The state no longer needs the emergency credit line set up last winter to ensure it can pay its bills on time.
But whether that means Connecticut’s finances are any better off was a matter of debate Thursday at the Capitol.
One of the main reasons the state’s coffers are flush with cash is because it borrowed nearly $900 million this week to postpone two controversial debts until after the next gubernatorial election.
“A long-term structural problem with the state’s general fund has finally been addressed head on,” State Treasurer Denise Nappier wrote in a statement Thursday. “And we are on a disciplined path to resolve the GAAP deficit once and for all.”
The treasurer, a Hartford Democrat, was referring to $560 million in state bonds sold this week to investors to assist the state’s conversion to Generally Accepted Accounting Principles.
Unlike the modified cash basis system the state had long used, under GAAP, expenses and revenues must be promptly assigned to the year in which they were incurred or received. In the context of the state budget, the practice ends an array of accounting gimmicks that have pushed current expenses into future years. If GAAP standards are used, state finances are about $1.2 billion in the red.
Gov. Dannel P. Malloy and his fellow Democrats in the legislature’s majority originally planned to close that margin by setting aside $80 million annually for 15 years starting this July.
But Malloy, who has struggled to erase the huge budget deficit he inherited when he took office in January 2011, didn’t meet that goal. And last June he and the legislature ultimately decided that the state would borrow — and therefore pay interest — to reduce a debt it effectively owes itself.
Because of the GAAP differential, as well as a sluggish recovery from the last recession, the state’s cash flow has been poor in recent years, forcing Nappier frequently to dip into capital programs, temporarily transferring funds to pay operating expenses. And after receiving approval from the governor, Nappier established an emergency line of credit of $300 million last December.
But Nappier’s office hasn’t drawn from the line of credit to date, and no transfers from capital programs have occurred since April. The cash pool has grown steadily, and the pool’s $725 million balance in early September was $576 million higher than at the same time in 2012. Weekly disbursements from the cash pool average approximately $540 million, according to the treasurer's office.
In addition to the new borrowing for GAAP, the cash pool also got a boost from another bond issuance this week. The state also borrowed $314 million to refinance a portion of the $1 billion operating debt left over from 2009.
“These transactions are important parts of our efforts to deal honestly and directly with the debts and liabilities built up over many years of less-than-transparent budgeting” by prior administrations, said Benjamin Barnes, Malloy’s budget chief. “Through this bond issuance, we are fully committed to paying down these liabilities.”
The state won’t have to begin repaying either of these debts until after the 2014 gubernatorial elections. It also faces more than $200 million in new interest charges because of this borrowing.
And Republican legislators said the bill Connecticut faces in a couple of years is growing.
Nonpartisan analysts are projecting Malloy and the legislature have built a $712 million deficit — equal to about 4 percent of annual operating costs —into the first post-election budget.
“Our cash flow situation has improved, but this is not a time for us to pat ourselves on the back,” said Rep. Vincent Candelora, R-North Branford, a veteran member of the Finance, Revenue and Bonding Committee. “We have basically replaced this emergency line of credit with the new borrowing this week.”
Senate Minority Leader John P. McKinney, R-Fairfield, called the new borrowing “fiscally irresponsible,” particularly in light of the post-election deficit forecast.
“We are going to pay higher interest rates so we can spend more money now,” said McKinney, who launched his gubernatorial campaign this past summer.