Conn. Eyes Emergency Credit Line

As Connecticut's estimated budget deficit continues to rise, state officials are prepared to tap a line of credit to fund daily operations if needed.

Gov. Dannel Malloy on Tuesday authorized state Treasurer Denise Nappier to seek up to $550 million for operating expenses, one day after Comptroller Kevin Lembo acknowledged the state is on track to end fiscal 2013 with a shortfall of at least $415 million.

Nappier, in her request to Malloy, said the state's common cash pool has a negative balance, which forced the temporary transfer of $366 million from bond fund investment accounts.

"Circumstances now warrant a contingency plan for ensuring adequate cash resources," Nappier wrote fellow Democrat Malloy in her request. "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 said the state's cash position plummeted since fiscal 2010, during which Connecticut issued $915 million in economic recovery notes and depleted all but $103 million of the $1.4 billion budget reserve fund.

Lembo, in his letter to Malloy, certified that the new deficit, about $50 million larger than what Office of Policy and Management Director Benjamin Barnes told a legislative panel three weeks ago, exceeds 1% of total general fund appropriations, requiring Malloy to submit a deficit-reduction plan within 30 days.

OPM last week announced $170 million in spending cuts.

Lembo attributed the difference in estimates to higher spending projections. "Medicaid - the largest single gross appropriation line item in the budget - is significantly above the budget target," he said.

Lembo said additional risk factors include unreimbursed costs from Hurricane Sandy, which OPM is evaluating, and potential reductions in federal aid.

House Republican leader Larry Cafero of Norwalk called on Nappier's office to break down how it would use the line of credit. "We need a harsh dose of reality. We cannot simply try to struggle along on a month-to-month basis," said Cafero, who accused Malloy's administration of "disturbing" opaqueness.

Hartford, Conn.-based asset manager Conning last month ranked Connecticut last month the 50 states in credit quality, citing a high debt and expenditure burden, weak employment growth and declining home values.

Moody's Investors Service last January lowered Connecticut's general obligation bond rating to Aa3 from Aa2, affecting $14 billion of debt. Standard & Poor's and Fitch Ratings assign AA.

The same ratings apply to next week's intended $625 million of special tax obligation bonds through negotiation. RBC Capital Markets is the lead manager, while Public Resources Advisory Group is the financial advisor. The sale consists of $500 million of Series 2012A new money bonds and $125 million of Series 2012 refunding bonds.

Proceeds will benefit the Department of Transportation's statewide infrastructure projects and refund a portion of outstanding senior lien bonds for debt-service savings.

A gross lien on pledged revenues and other receipts deposited to Connecticut's special transportation fund secure the bonds.

"The STO bond program is a well-established part of a comprehensive and legislatively authorized long-term transportation infrastructure program," Fitch wrote.