With All This Red Ink: Why Haven’t We Run Out of Money Yet?
Since the Democrats passed their budget in September, Connecticut has been plagued with unanswered deficits. In 2009, due to a failure to address our declining revenue, the Democrat legislature borrowed $1 billion dollars to fill the hole that fiscal year. Paralyzed with inaction in 2010, the state faces another $1.2 billion shortfall: $520 million in 2010 and over $725 million in 2011. Where is the urgency to address this issue? Why hasn’t the alarm sounded and shortfalls resulted? State Treasurer Denise Nappier did an extraordinary job of masking the problem though bonding, or debt, in order to pump cash into the state’s coffers. It’s the Treasurer’s job to manage cash flow issues for the state. While her actions do cure Connecticut’s cash crunch woes for now, she only continues to enable irresponsible spending by the majority party in the legislature, thus hurling Connecticut toward insolvency.
In March 2009, the Treasurer received authorization to cover cash flow shortages and, in April 2009, accepted a new $700 million line of bonding debt just to beef up the state bank account. Now, $353 million of that debt is due for payment in April; only one month from now. Faced with the proposition of paying that money back and reducing Connecticut’s bloated indebtedness, the Treasurer’s office is contemplating rolling this obligation over for another year.
If that doesn’t make you squeamish, the Treasurer is using the same March 2009 debt authorization as a blank check to “temporarily” borrow, again, for cash flow purposes well into the state’s financial future. She also took out a line of credit for $580 million with several banks which costs Connecticut $2.5 million dollars per year. While a 1.48% interest rate for this line of credit may seem impressive, interest payments overall on state debt range from $15 million to $27 million. The very implications of needing to use this amount of money to cover basic cash flow should alarm Connecticut residents. Simply put, the State of Connecticut took out a home equity loan to pay its grocery bills.
Completely separate from the $1 billion dollars borrowed in the legislature’s 2009 budget, their plan also required $1.3 billion of future borrowing, known as “securitization.”
If that’s not bad enough, the Treasurer requested millions of dollars in debt service for 2010 and 2011, once again, for more “short term” borrowing to cover cash flow needs. This is no longer one time use; we have a structural deficit problem, and we still don’t know how much “short term borrowing” the Treasurer intends to make. My guess is the answer lies in whatever financial plans the legislature acts on.
Based on an unprecedented pattern of inaction by the legislature, I believe treasurer Nappier is hedging her bets that a new plan will not be in place in time to keep the state’s checkbook rolling. Should the legislature gavel out in May without a plan, or worse, it pass a plan which ignores our problems only to be vetoed by the Governor, the Treasurer will need the continued $700 million in bond funds, $581 million in a line of credit, and an unspecified amount of other lines of credit in place to keep the state afloat.
One reason this short term borrowing scheme is particularly dangerous is because most of it falls outside the state budget process. Usually “short term,” or temporary, borrowing washes itself out within a year, so the debt comes and goes without much notice.
While I recognize the Treasurer’s obligation is to manage Connecticut’s cash flow and is subject to the budgetary actions of the legislature, the failure to communicate this structural borrowing scheme to legislators only enables their appetite for big spending and creates false sense of financial security. Dialogue between the branches must begin. Masking the problem to survive the next election cycle is how we got here in the first place.
This week I voted against the Bond Commission’s motion to issue another $500 million in bonds. I fear my words and actions were hardly noticed. Legislators might mention our budget woes while waiting in the lunch line or passing people in the hall, but no action seems to happen, just empty words. At some point, the Treasurer and Governor need to exercise some tough love, stop borrowing, and allow the legislature to feel the consequences of their irresponsibility. We must face the music before the situation is so bad we hit headlines like California and New York. Let’s not shirk responsibility and leave our house in a mess for the new Governor and new legislature. There is still time. Otherwise, the pain Connecticut will feel in 2011 will make us wish we could hit the do-over button.
Vincent J. Candelora
Finance, Revenue and Bonding Committee