Faced with “reduced levels of cash,” state Treasurer Denise Nappier received approval from Gov. Dannel P. Malloy to seek lines of credit for as much as $550 million, if needed, to fund daily operations.
“Given the fiscal challenges facing the state, I believe it is prudent to prepare for the potential — though still not yet certain — need to borrow funds externally in order to fund cash flow requirements for current operations,” Nappier wrote to Malloy on Monday.
Nappier’s request doesn’t mean the state will automatically obtain the emergency loan; it simply sets into motion the process should the money be needed.
“The Governor has approved a plan that will allow me to put in place a line of credit that the Treasury may or may not tap into, depending on cash flow needs,” Nappier said. “At present, the timing of any drawdown is not exact. Given the growing deficit projections and continued pressures on cash, I thought it prudent to take this precautionary measure. And without a budget reserve fund – which was virtually depleted in 2010 – this line of credit is essentially a low-cost buffer that makes sense given everything that we’re facing.”
Nappier’s request was one more piece of grim budgetary news received by Malloy in recent days. On Monday, state comptroller Kevin Lembo estimated the state’s budget deficit at at least $415 million and said the number could grow even larger by the end of the fiscal year on June 30.
The Malloy administration said fiscal choices made in years past has left it little choice but to grant Nappier permission to seek the lines of credit if she deems it necessary.
“While not something that is undertaken lightly, this action is necessary because of financial decisions that were made over a long period of time,” said Andrew Doba, Malloy’s communications director.
“The state’s failure to convert to GAAP, the exhaustion of the rainy day fund and the decision to borrow to cover operating expenses all contributed to the state’s low cash flow. Allowing access to this line of credit will make sure that service providers and contractors are paid on time for the hard work they do,” Doba said.
Republican legislative leaders said the move signifies a “new phase” in the state’s fiscal problems.
“The State of Connecticut’s finances have deteriorated to the point where we are no longer just using money from bond issuances to defray operating costs, but are now faced with the prospect of resorting to lines of credit to meet our obligations,” House Republican Leader Lawrence Cafero said. “We have reached a new phase: outright borrowing to pay operating expenses.”
Doba noted that Republican Gov. M. Jodi Rell, Malloy’s immediate predecessor, took a different approach when faced with a shortfall in 2009.
“In that case, the state used bond funding to cover operating expenses. We are not doing that,” Doba said. “This is a short term line of credit that will cost the state relatively little and allow necessary payments to be made if the treasurer elects to access it.”