Malloy predicts surplus

November 21, 2014

By Mike Savino Journal Inquirer

Posted: Thursday, November 20, 2014 11:47 am

Gov. Dannel P. Malloy on Wednesday defended exceeding his self-imposed bonding cap of $1.8 billion after Republicans questioned the decision to borrow money amid signs that the state is in a “cash crunch.”

He also downplayed fears about the state’s current budget situation, saying spending cuts and other measures will help balance the budget after two reports projected Friday that it was on pace for a deficit approaching $100 million.

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“I’m going to take whatever steps necessary, as I have in the past, to end every year with a surplus,” Malloy told reporters after the State Bond Commis-sion meeting. “So my prediction is we end this year with a surplus, not a deficit.”

He defended a decision by Treasurer Denise Nappier to utilize $160 million in bond proceeds to the state’s cash flow for operating expenses.

Nappier said in a letter Tuesday that the state’s “cash balance remains adequate” but income is down due to $200 million less than anticipated in Medicare reimbursements and other areas, and her office will return the transfers once revenues rebound.

But Republicans questioned why Malloy, chairman of the bond commission, would seek approval to borrow additional money during the state’s current budget situation.

“The bottom line is we can’t afford to pay what we’re operating right now,” state Rep. Vincent Candelora, R-North Branford and a member of the commission, said.

State Sen. Tony Guglielmo, R-Stafford, said that bonding for more projects while the state is facing projected deficits is “making a bad situation worse.”

“We’re really going to end up with a cash flow problem,” he said.

Republicans raised concerns that Malloy now has exceeded his self-imposed “cap” of $1.8 billion in borrowing. The $267 million approved Monday brought the total bonding authorized this year to $1.97 billion.

Guglielmo said that bonding under Malloy is also significantly higher that it was under Gov. M. Jodi Rell, his Republican predecessor.

Malloy addressed those concerns before anyone on the commission even had a chance to raise them during Wednesday’s meeting, saying he wanted to take advantage of lower interest rates.

Candelora and state Sen. L. Scott Frantz, R-Greenwich and a ranking member of the legislature’s Finance, Revenue, and Bonding Committee, said the commission didn’t want to pass judgment on the merits of any single project, but had concerns about the state’s overall borrowing and spending levels.

“This will, unless corrected quickly, put us in a downward debt spiral,” Frantz said about the combination of borrowing at high levels and using bond proceeds to cover operating expenses.

Candelora, meanwhile, said the problems point to an unwillingness by both Malloy and the Democrat-controlled General Assembly to cut spending to a level the state can maintain.

“They’ve never shown an appetite for reducing spending and getting Connecticut in line,” he said.

He also expressed concern that the state has used “every tool in the tool box,” including an income tax hike and borrowing money for operating expenses, but still faces projected budget deficits.

Malloy disagreed, saying controls on spending will keep the budget in line.

He also said the state’s revenue always fluctuates and Nappier’s decision Tuesday is the result of declines in specific income, not excessive spending.

Malloy pointed to the Medicare reimbursement, which is half of what was expected in the budget.

Both Malloy’s Office of Policy and Management and the non-partisan Office of Fiscal Analysis cited the reimbursement when they separately projected budget deficits Friday.

OPM projected the state is on pace for a $99.5 million deficit, while OFA projected the shortfall at $89.1 million. The two agencies also issued a joint statement last week saying state revenues will be $59.1 million less than budgeted.

OPM has imposed a hiring freeze for non-essential state positions and is expected to announce budget cuts this week.