After dipping frequently into its capital programs for more than two years to pay its bills, state government may have turned a corner with its cash flow troubles.

The latest monthly report from state Treasurer Denise L. Nappier, submitted this week and covering July, shows a third consecutive month during which Connecticut paid its bills without having to employ any controversial transfers from capital projects.

The common cash pool also held a weekly average of $586.4 million in July, about $225 million higher than it did one year earlier, when Nappier warned legislators and Gov. Dannel P. Malloy of impending cash flow troubles.

The treasurer also told The Mirror this week that if the state’s cash position remains strong through December, she plans to cancel an emergency, $300 million standby line of credit secured as a precautionary measure in late 2012.

“In a nutshell, the State’s cash position is solid and continues to show signs of steady improvement,” the treasurer wrote in a statement. “We have enough to pay the bills; however we remain vigilant during this tenuous recovery, as evidenced by our high liquidity levels.  In the meantime, more money is coming in these days than going out.”

That frequently hadn’t been the case over the past two years as state government struggled with a sluggish recovery following the last recession.

Connecticut operates from a common pool that mingles tax revenues, federal grants and receipts from fees and licenses with borrowed funds.

Weekly disbursements from the cash pool average approximately $540 million, according to the treasurer’s office, which is allowed to transfer dollars, temporarily, between operating and capital programs.

Some legislators — particularly minority Republicans — have argued it has happened too frequently in recent years, calling it a symptom of state government’s overall poor fiscal health.

Malloy, a Democrat, says that it stems from the fiscal gimmicks and poor savings habits that plagued state finances for decades before he took office in January 2011.

According to the monthly treasurer’s cash flow reports, her office transferred funds from capital programs for eight straight months, from November 2011 through June 2012.

After receiving approval from the governor, Nappier established an emergency line of credit of $300 million last December as state government entered another six-month stretch of transferring from capital projects to cover bills and other disbursements.

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 preliminary numbers for September look good as well.

“For the foreseeable future, I do not expect there to be a need for interfund transfers because the state’s cash position is strong,” Nappier wrote in her statement. “Common cash pool balances that are used to cover operating expenses have rebounded – the balance of $725 million — as of September 7, 2013 — is $576 million higher than last year.”

Malloy’s budget office also is optimistic about the cash pool’s direction. “We’ve taken prudent and necessary steps to slow the rate of spending,” Office of Policy and Management spokesman Gian-Carl Casa said. “That’s clearly one of the factors in improving cash flow.”

The cash pool is about to enter a crucial test period, though, as November and December traditionally mark a low period due to seasonal patterns in tax receipts and bills.

Rep. Vincent Candelora, R-North Branford, a veteran member of the Finance, Revenue and Bonding Committee has been one of the most vocal proponents of the cash flow troubles as an indicator of greater financial troubles within state government.

Candelora said this week that while the three-month trend away from transfers is a modest, positive sign “it doesn’t escape the fact that we are no where near a healthy position like we were in 2006 and 2007.” The state’s emergency budget reserve, commonly known as the Rainy Day Fund, reached a record high of nearly $1.4 billion following the 2007-08 fiscal year.

Candelora also predicted that unless state officials keep a close watch on expenditures in the new, two-year budget that began in July, “our cash flow situation will only get worse again.”

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