Governor Rell: Treasurer Advises of

Potential State Cash Flow Issue

No Problem Yet, But Governor Considering Options

            Governor M. Jodi Rell today announced that Treasurer Denise Nappier has written her to caution that because of the slumping national economy there is a possibility the state could face a cash flow problem later this year. In response to the Treasurer’s letter, Governor Rell is considering a range of options to ensure Connecticut will continue meeting its financial obligations.

            “Our state keeps its money in a common cash pool, in part so that we can earn as much interest as possible – the same way a family might keep most of its money in a savings account,” Governor Rell said. “The downside of that practice is that when the economy is slow we do not always have a large amount of ready cash. In addition to regular bills, in the coming months the state must make the next round of Education Cost Sharing payments (the main grant for state education aid) to cities and towns, and we want to be sure there is enough cash on hand to make those grants without overstretching our resources.”

            The next round of ECS payments is due May 1 and will total more than $945 million.

            “It is not clear yet whether we will need to do anything,” the Governor said. “It would not be the first time the state has taken such action and it is only prudent to plan for all eventualities. There are a number of options at our disposal, including issuing Bond Anticipation Notes or drawing on a line of credit arranged with banks. If we must act, we will looking for the best option – one that will give us the ‘liquidity’ we need without incurring excessive interest charges or other expenses. I will consult with my budget office, the Treasurer and others as we determine the next steps.”

            Revenues from a wide range of sources, including quarterly personal income tax, business tax, sales tax and other payments, have fallen in recent months because of the economic downturn. This has affected the monthly flow of cash into state coffers.

            On the other hand, deficit mitigation measures – including spending cuts ordered by Governor Rell – could reduce the need for additional cash, as could a speedy influx of money from the federal stimulus package.

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