(Updated 3:34 p.m.) The state of Connecticut is low on cash, so state Treasurer Denise Nappier is seeking Gov. Dannel P. Malloy’s approval to seek up to $550 million in credit.
In a letter to Malloy, Nappier says that the state has depleted all but $103 million of the $1.4 billion budget reserve as the state’s cash position has steadily fallen.
“As of today, the common cash pool has a negative balance, which has required the temporary transfer of $366 million from bond fund investment accounts,” Nappier wrote.
“Given the fiscal challenges facing the state, I believe it is prudent to prepare for the potential — though still not yet certain — need to borrow funds externally in order to fund cash flow requirements for current operations,” Nappier wrote Monday in her letter to Malloy.
Malloy approved of the measure.
“While not something that is undertaken lightly, this action is necessary because of financial decisions that were made over a long period of time,” Andrew Doba, Malloy’s spokesman, said.
“Allowing access to this line of credit will make sure that service providers and contractors are paid on time for the hard work they do,” he added.
Rep. Vincent Candelora, R-North Branford, who has been watching the state’s cash position closely, said the news doesn’t come as a surprise.
“It puts into question to what extent the state will be able to meet its obligations, including payroll,” Candelora said.
He said he doesn’t believe the situation will work itself out before Nappier is forced to obtain the line of credit.
Nappier’s office insists that it’s a precautionary measure and there’s no indication that the state will need to take the line of credit.
“How many times are we going to be played a fool?” Candelora said.
A negative cash flow will necessitate the state budgeting for it, so the $2.2 billion deficit project for the next two fiscal years will be more like $4 billion, he opined.
As recently as June ,Republican lawmakers were sounding the alarm about plummeting cash reserves.
House Minority Leader Lawrence Cafero, R-Norwalk, said his caucus was “scoffed at” and “pooh-poohed” when they raised questions about the temporary transfers of cash from bonded projects to operating expenses.
“Seven out of 12 months we had to do these temporary transfers to the tune of $1.6 billion,” Cafero said.
Nappier’s office insists the number is much lower because even though they reported temporary transfers from the capital projects account to operating funds some of the funds were returned.
The state has a common cash pool that includes money for operating expenses and capital projects. Temporary transfers are made between the two when necessary. Republican lawmakers have monitored the transfers closely for indications the state was in trouble.
“The state’s cash position is such that we’re going to run out of money and then we’ll be like California handing out IOUs,” Cafero said.
The Malloy administration was quick to point out that seeking a line of credit is different from what then-Gov. M. Jodi Rell did back in 2009.
In 2009, when the state’s revenue was lagging, Rell gave Nappier authority to use $581 million in short-term bond anticipation notes, which in August 2010 were rolled over into $520 million in long-term general obligation bonds.
“It’s also important to note that this is not the same action that was taken by Governor Rell in 2009. In that case, the state used bond funding to cover operating expenses,” Doba said. “We are not doing that. This is a short term line of credit that will cost the state relatively little and allow necessary payments to be made if the treasurer elects to access it.”
However, Candelora painted a different contrast, saying that “at least in 2009 there was some demonstration of how the cash pool would recover from the preventative measures the state planned to take.”
The state’s budget deficit and the lack of a robust rainy day fund were cited by Nappier and the Malloy administration as contributing factors to the state’s poor cash position.
“ln addition, we have the uncertainty facing all states regarding the impact of the federal “fiscal cliff” on federal funding, tax rates, and economic growth nationally,” Nappier said.