Home Fairfield Investing in the future, with prudence

Investing in the future, with prudence

A month ago, the Fairfield County Business Journal stated that the key to job growth in Connecticut lies, in part, in the expansion of the science, technology, engineering and mathematics (STEM) disciplines at the region’s universities.

Despite the state’s high unemployment rate, there are perceived to be thousands of unfilled job openings at Connecticut companies that call for applicants with backgrounds in one of the STEM fields.

In many respects, the “Next Generation Connecticut” plan unveiled by Gov. Dannel P. Malloy at Pratt & Whitney’s world headquarters (and detailed in this week’s edition) would be a boon for the Connecticut economy and for employers like United Technologies Corp. that depend on a steady influx of engineers, mechanics and product development specialists to stay ahead of the competition.

We applaud the vision behind Malloy and the University of Connecticut’s joint proposal to invest more than $2 billion in the expansion of the STEM fields and other academic programs at the school’s Storrs, Stamford and Hartford campuses.

What we must question, however, are the means by which the governor and the university’s proposal will be financed.

A Jan. 29 report from the nonpartisan Office of Fiscal Analysis (OFA) of the Connecticut General Assembly forecast a $138.6 million deficit for the 2013 fiscal year, which ends June 30, and a $2.5 billion deficit for the 2014 and 2015 fiscal years.

Under Malloy’s Feb. 6 budget proposal, the state would have budget surpluses of $6.7 million and $8.1 million for the 2014 and 2015 fiscal years.

However, should revenues fall short of expectations — as they have these past several years — there is virtually no safety net for state government to fall back on, save for one-time budgetary measures such as the deficit mitigation bill that was passed by the General Assembly in December 2012 to address a projected in-year budget gap for the 2013 fiscal year.

According to Malloy’s budget proposal, the state’s budget reserve fund balance will end the current fiscal year at $78.4 million after being as high as $1.38 billion at the conclusion of the 2009 fiscal year (which ended June 30, 2009).

Moody’s Investors Service downgraded Connecticut’s general obligation bond rating a year ago, citing high fixed costs for debt, pension and other post-employment benefits, vulnerability to financial market fluctuations and a weak GAAP-basis balance sheet due to the depletion of the state’s reserve fund.

On Dec. 14, 2012, after the General Assembly said it would establish lines of credit totaling up to $550 million for potential cash flow needs due to the projected operating deficit for the 2013 fiscal year, Moody’s issued a warning:

“Though the lines of credit provide access to liquidity, we view the state’s need for the facility as credit negative because it reflects the state’s liquidity and budget challenges.”

“Connecticut’s tight liquidity position arises from unexpected spending pressures and the lack of available reserves,” Moody’s wrote, going on to say, “With another deficit projected for fiscal 2013, the state is unlikely to build its reserves in the near term and liquidity is expected to remain slim.”

With the state in a precarious fiscal position, Malloy and the General Assembly would do well to rethink the scale of the “Next Generation” proposal to target improvements that can be made without the state having to bond for $1.54 billion in capital upgrades.

Connecticut House Republican Leader Larry Cafero, who represents Norwalk and New Canaan in the General Assembly, expressed his doubts about the project in a Feb. 1 statement:

“The state’s finances are perilous at best because of massive debt, high unemployment, vanishing cash reserves and diminishing revenues and now we get an unclear proposal to borrow even more money on things such as scholarships and teacher salaries. This gets labeled as an ‘investment’ in our future. Right now we can’t afford the present.”

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