‘We’re stuck’: As deadline nears, House Democrats are still groping for solutions to $1.2 billion in deficits

With time running short to develop a plan for closing $1.2 billion in deficits, the legislature’s budget-writing panels received little help Wednesday from majority Democrats in the House of Representatives.

In a closed-door meeting, the 114-member caucus came down strongly against any deep cuts in spending, particularly those aimed at social services and health care, caucus leaders said. But with the exception of an estate tax hike worth about $70 million annually, House Democrats were equally reluctant to sign onto further tax increases.

“I don’t think the stomach is there for taxes,” one caucus member said privately. But the stomach isn’t there for cuts, either, the member said. “We’re stuck.”

“I think people realize we need to do something,” said Rep. Christopher L. Caruso, D-Bridgeport. “But what that something is, I don’t know.”

Sources said the caucus might look to rely on increases in federal aid proposed but not yet approved–a strategy deemed dangerous by some lawmakers. Gov. M. Jodi Rell built about $356 million in anticipated new federal funding in the revised, $18.91 billion budget she offered for 2010-11 in early February, but Democrats reportedly are eyeing more dollars from Washington that hinge in part on the national health care reform debate.

“We’re aiming to get as much done as we can in the next two weeks, but I think this is going to be something we’re going to be working on after the committee deadlines” in early April, said Rep. Cameron C. Staples, D-New Haven, House chairman of the Finance, Revenue and Bonding Committee.

Much of the pressure for eliminating a projected $518.4 million deficit for this year and a $726 million shortfall in 2010-11 lies with Staples’ committee. That’s due in part to the reluctance of the Appropriations Committee to cut much more in spending than the $28 million Rell sliced off the original budget for 2010-11.

“I don’t think we’re going to be very different from the governor’s bottom line,” Rep. John Geragosian, D-New Britain, co-chairman of the appropriations panel, said. “Members feel we already made some very difficult decisions last year.”

House Majority Leader Denise W. Merrill, D-Mansfield, said the two-and-a-half-hour caucus reached consensus on only two items, and one was that social services and health care for the poor would not face deep cuts, at least for this year. “That was pretty much universal,” she said.

Sources said the finance panel has explored a wide range of tax increase options, including having legislative analysts project revenue growth from a progressive income tax hike starting with individuals earning more than $125,000 and couples earning more than $250,000.

But tax analyses often are prepared but not proposed in legislation. And while Staples would not discuss proposals being studied by his panel, he and Merrill both said the other big area of agreement among most House Democrats was that tax increases should be avoided–with one exception.

The one tax increase the caucus could support would be reversing a Jan. 1 reduction in the levy on large estates. The legislature tried to cancel that tax cut in a December deficit-mitigation bill vetoed by Rell. Staples and Merrill said most House Democrats are ready to try again.

But Democrats couldn’t override Rell’s previous veto, and might face the same obstacle if they do try again. Rell’s budget director, Office of Policy and Management Secretary Robert L. Genuario, said “The governor has indicated, and I agree with her, that this (deficit) problem should be solved on the spending side of the budget.”

With just 3 1/2 months left in the fiscal year, even spending cuts and tax hikes ordered immediately likely wouldn’t have enough impact to close out the $518.4 million hole in this fiscal year’s budget.

Rell, a Republican, already has proposed raiding the next’s year budget to help balance this one, specifically seeking to transfer nearly $220 million in budget reserve funds designated for that spending plan into this year’s. The governor would offset that raid with a wide array of spending reductions and a new hospital gross revenues tax according to her deficit-mitigation plan.

Sources said House Democrats also are considering tapping next year’s budget to help balance this year’s. An estate tax increase would provide $70 million next year, and could be one means to offset any raid.

But sources also said the caucus was considering some potential increases in federal aid which might be built into the 2010-11 budget to replace funds snatched away to help right now.

Rell’s February budget proposal estimated Connecticut could receive $365 million in additional federal grants if legislation to extend the emergency stimulus program is enacted.

House Democrats seized on a March 2 letter from President Obama to Congress which indicated Medicaid rates might need to increase if eligibility is extended to another 15 million uninsured Americans through national health care reform.

Sources said that caucus leaders told their members this could be worth about $65 million to Connecticut next fiscal year.

But Genuario said a projection based on pending federal legislation, and offered in February, is not the same as speculation surrounding the president’s comments as the state legislative session winds toward its conclusion.

“It can’t be wishful thinking,” he said. “We can’t close the deficit with speculation. It has to be based on some concrete evidence that it is going to occur. Now we’re talking about the end of the process. The governor put her budget together at the beginning.”