Earlier this month, State Treasurer Denise Nappier’s confirmation of the steady decline in Connecticut’s cash position aroused widespread concern. Then last week, news about where money was coming from to prop up the cash balance caused serious alarm.
On Friday, the General Assembly’s nonpartisan Office of Fiscal Analysis (OFA) reported that nearly $50 million collected to fund retiree health care benefits was being held in the state’s common cash pool, where the state keeps the cash it uses to pay daily operating expenses. Here’s why the news is so alarming:
- The cash pool’s balance has fallen below zero every month since December, requiring temporary transfers from bond funds each time. In her June report, the state Treasurer said, “The common cash pool is trending downward over time and the need for temporary transfers or other resources is growing.” She referred to a “significant decline” in the balance -- $121 million in late May, compared to $895 million at the same time last year – and said that it “could trigger periods of cash flow pressure which would require more extensive transfers to the common cash pool and possibly the need for external funding sources”. The decline itself is disturbing, but it would be even steeper without the $50 million in health care contributions, which must be masking greater fluctuations.
- Agreements with the state employee unions signed in 2009 and 2011 require both employees and the state to make contributions to an “other post employment benefits” (OPEB) account. While the 2011 agreement stipulates that an OPEB irrevocable trust be set up to hold these contributions, they have so far been accounted for in the same fund that pays current retiree health care costs. That fund, according to a statement from the Treasurer on Friday, had a negative cash balance last week of $13.6 million. So is all of the $50 million in the cash pool real money, or has part of it already been spent?
- The OFA report tells us that the assumed average long-term investment return used for the actuarial valuation of the retiree health care trust fund is 5.7%. In the cash pool, however, the $50 million is invested in a short-term fund with a 0.1% return. Retaining the funds in the cash pool affects the valuation of the trust fund’s assets, and decreases the proportion of the state’s retirement liabilities that are funded.
This is a serious issue. A recent report by the Pew Center on the States ranked Connecticut in last place in terms of saving for public employee benefits. While a report from the state Comptroller last month indicated that the 2011 union agreement had reduced the $27 billion unfunded health care liability by about $9 billion, that savings could be in jeopardy if contributions are not earning projected returns – or if they have been spent.
Last week’s news tells us that cash may be even lower than we thought, reduction of OPEB liabilities may be illusory, and retirees may not even get the health care coverage they have been promised. It adds to the litany of the state’s ongoing financial woes: a $200 million current year deficit despite last year’s historic tax increase, $45 billion in pension liabilities that are only 53% funded, a downgraded debt rating, and projected revenues for the fiscal year starting next week that are already down by $400 million.
If you can’t pay your household expenses and your efforts to bring in more income aren’t working, you reduce your spending. Our state government hasn’t done that. The biennial budget passed in 2011 increased spending by about $1 billion, and this May’s budget adjustments added a further $143 million.
The news about the cash pool adds even greater urgency to an already precarious situation, and waiting until next year’s legislative session to address it would be irresponsible. It has been suggested that the Appropriations and Finance Committees meet with the Treasurer for a full briefing on the cash pool. That would be a start, and a discussion of solutions could follow. Proposals for reductions and savings that my colleagues and I introduced in May are still on the table, and a frank and transparent bipartisan discussion might well produce others. Our constituents deserve nothing less. Whatever happens, further taxpayer sacrifices are not an acceptable alternative.
State Representative Gail Lavielle represents the 143rd district, which includes parts of Wilton and Norwalk and, following redistricting, will also include part of Westport.