies,” Barnes said.
Moody’s Investor Services downgraded Connecticut’s rating from Aa2 to Aa3 in January noting “Connecticut’s high combined fixed costs for debt service and post employment benefits relative to the state’s budget; pension funded ratios that are among the lowest in the country and likely to remain well below average; and depleted reserves with slim prospects for near-term replenishment.”
The state is facing a deficit in the current fiscal year and the administration has a responsibility to present the General Assembly with a deficit mitigation plan, Barnes said. Using money reserved to pay off the notes is part of the solution the administration is putting forth. In addition, Barnes said he gave the chairs of the Appropriations Committee a list of spending cuts for the 2013 budget.
The Republicans seem to be suggesting the administration should do something else to erase the deficit, but Barnes pointed out “they don’t offer some other alternative for closing this gap.”
McKinney and Cafero called the use of the funds a “gimmick.”
“It’s a long litany of broken promises by this governor,” Cafero said. “. . . That he would not borrow money to pay operating expenses — he’s broken that promise as well.”
Malloy bristled at the use of the word “gimmick.”
“For Republicans to lecture me on what is or is not an appropriate way to balance the budget — listen I didn’t run up a structural deficit of $3.6 billion,” Malloy said. “I didn’t spend every dollar that was in the cookie jar.”
Malloy made clear that he inherited a $3.6 billion deficit created by the previous administration.
Asked if spending cuts would be harder, Malloy said “spending cuts are hard. Change is hard. Try living my life and telling people they have to change.”
He maintained that the budget shortfall wasn’t as bad as some were making it out to be.
“It’s a one percent miss. I’ll admit that,” Malloy said. But he refused to accept the Republicans’ argument that it makes his first budget a failure.
“I think the failure in Connecticut’s most recent history is the building of a $3.6 billion structural deficit,” Malloy said.