Federation of Connecticut Taxpayer Organizations

HARTFORD � The state had to use borrowed money to boost its checking account balance in December, a move that sparked a debate between Gov. Dannel P. Malloy, a Democrat, and Republicans who charge the move indicates poor budgeting.

�The state treasurer acknowledged what we have been saying for some time: That we are borrowing to cover daily expenses and keep state government running,� House Minority Leader Lawrence F. Cafero Jr., R-Norwalk, said Friday. �It is outrageous that the Democrats rammed through the largest tax increase in history and we are borrowing millions for state employee salaries and to keep the lights on.�

Cafero was referencing a report from Treasurer Denise L. Nappier in which Nappier, a Democrat, said she took money raised by selling bonds and transferred it into the state�s cash pool to prop up the operating budget. �Bond proceeds were borrowed for the common cash pool,� her report says.

In a letter to lawmakers, she painted a rosier picture: �We temporarily transferred bond proceeds to and from the common cash pool to address mismatches in the timing of receipts and disbursements,� Nappier wrote.

And Nappier added that the transfers were done in a �formal and structured process� for managing the state�s cash flow.

The issue points to a long-running Republican complaint that the state blends revenue from different sources to hide budget problems, Cafero said. Nappier�s report says the state ended November with $195.7 million in the cash pool. That�s enough to run the state for about two days, Cafero said.

Republicans had raised similar concerns in 2010 under Gov. M. Jodi Rell, a Republican.

�This is not only mortgaging the future, this is the same fiscal slight-of-hand that led to the downgrading of our credit,� Cafero said. Fitch Ratings Services downgraded the state�s credit in June 2010 from AA-plus to AA.

Malloy responded with a statement from budget director Benjamin Barnes. �Anyone in business knows that cash and operations are not the same thing, and so should Representative Cafero,� Barnes said. �The budget passed by the legislature was balanced, and continues to be balanced today.�

Reports from Barnes� office and from Comptroller Kevin Lembo, a Democrat, project the state finishing the fiscal year in June with about an $80 million surplus.

Barnes said the cash shortfall was because the state had pushed payments across calendar and budget years instead of following a set of rules known as Generally Accepted Accounting Principles.

�If the state had followed GAAP all along, that money would be available, as cash, to support operating costs, and even to reduce the cost of borrowing for capital investments,� Barnes said.

He added that Nappier�s action wouldn�t affect the state�s credit rating. �Treasurer Nappier is properly and prudently managing the cash on behalf of the state and has done nothing wrong,� Barnes said. �Her cash management practices will not jeopardize the state�s credit rating, nor will they change the state�s debt service costs in any way.�

Cafero dismissed Barnes� explanation, saying the accounting rules and the projected budget surpluses have little to do with the cash flow problem. He said it was �like me talking about the price of rice in China to answer a question about the cost of gasoline in America.�

�What is the most scary thing is that the budget secretary is either purposefully confusing the issue or � doesn�t understand it himself,� Cafero said.

He said the issue � and that the state�s cash on hand has steadily decreased � shows that state agencies aren�t meeting projected savings goals built into the budget.