How Can Connecticut Be Out of Cash?

Posted on January 16, 2012. Filed under: Uncategorized |

The following piece appeared in the North Branford local newspaper a few days ago and raises an important issue regarding the financial health of Connecticut.  Rep. Vincent Candelora has given permission for this to be posted on our blog, as it impacts all of us.

Op-Ed: With Tax Increases, How Can Connecticut Be Out of Cash?

Rep. Vincent Candelora, R-North Branford

Groundhog day came a bit early at the state Capitol. The latest release of the Treasurer’s cash flow report showed that the state’s operating cash fell below zero, thus requiring the Treasurer to temporarily borrow from the state’s bond proceeds in order to continue to pay the bills. While this practice is an appropriate exercise of the Treasurer’s authority, it raises a red flag and certainly merits a discussion on why this happened.

When our check book balance drops below zero, Connecticut has the ability to use money from our capital account, namely bond proceeds earmarked for capitol projects, for operating cost. While this system creates efficiencies for our cash management, it certainly hides the fact when we run out of operating revenue. Two years ago, I sponsored legislation that requires the Treasurer, on a monthly basis, to report our bond indebtedness and cash flow to the legislature. Knowing and understanding the cash flow of any entity is critical to its overall health. Each year we go through great pains to have a balanced budget, but that’s only part of the equation. Knowing how much money is in our check book to pay our bills is just as important.

According to the Treasurer’s January report, we ran out of operating revenue in December and had to borrow from our bond funds to keep our lights on. The Treasurer claimed that during the months of November and December the common cash pool declined “consistent with seasonal patterns,” thus necessitating a temporary transfer of money from our bond proceeds. When challenged with the explanation, both the Treasurer and Governor’s offices failed to give an explanation for this occurrence. Rather, the Treasurer acknowledged that these type of transfers are rare, occurring once in 2009 and in 2003.

I am troubled by this transfer, however, given the timing. In 2009 and 2003, Connecticut ran out of cash subsequent to crashes in the stock market. When the market crashes, less tax revenue comes into the coffers so it makes sense that we didn’t have the money to pay our bills. No such incident occurred in November or December that would justify this temporary transfer. In fact, reports continue to indicate that the economy is on the upswing and state revenues are meeting projections. After raising $1.5 billion in new taxes, it defies logic that we would be running out of cash. I fear that one explanation may be that Connecticut is not achieving the savings projected in its current year budget. To that end, the legislature must work on creating more transparency in the executive branch’s reporting of lapses, savings, and expenditures so that we are not met with any more surprises.

State Rep. Vincent Candelora represents the 86th district which includes North Branford, East Haven, and Wallingford.

Post contributed by Paula Hiltz, Controller of Smith Brothers Insurance, Inc. and a member of the CSCPA Governmental Issues Taskforce.

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