ctnewsjunkie file photo
State Treasurer Denise Nappier (ctnewsjunkie file photo)

HARTFORD, CT — As they wait for legislative leaders to finish drafting a bipartisan budget proposal, Gov. Dannel P. Malloy and State Treasurer Denise Nappier are issuing some words of caution.

On Saturday, Nappier warned that the state may not have the cash to pay its bills if the state spends more on capital projects than it can raise through bond sales. She said if that happens then the state would need to cover those capital project costs with operating cash.

“This would drain cash resources, and could require external borrowing,” Nappier said. “Moreover, while my office is responsible for funding state obligations, we don’t control expenditures. Therefore, any effective cap on bond-funded capital expenditures should place the responsibility for enforcing the cap on the governor, the Office of Policy and Management, and agencies making the expenditures.”

Legislative leaders said last week they’ve reached a tentative budget agreement that includes both a spending and bonding cap. However, they have yet to release the language defining how they accomplish both caps.

Nappier also expressed concern about whether any type of cap would limit funding to state pension plans. Over the past several years, the state has been making the actuarially required contribution, but in the past it hasn’t always made that payment, which has led to Connecticut’s state employee pension ranking among the worst funded in the nation.

While the state is still catching up with the unfunded portion of the funds, “we still have a considerable way to go,” Nappier said. “Let’s not resort to gimmicks that slow our progress.”

She also warned that pushing any part of the teacher’s retirement system contributions into the future may not adhere to the bond covenant adopted in 2008 in conjunction with the sale of pension obligation bonds. She said altering the state’s require contribution should not occur without a formal legal analysis.

Lastly, Nappier said any plan to deposit increased employee pension contributions by teachers into the General Fund instead of directly into the Teachers’ Retirement Fund could result in significant tax liability for teachers. It would also jeopardize the tax-exempt status of the fund.

The Republican budget, which Malloy vetoed at the end of September, would have funneled the increased contribution to the General Fund, but House Minority Leader Themis Klarides, R-Derby, has said that was a drafting error and that the intention was always to have it go to the teacher’s pension fund.

The Connecticut Education Association is calling it a “teacher tax.”

Legislative leaders said the new bipartisan budget will require teachers to contribute 1 percent more to their pensions. Teachers, who don’t receive Social Security, currently pay 6 percent.

Meanwhile, Office of Policy and Management Secretary Ben Barnes said in his monthly letter to state Comptroller Kevin Lembo that they may have revise their executive order if there’s not a budget in place over the next few weeks.

The state is currently running a $93.9 million deficit for fiscal year 2018.

While they plan to offset the deficit with $94.5 million remaining unspent in the Municipal Revenue Sharing Account, they warned revenues may be falling below projections.

“The most significant area of concern is in the Sales and Use Tax, which is growing at approximately 1.5 percent, a level which would underperform the May 1st consensus estimate by approximately $45 million,” Barnes wrote. “This weakness is largely offset by trends in other areas, including Inheritance and Estate tax receipts which are outperforming targets by $15 million; Miscellaneous revenue due to timing of receipt of a $14.1 million settlement; and Refunds of Payments for escheated property that are running below expectations by $10 million.”

Barnes said they may also revise the executive order to account for the savings from the state employees labor contract.

“If a budget for the FY 2018 and FY 2019 biennium is not completed soon, we anticipate issuing another revision to the Executive Order Resource Allocation Plan,” Barnes said.