GOP: Malloy spending will lead to downward spiral – Frantz says its “disappointing” and “unacceptable” [CT Post]

November 20, 2014

Ken Dixon | Hearst Media

HARTFORD — Gov. Dannel P. Malloy broke through his self-imposed cap on long-term borrowing Wednesday, sparking criticism from minority Republicans on the State Bond Commission.

State Sen. L. Scott Frantz, of Greenwich, and Rep. Vincent J. Candelora, of North Branford, the two Republicans on the 10-member commission, warned that the state’s financial ratings could suffer because of the added debt.

During a brief back-and-forth at the start of the panel’s monthly meeting, Malloy disagreed, noting that interest rates remain quite low and that it was time to exceed his two-year-old cap of $1.8-billion in annual capital projects.

“I did it taking a number of issues into consideration, not the least of which is the very favorable interest rate that we can finance debt at, which is lower than we anticipated at the beginning of the year,” Malloy told a crowded meeting room in the Legislative Office Building, during the commission’s last meeting for 2014. The panel approved more than $250 million in new general obligation bonds, bringing the annual total to just below $2 billion in new debt during 2014.

On Tuesday, State Treasurer Denise Nappier announced that she has recently borrowed $160 million from bond proceeds to bridge the state’s need for short-term operating cash and she expects more borrowing until additional tax revenue comes into the state next month.

Two years ago, when a deficit of about $400 million prompted a special legislative session and unilateral budget cuts from the governor, Nappier used a similar funding tactic. This year’s deficit is about $100 million and on Thursday, Malloy is expected to announce as much as $70 million in cuts.

Candelora and Frantz did not vote against any of the 54 allocations of projects previously approved by the General Assembly and the Office of Policy and Management.

Frantz, a private banker, said that the state’s inability to create surpluses is “unacceptable” and disappointing.

He said he had been “afraid” that Malloy would eventually blow through the so-called soft bonding cap.

“I think every taxpayer and every citizen in the state of Connecticut should be afraid of this, especially given our cash-flow situation,” Frantz said. “One of the things that rating agencies cannot stand is when an entity, especially if it’s a state, in this case the state of Connecticut, when it issues bonds and uses the proceeds to pay for General Fund expenses on a daily basis. This is a huge red flag. It will, unless corrected very quickly, put us into a downward debt spiral.”

Malloy said the state’s emergency reserves total about $520 million.

“I understand the point being made,” he said, but noted that in two prior gubernatorial administrations, similar tactics were used a dozen times or more “without a whole lot of comment.”