Finance panel, facing deadline, may come up short on solutions

Faced with conflicting signals on legislative priorities, the tax-writing Finance, Revenue and Bonding Committee may let its deadline pass next Tuesday without acting on some key issues facing the deficit-wracked state government.

Chief among them: Which future revenues should be sold – at a discount – to secure a $1.3 billion payment needed to balance the next budget?

And committee co-chairs said Wednesday that securitization may not be the only problem their panel does not solve by its deadline as it tries to analyze a fiscal Swiss army knife of budget alternatives.

The Democrat-controlled Appropriations Committee wants to add nearly $350 million in spending – mostly in health care and social services – to the preliminary, $18.93 billion budget adopted for 2010-11. But they need the finance panel to endorse a controversial hospital tax to balance it.

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Majority Democrats in the Senate also want the hospital tax, but as part of a plan to wipe out this year’s budget deficit – a plan that also cuts spending in many of those same health care and social service programs bolstered by the Appropriations Committee.

Gov. M. Jodi Rell also wants a hospital tax to help wipe red ink off this year’s books, not to support more spending next year. But the governor doesn’t want to tax at as high of a rate as the Senate and appropriations panel have suggested.

After four years of battling, Rep. Vickie Nardello, D-Prospect, finally got her windfall profits tax proposal through the Energy and Technology Committee she co-chairs by a one-vote margin. But while Nardello’s panel wants any revenues from the controversial tax provide electric bill relief, the finance committee has been weighing the tax as an option to prop up flagging state revenues, not to bail out consumers.

“We are not sure yet whether we will be making all of our recommendations about revenue at the committee level, or whether we will communicate some of them to (legislative) leadership” before the regular session ends on May 5, Rep. Cameron C. Staples, D-New Haven, co-chairman of the finance panel, said.

“This is a very, very challenging time,” Sen. Eileen M. Daily, D-Westbrook, the committee’s other co-chair, said. “I know Cam and I want to be very, very thoughtful and careful without our options.”

Daily added that many Democrats on the finance panel want to avoid having to choosing between the contradictory elements of the Appropriations Committee budget proposal for 2010-11, and the Senate’s deficit-mitigation plan for 2009-10. “We’re not trying to implement either one of those bills,” she said.

Arguably the biggest political challenge before the finance committee involves securitization.

Since the legislature decided last September to plug a $1.3 billion gap in 2010-11 by selling unidentified, future revenues for pennies on the dollar now, that obligation has been received like a fiscal leper in budget talks.

Rell, a Republican, put her own $1.2 billion securitization proposal on the table last August, and allowed the Democrat-controlled legislature’s plan to become law without her signature. Minority Republicans in the legislature unveiled a $1.05 billion securitization proposal in early June. But that hasn’t stopped either from talking about how obligation to sell future revenues for pennies on the dollar came from a Democrat-sponsored bill.

“Everyone’s fingerprints are all over this, and they are all afraid the public will figure out what we’re doing,” one finance committee member said privately. The legislature’s nonpartisan Office of Fiscal Analysis estimates the state would have to sell at least $1.7 billion over the next decade to secure $1.3 billion now.

The Rell administration and Treasurer Denise L. Nappier suggested six different revenue streams that could be sold over the next 10 years in exchange for a reduced, lump-sum. The only problem, committee leaders say, is that rank-and-file legislators in the House and Senate don’t like any of the options in that report.

Most of the finance panel’s focus has been on two options, one involving Keno and other expanded gaming options and the other tied to monthly electric bills and energy conservation funds.

But both of these choices were strongly criticized in separate, closed door caucuses of House and Senate Democrats, according to finance leaders.

Sources said the panel might consider recommending a scaled-back securitization plan involving the creation of a new Keno lottery game, but not the sale of other lottery revenues. This reportedly would allow the state to sell about $600 million in Keno revenues over the next decade, and raise a $400 million payment in 2010-11.

It was unclear Wednesday, though, how the finance panel might plug the $900 million gap between that $400 million option, and the full, $1.3 billion securitization target.

Sen. Andrew W. Roraback of Goshen, ranking Senate Republican on the finance committee, said it would be a serious failure on the panel’s part if it fails to meet the full target figure.

“What’s crippling the building at this moment is the inability of the Senate Democrats and the House Democrats to coalesce around a budget solution,” Roraback said. “It has left us in a state of paralysis.”

Rell’s budget director, Office of Policy and Management Secretary Robert L. Genuario, met over the last two weeks with the three Wall Street bond rating agencies whose reports largely determine whether state government can borrow at favorable interest rates or not. Two of those agencies, Moody’s and Standard & Poors, assigned a “negative outlook” to state government late last year, but stopped short of lowering Connecticut’s bond rating.

Genuario said the legislature’s wariness over choosing a securitization plan wasn’t mentioned in those talks, but it hasn’t gone unnoticed. “They are certainly aware that the General Assembly included that as an integral part of the FY2011 budget,” he said.

Nappier warned lawmakers and Rell in an August letter that a bond rating downgrade could cost state government $335 million over the next five years in higher interest charges.