Republican House Minority Leader Lawrence Cafero is sounding the alarm bells over State Treasurer Denise Nappier’s planned sale of $427.8 million in pension investments to meet this year’s obligations to retired state employees and teachers.
In a statement Friday, Nappier countered that the sale of these pension assets to pay benefits is not news.
The sale of “pension assets in order to pay benefits has become a normal course of business — this is not news,” Nappier said in a statement. “And, these sales are strategically managed to maintain sufficient levels of liquidity while preserving the corpus of the plans. This practice has nothing whatsoever to do with the state’s cash resources to pay operating expenses.”
The Teachers’ Retirement Fund and the State Employees Retirement Fund are “projected to continue to have insufficient contributions and dividend and interest income receipts to offset cash commitments during FY13,” Nappier wrote in a March 6 letter to members of the Investment Advisory Council. “To maintain target cash levels, core long-term public market investments must be sold: $266.3 million of such sales is projected for TERF; $161.5 million is projected for SERF.”
Having to sell what have been described as “long-term public investments” is just another sign of how bad things are, Cafero said Wednesday.
“This is more troubling proof that Connecticut’s finances are in crisis and that our spending exceeds our revenues in every corner of the state bureaucracy,’’ Cafero said. “We are continually told that our budgets will balance and that we have enough revenue coming in the door. Neither is true.’’
Cafero has been vocal in the past about Nappier’s need to transfer bond funds to cover operating expenses. The situation was heightened this winter when Gov. Dannel P. Malloy gave Nappier permission to seek a line of credit of up to a $550 million in order to pay the state’s bills.
When Cafero and his caucus bring up the issue of the state’s cash flow, they are often “scoffed at” and “pooh-poohed” by Nappier’s office. But Cafero said he doesn’t care.
“Seven out of 12 months we had to do these temporary transfers to the tune of $1.6 billion,” he has said in reference to the 2012 budget year.
In 2013, there were transfers of bond fund proceeds to the common cash pool every month, according to cash reports submitted to legislative leadership.
Nappier’s office insisted in December that the amount of money it needed to transfer in 2012 was much lower than $1.6 billion 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, pension funds, and capital projects. Temporary transfers are made between the funds when necessary. Republican lawmakers have monitored the transfers closely for indications of trouble.
So, what do cash flow and state pensions have to do with the state budget?
“The proposed Democratic budget for the next two years borrows hundreds of millions of dollars more to pay for operating expenses,” Cafero said. “On the pension side, we cannot meet obligations through June 30 for retirees so we are forced to sell off assets. We have holes in our budget and pension plans because we have not addressed spending cuts and structural changes that must be made.”
Nappier disagrees that there’s any correlation between the pension funds and the state budget.
“Simply put, pensions and the General Fund are two separate pots of money,” she said.
In a statement, Nappier said Cafero shouldn’t forget that “his colleagues at the Connecticut General Assembly historically have voted to contribute less than what the fund actuary said was required. Today, we are feeling the impact of that ill-advised practice as represented by a significant unfunded liability which, in turn, has increased the need to liquidate pension fund assets to meet pension benefit payroll and other expenses.”
The good news is that since the Great Recession, the pension funds have rebounded, Nappier said.
For the calendar year ending Dec. 31, 2012, the Connecticut Retirement Plans and Trust Funds realized an investment return of 13.47 percent. As of March for the current fiscal year, the pension trust funds stand at $26.3 billion, up $2.3 billion since the beginning of the fiscal year, while paying out $600 million in pension benefits.