Connecticut Budget Standoff Goes On

A budget stalemate in Connecticut continued as the General Assembly ended its session at midnight on Wednesday without passing a spending plan. The Democratic-controlled legislature and Republican governor remained at odds over how to close a budget gap for the fiscal 2010-2011 biennium.

Gov. M. Jodi Rell has called for deep spending cuts and no new taxes while the legislators have proposed a different set of cuts and tax increases on wealthy residents.

The assembly has authorized a special session to pass a budget before the end of the fiscal year on June 30.

Doug Whiting, spokesman for House Majority Speaker Christopher Donovan, said that lawmakers will continue negotiating but won’t meet again as a body until they have something to pass. Legislators are optimistic that they will get a budget done before the new fiscal year begins on July 1, he said.

“Like many other states in America, we in Connecticut are still trying to work our way through this unprecedented global recession,” Rell said in a statement. “Crafting a budget in these perilous economic times is challenging. It requires difficult choices that are as painful as they are necessary.”

“We have worked hard for months to identify savings,” Senate President Donald Williams Jr. said in press release. “While we have searched for real cuts, we are also mindful that we cannot make reckless cuts that threaten our fragile economy or undermine public health. The regular session may be over but we will continue to work toward a budget agreement — relying on real cuts and smart investments to pull Connecticut through this economic crisis.”

Rell proposed a two-year $38.4 billion budget to lawmakers in February. The governor and the legislature have disagreed over the size of the budget gap, which the governor’s office said is $7.95 billion while the assembly’s numbers put it at $8.7 billion.

Whiting said that the assembly had come up with a package of $2.5 billion of spending cuts compared to $2.9 billion of cuts proposed by Rell. The tax increases add 0.5% to the current top rate of 5% for those making $250,000 and set a top rate of 7.9% for those making $1 million or more. That would bring in an additional $3.3 billion over the biennium, Whiting said.

The state also has to close an $800 million deficit in the current year, which it could finance through bonds, said Jeffrey Beckham, spokesman for the Office of Policy and Management. Closing the gap through deficit financing could preserve the state’s $1.38 billion rainy-day fund so that it could be used to close gaps in fiscal 2010 and fiscal 2011, he said.

The governor and assembly have already agreed on $700 million of labor concessions and Whiting said they are essentially in agreement over the use of the state’s rainy day fund.

One of Rell’s gap-closing measures would legalize the gambling game Keno and securitize the state’s share of the proceeds as well as part of the state’s lottery proceeds to help close the budget gap. Under the proposal, an investor would pay the state up to $700 million over two years and would be assigned the Keno and lottery streams over seven to 10 years in an amount sufficient to recoup their investment as well as “some reasonable rate of return,” Beckham said. 

The legislative session closed with several bond-related pieces of legislation stalled. A bill authorizing the state to sell bonds to fund loans to municipalities for employee pension fund obligations passed the Senate but not the House.

A bill that would have allowed transportation-related general obligation bond funds to pay for debt service on general purpose GO bonds passed the House but not the Senate. One law that did pass and was signed by the governor transfers money into the general fund from many different accounts, including $6.5 million of transportation-related bond proceeds.

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