Partisan battle erupts over sale of assets to cover pension payments
The partisan battle over state government’s finances heated up again this week after a top Republican lawmaker questioned the sale of pension fund assets to cover benefits owed to retired workers.
But state Treasurer Denise L. Nappier countered Friday that “nothing constructive can be gained” by House Minority Leader Lawrence F. Cafero’s comments, adding that state assets have to be sold on occasions during tough fiscal times.
“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,” said Cafero, a Norwalk Republican. “We are continually told that our budgets will balance and that we have enough revenue coming in the door. Neither is true.”
Nappier recently informed the state’s Investment Advisory Council that her office would liquidate $266 million in “core long-term public investments” from the pension fund for state employees, and $161.5 million from the teachers’ fund.
Cafero added that Nappier also notified the IAC that both pension funds “are projected to continue to have insufficient contributions and dividend and interest receipts,” to meet pension payrolls.
Both pension programs suffer from decades of underfunding as past governors and legislatures raided or deferred payments in tough fiscal times.
According to the last actuarial analyses, the state employees’ fund held enough assets to cover about 42 percent of its long-term obligations, and the teachers’ fund held 55 percent.
Analysts typically cite 80 percent as a healthy ratio.
But Nappier wrote in a statement Friday that “the sale of … pension assets in order to pay benefits has become a normal course of business. This is not news.”
She noted that while pension investment earnings have improved since the last recession, there are still signs that the economy is far from strong.
State budget analysts recently downgraded revenue expectations for the next two fiscal years by nearly $500 million this week.
“The recent release of consensus revenue estimates was sobering,” she wrote. “… We see on the horizon significant and intractable deficits. No one can argue that the state of Connecticut faces a tough fiscal road ahead.”
Cafero, who is weighing a bid for governor in 2014, has been at odds with Nappier and Gov. Dannel P. Malloy — both Democrats — over the state’s fiscal health for the last two years, and particularly its ability to pay its bills on time.
In an average week, the state disburses about $540 million to pay bills and meet other obligations, according to the treasurer’s office.
The treasurer’s office is allowed to transfer dollars — temporarily — between operating and capital programs. Though it usually is done infrequently, it has been employed during tough fiscal times when seasonal lulls mean bills due exceed tax receipts.
But it has happened with increasing frequency.
Nappier warned lawmakers last June that “the common cash pool is trending downward over time and the need for temporary transfers or other resources is growing.”
By December, she sought and received approval from Malloy to secure a line of credit worth up to $550 million to bolster the cash pool. By the middle of that same month, the pool held less than $27 million — equal to 1/20th of an average week’s worth of bill payments and other disbursements.
Malloy, who says he wants to avoid raising taxes after approving a $1.5 billion hike in 2011, has proposed borrowing $750 million to bolster the cash pool. The governor also is seeking to refinance state operating debt from 2009.
These moves would add about $217 million in interest costs to the state budget, and the governor’s plan would defer most of those charges until the first budget after the November 2014 state elections.
“We have holes in our budget and pension plans because we have not addressed spending cuts,” Cafero said.
But Nappier said “nothing constructive can be gained” from Cafero’s “serious misstatements” linking the pension and cash pool issues.
“Simply put, pensions and the General Fund are two separate pots of money,” the treasurer said.
Cafero responded that the two issues are linked. “Both reflect the overall poor fiscal health of our state,” he said.
“When all is said and done, I can assure our Republican colleagues that Connecticut’s pension funds will remain solvent,” Nappier added. “We are managing the funds prudently and in a fiscally responsible manner, and doing so while traveling uphill, so to speak, because we are working to build the pension fund despite past years of insufficient state contributions to the fund.”
Though state pension assets declined in value during the last recession, they have rebounded considerably since then.
According to the treasurer, investment returns were up nearly 13.5 percent in 2012 and by almost 12.1 percent during the first quarter of 2013.
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