Rell’s plan to balance budget would tap electric bills, raid clean energy funds

Gov. M. Jodi Rell asked state legislators Wednesday to put nearly $1 billion in operating costs on the state’s credit card for the second year in a row as part of a complex scheme to avoid securitizing future revenues.

The proposal, which is actually centered on tearing a new $1 billion hole in the current budget and then borrowing to close it, repays the debt by charging electricity consumers and raiding energy conservation funds linked to thousands of private sector jobs.

It also hinges on about $300 million in growth in existing tax revenues, as well as on turning over management of Bradley International Airport to a quasi-public entity charged with spurring more business activity at the Windsor Locks facility.

The governor’s latest plan to balance state finances without major tax hikes or deep spending cuts would modestly reduce the $3.9 billion deficit projected for 2011-12, shrinking that shortfall by about $200 million. It also saves the state more than $370 million in interest and related costs over the next seven years.

rell announces budget plan 4-29-10

Gov. M. Jodi Rell announces her latest plan to borrow money to balance the state budget (Jacqueline Rabe)

And while it drew predictably strong opposition from utilities, clean energy advocates and “green” businesses, most legislative leaders were reserved in their reactions as they try to close out a $726 billion deficit in the 2010-11 fiscal year.

“I think it is a sound plan,” Rell said during a mid-day news conference in her Capitol office. “I hope we can get bipartisan support for it.”

The proposal she offered was designed to replace arguably the most controversial component in the preliminary, $18.93 billion budget adopted last September for 2010-11, specifically the sale of $1.8 billion in future revenues at a discount to any investor willing to provide $1.3 billion next fiscal year.

The preliminary budget directed the governor’s budget office and Treasurer Denise L. Nappier to identify six options and present them to the Finance, Revenue and Bonding Committee back in February.

Five of the six alternatives laid out in the report were criticized by the authors themselves. The sixth involved extending a surcharge on consumers’ electric bills. That idea was modified slightly and adopted by the committee earlier this month, but Rell threatened to veto it, arguing it weighed too heavily on consumers.

“There is no group that is going to be happy with any securitization plan,” she said.

But without the $1.3 billion to be raised by securitization in the committee bill, the deficit in the 2010-11 budget would triple to roughly $2 billion.

To avoid that problem and to get past securitization’s lack of appeal, the governor took advantage Wednesday of a key new development in the state’s budget picture, and some fiscal maneuvering that avoids a sticky clause in the state Constitution.

First, Rell announced the $1.3 billion target originally to have been met through securitization could be lowered to $1 billion. That’s because new forecasts based on the swell of state income tax returns filed at the April 15 deadline show about $80 million in overall tax revenue growth for the remainder of this fiscal year, and $220 million for 2010-11.

Applying that revenue to next year’s budget would leave a $1 billion gap. Legally, the state can’t cover that shortfall by borrowing.

That’s because Article 28 to the amendments to the state Constitution effectively requires a balanced budget. The legislature and governor can borrow funds at the end of fiscal year to cover an unanticipated shortfall, but they can’t borrow dollars to provide revenue for a budget year that hasn’t even started yet.

To get around that constitutional prohibition, the governor’s plan effectively forces this year’s $18.64 billion budget, which was only recently balanced, back into massive debt.

Her plan would shift nearly $1 billion in budget reserve funds, assigned last September to the 2009-10 budget, into 2010-11. That move, along with the $300 million in added revenue, would eliminate the need for securitization for next year.

It would also create a billion-dollar shortfall in this fiscal year, which expires in just over two months. But since the current budget already is underway, state officials can classify that new debt as unanticipated, and issue bonds to cover the gap.

Both Rell, who is not seeking re-election, and the legislature, have been criticized by many of the 2010 gubernatorial candidates for using these and similar fiscal gimmicks to avoid making tough decisions about spending cuts and tax hikes now.

“They’re just not dealing with the problems,” Republican gubernatorial candidate R. Nelson “Oz” Griebel of Simsbury said. “I don’t believe anybody in (the Capitol) has got any interest in dealing with this.

