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.