(Updated 12:42 p.m.) State Treasurer Denise Nappier wrote to legislative leaders Tuesday to let them know the state’s cash position had declined and late last week she transferred money from bond proceeds to help cover operating expenses.
“The common cash pool, which covers operating expenses, has declined to levels which prompted my office to commence temporary transfers from bond proceeds investment accounts,” Nappier wrote in her Nov. 18 letter. “These transfers are consistent with the state’s long-standing and sanctioned process for managing fluctuations in the flow of cash to and from separate funds. Since November 13th to date, such transfers total $160 million, and more such transfers over the next month are likely until revenues increase in late December.”
No other transfers between bond fund investment accounts and the common cash pool had been necessary since April 2013.
Nappier explained that the transfers were necessary because of the current budget deficit and the decision by the federal government not to pay the state for some of its Medicaid population.
The federal government deferred partial payment to the state for its expanded Medicaid population during the summer. Since the legislature moved Medicaid outside of the normal budgeting process, the deferral wasn’t reflected in surplus or deficit figures, but impacted the state’s cash flow because the state was still paying providers on behalf of its Medicaid patients. It had expected to receive 100 percent reimbursement from the feds, but as of this month it had only received 50 percent reimbursement.
In the meantime, the state has continued to negotiate with the Centers for Medicaid and Medicare Services in an attempt to recover the second half of the payment.
“We are working closely with CMS, the federal agency charged with administering the Medicaid program,” Malloy administration budget director Ben Barnes said last week. “We have identified a path forward which will lead to release of the deferral later this year, and avoid further deferrals. We are working to execute that approach. It’s never easy, but we are in a far better position than we were at the time of the deferral several months ago, and are more confident than ever at a positive resolution.”
In her letter, Nappier tried to put a positive spin on the cash flow situation reminding lawmakers that they delayed payments on the Economic Recovery notes and as a result will see about $66 million in savings next month that can be used to reduce this year’s deficit. In addition, “debt service savings are expected later this week from the current $550 million general obligation bond sale that could further improve the fiscal situation.”
Rep. Vincent Candelora, R-North Branford, said the cash flow situation is significant. Typically, November is a tough month for the state because it’s paying out more than it’s receiving, but this is different from other years.
“I’m a little alarmed we’re at this point in November,” Candelora said Wednesday morning. “The last time we fell into this situation we were faced with a much larger deficit.”
He questioned the use of some of the money in the common cash pool, which is tied to a bond covenant specifically for the transition to Generally Accepted Accounting Principles.
“My concern is the swing here is much greater,” Candelora said.
The state Bond Commission met Wednesday and approved borrowing more than $267 million in general obligation bonds and $1 billion in special revenue and other types of bonds. The borrowing exceeded Malloy’s self-imposed $1.8 billion bonding cap.
The agenda approved by the commission puts the state’s borrowing at $1.97 billion for the calendar year.
Sen. Scott Frantz, R-Greenwich, said one of the things Wall Street rating agencies “cannot stand is when an entity … issues bonds and uses the proceeds to pay for general fund expenses on a daily basis.”
“This is a huge red flag, unless corrected very quickly will put us into a downward debt spiral,” Frantz said.
Malloy said he made the decision to exceed the “soft” bonding cap after taking a number of issues into consideration, “not the least of which was the very favorable interest rate that we can finance debt at.”
Candelora said that’s like going out and saving $500 on the purchase of a $1,000 suit.
“You still have the $500 that you owe to pay for that suit,” he said. “I’m concerned as we face this next fiscal crisis, which has been deemed a permanent fiscal crisis, that we are losing all the tools in our tool chest to address the issue.”
Frantz wondered how long the state can keep the shell game going.
As far as the cash situation is concerned, Malloy said he doesn’t share the “significance” the Republicans put into the issue.
“I think it’s an appropriate step to take to continue operations in the normal course,” Malloy said. “I think I counted up in the last two administrations at least 12 occasions when that took place in the regular course of business without a whole lot of comment.”
Malloy said the state is currently in a “bit of a trough” and Nappier wants to make sure there are sufficient cash in accounts and “this is a standard procedure.”