But there would be some who would have to deal with the ramifications of Rell’s proposed $1 billion in new borrowing.

The administration estimates that principal and interest charges due on this bonding, which would be repaid over seven years, would total about $154 million per year starting in 2011-12.

To cover that bill, Rell proposed three revenue sources.

The first involves retaining 23 percent of the surcharge Connecticut Light & Power Co. and United Illuminating customers have paid since 2000 to reimburse utilities for costs tied to a state-ordered deregulation process.

But instead of reimbursing the utilities, which will finish recovering their costs soon, the surcharge will go to the state for the next seven years.

That extension would amount to $74.5 million per year, or $2.37 per month for CL&P customers and $2.99 per month for those served by United Illuminating.

“While we appreciate the difficult situation that our elected leaders are in, this is still a hidden tax that unfairly burdens only CL&P customers for the next three years,” Tanya Meck, spokeswoman for CL&P’s parent company, Northeast Utilities, said Wednesday.

Rell defended this step, noting that the securitization plan proposed by the finance committee involved retaining 56 percent of these costs, or about $180 million annually, for the next decade, and then selling them at a discount.

But the governor’s plan has other components that the finance committee’s proposal does not.

Monthly electric bills also include permanent surcharges that provide about $109 million in total each year to two energy conservation funds that support thousands of private sector jobs ranging from solar- and wind-powered home improvements and other energy efficiency projects.

The second component of the Republican governor’s plan would seize 50 percent of those funds for the next seven years to help pay off the proposed borrowing. The Democrat-controlled legislature has shied away from touching those funds, arguing that job creation programs should be particularly protected in tough economic times.

“We heard a lot of testimony warning us about that,” Rep. Cameron C. Staples, D-New Haven, co-chairman of the finance panel, said. “I don’t see the rationale of tapping those funds.”

“I think it’s a terrible idea,” added Sen. Eileen M. Daily, D-Westbrook, the committee’s other co-chair.

A report commissioned for the Connecticut Clean Energy Fund directly credits 4,300 jobs, or a one-quarter of a percent of the state’s workforce, to the renewable and energy efficient industry in the state.

“If you cut us in half there is very little we can do to keep these jobs,” said Lise Dondy, president of CCEF.

A 50 percent cut to these investment funds “probably sets us back five years,” said Michael Trahan, executive director of Solar Connecticut Inc., an industry group that represents about 50 solar product installation, distribution and manufacturing firms.

The funds have enabled many consumers to cut their home and business energy costs by as much as 30 percent, Trahan said, predicting a cut would both drive up electric bills and push energy efficiency companies out of state. “It sends wicked vibrations through our industry,” he said.

“Governor Rell’s proposal would gut these funds and the job-creating programs they support and turn the ratepayer surcharge into little more than a stealth tax on electric bills for every family and business in the state,” added Christopher Phelps, program director for Environment Connecticut, a clean energy advocacy group.

The governor would get the remaining $25 million she would need each year to pay off the debt borrowing through a third plan component that was not described in great detail.

Administration officials said having a quasi-public entity – free from some of the restrictions of state government – run Bradley International would provide more “flexibility” to negotiate with airlines, restaurants and other businesses at the state-owned airport.

But no details were provided as to what specific business changes would increase airport revenue by $25 million annually.

Democratic leadership said they plan to wait to comment until their budget office has a chance to analyze Rell’s proposal. “It does have benefits and it is progress towards an agreement,” said Senate Majority Leader Martin M. Looney, D-New Haven.

Others were not so nice.

“This is crashing a lot of good things. This puts us in reverse for continuing to create these green jobs,” said Sen. Edward Meyer, D-Guilford, co-chairman of the Environment Committee

It also was unclear Wednesday whether the governor would receive any support from her fellow Republicans in the legislature, many of whom have argued that neither securitization nor borrowing would be needed if lawmakers were prepared to dramatically reduce the size of state government.

Senate Minority Leader John McKinney, R-Fairfield, said he does not support a plan to raid the energy funds because it “just does more to cost us jobs.”