Rell, lawmakers face deadline that carries $1 billion penalty

 

By Keith M. Phaneuf
Journal Inquirer

Published: Friday, July 24, 2009 9:38 AM EDT

 

HARTFORD — The legislature and Gov. M. Jodi Rell have a new budget deadline bearing down on them in just five weeks.

And unlike past calendar benchmarks they’ve blown past without an agreement, this one would create a nearly $1 billion problem if not addressed by Sept. 1.

Specifically, unless Rell and lawmakers approve borrowing to cover last fiscal year’s deficit — soon — their plans to use the budget reserve to lessen what already is expected to be a significant tax hike this year will be thwarted.

State Comptroller Nancy Wyman wrote this week to legislative leaders and Rell, reminding them she’s required by law to use the reserve, commonly known as the Rainy Day Fund, to close the deficit if one exists two months after the fiscal year has ended.

State government has the largest budget reserve in Connecticut history, with close to $1.4 billion in the bank.

But Rell and the legislature also are at odds over how to resolve the largest projected budget deficit in Connecticut history.

Analysts say finances this fiscal year and next combined could run from $8.2 billion to $8.85 billion in the red based on current spending and revenue.

Further complicating matters, the state closed the 2008-09 fiscal year on June 30 with a deficit forecast of $942 million.

The comptroller officially closes the books on Sept. 1. And normally, Wyman would draw funds from the budget reserve to close that gap.

But both Rell and the legislature have proposed using the Rainy Day Fund to bolster revenue in their respective budget proposals for 2009-10 and 2010-11.

If no borrowing is authorized soon, that would mean as much as $942 million from the reserve would be unavailable to mitigate tax hikes in the new budget, whenever a deal is struck.

That’s roughly 1½ times the annual value of the last income tax hike the Democrat-controlled legislature recommended. That increase was part of a larger package of tax and fee hikes worth about $1.2 billion a year.

Legislators adopted the package in late June, and Rell vetoed it this month.

Rell’s budget director, Office of Policy and Management Secretary Robert L. Genuario, said today the administration is aware of the comptroller’s obligation to use the reserve to close the 2008-09 deficit if no other options are available.

Genuario declined further comment. Both the governor’s office and legislative leaders agreed to withhold public comment about budget deliberations when the two sides resumed negotiations on June 28.

Also in her letter this week, Wyman cautioned both the governor and lawmakers against relying too heavily on gimmicks and one-time sources of revenue.

Besides spending the budget reserve and using more than $1.4 billion in federal stimulus aid over the next two fiscal years, leaders also have crafted plans to:

• Sell various undefined state assets.

• Raid miscellaneous state funds.

• “Securitize,” or sell, a decade’s worth of gambling and energy revenue to obtain a lump-sum payment now worth about 70 percent of what would be sold.

“While I acknowledge that the severity of this downturn has forced the state to seek extraordinary means to raise revenue, the magnitude of one-time revenue contained in current biennium budget proposals is both dramatic and highly questionable,” Wyman wrote.

Rell’s proposal, legislative analysts say, would run about $700 million in deficit in 2010-11, potentially requiring more borrowing.

The comptroller added that all of this combined could leave a $2.5 billion hole for the legislature and governor to fill in the next term, starting in January 2011. That’s about double the $1.2 billion in tax and fee hikes Rell vetoed last month.

“Every dollar of one-time revenue that is relied upon to force the budget into balance decreases the likelihood that economic growth alone will be sufficient to resolve this enormous structural imbalance,” Wyman added. “I believe that a more balanced approach is required in order to both resolve the current budget crisis and lay a foundation for long-term fiscal stability. In previous budget crises, a more balanced combination of spending cuts, borrowing, and structural revenue increases were used to balance the state’s budget.”