Connecticut has one of the highest indebtedness in the country. Unfortunately, because revenues continue to drop, our percentage of debt in relation to how it funds the overall budget has increased. Now the legislature must cancel proposed bond projects this session in order to comply with state law and prevent a downgrade of our bond rating. We should only be borrowing what we can afford to pay back.
This session, I’m proposing legislation that isn’t glamorous or will get headlines, but I believe it will provide the legislature an important piece of information in the budget process. The legislature receives reports on tax revenues and spending each month. However, I was surprised the legislature does not also receive regular reports on Connecticut’s indebtedness or cash flow. Having this information on a regular basis would enable state legislators to have a clearer picture of the state’s financial situation; especially since currently debt constitutes ten percent of our budget.
Available state government cash consists of four things: (1) tax revenues and federal dollars, (2) bond funds, (3) the Transportation Fund, and (4) all other funds, including restricted funds. These funds are commingled, and, even though they are separated by an accounting entry, they constitute one total fund. When tax revenues drop, the state will use money from the bond funds to pay for operating costs. When tax revenue is up, the state may use tax dollars to fund capital projects. The system makes sense because it provides Connecticut with flexibility on when to issue bonds and invest.
In bad times, this system can produce a false sense of security because the state replaces tax revenue with bond (debt funded) revenue in order to operate the government. This shelters the state from feeling the cash crunch it should feel. The state will feel the cash crunch, however, when those capital projects need funding. As of February 13, 2010, available cash was $2.364 billion, which tracks to about the same amount of money on hand in previous years. However, 1.154 billion of this constitutes bond, or debt funds. Last year, this debt amount constituted of only 14% of the state’s available cash; today that total is 49% of available cash.
These numbers concern me especially when I consider how much more bonds may be issued that have already been approved. As of February 1, 2010, $1.1 billion of bonds have been approved, but have not yet been issued. The State Treasurer plans to issue another $500 million in bonds this spring. That means, while the legislature begins to cancel bond projects to reduce our indebtedness on one end, the State Treasurer will be adding to our total debt on the other. This process hardly makes sense.
It is imperative the legislature begin applying basic common sense principles when governing. In a previous issue, I pledged to you five common sense principles, one being borrow only what you can afford to pay back. Because the legislature lacks the appropriate information, they don’t know how much they are borrowing, how much they have borrowed, or how much they will be borrowing.