Legislators patch one deficit but fail to guard against future shortfalls

The state legislature balanced the next budget before it adjourned, but some major proposals to build new fiscal safeguards into the appropriations processed died when the session ended last week.

Lawmakers declined to act on proposals to increase by 50 percent the maximum budget reserve – commonly known as the Rainy Day Fund –  that can be set aside to guard against tough economic times, or to increase the governor’s authority to order emergency spending cuts without legislative approval.

But the General Assembly did adopt a measure that will require state government to set aside funds annually for the extra, two-week pay period it faces every 11 years.

“I think some people didn’t want to increase Rainy Day Fund because they think it will give them less flexibility in the budget, that they’ll have less money to spend,” Comptroller Nancy Wyman, the state’s chief fiscal guardian, said after the session ended last week.

The state currently has authority to reserve an amount equal to 10 percent of annual General Fund spending. The General Fund comprises the bulk of state government’s operating expenses, roughly $17.4 billion out of this fiscal year’s $18.64 billion overall budget. Wyman’s wanted to boost that maximum limit to 15 percent.

Connecticut politicians boasted two years ago when the Rainy Day Fund reached a record-setting $1.38 billion. But that amount didn’t represent the maximum allowable savings, being equal to roughly 8 percent of annual operating expenses.

Lawmakers and Gov. M. Jodi Rell emptied that reserve completely in the budget adopted last September, assigning those dollars to compensate for declining tax revenues and prop up spending this fiscal year and next. The legislature and governor still borrowed about $1 billion to balance the next budget, and the state faces a $3.37 billion deficit forecast in 2011-12.

Rep. John Geragosian, D-New Britain, co-chairman of the Appropriations Committee, said he backed the proposal to increase the reserve limit, but his committee wasn’t ready to adopt it this year.

“It’s not a bad idea,” he said, adding other legislators were simply more focused on closing the $726 million deficit that had been projected for the coming fiscal year. A revised, $19.01 billion budget enacted last week eliminates that shortfall.

Wyman, who has been lobbying for a larger fiscal safety net for state government for the past seven years, said she would ask lawmakers to consider it once again, noting that national economic experts recommend a reserve of as much as 18-20 percent to guard against a three-year economic downturn.

Rell, who also endorsed a larger Rainy Day Fund limit, tried to get legislators to expand her emergency budget-cutting powers, but that proposal died as well.

“I was disappointed,” the governor wrote in a statement Friday. “Fiscal responsibility is rooted in common sense, and this measure would have provided me – and the governors who succeed me – with a critical tool to manage effectively. This was a missed opportunity.  The legislature would be wise to pass this bill next year.”

The governor already is empowered to reduce certain accounts by up to 5 percent without legislative approval, though debt service, municipal aid and employees’ salaries and benefits effectively are exempt. Rell’s proposal would have increased the limit to 15 percent provided the deficit equaled at least 5 percent of the General Fund.

But Geragosian said the Democrat-controlled legislature was wary of giving any governor –not just Rell, who is a Republican–additional authority to act unilaterally, noting that adopting the budget is one of the chief duties of the legislature spelled out in the state Constitution.

“We would rather negotiate those types of extremely difficult budget reductions working with the governor,” he said.

Rell added Friday that she would sign the one fiscal reform measure sent to her desk in this session, a measure proposed by Wyman to create a special savings account to prepare for an oddity in the calendar.

State government pays its employees every two weeks, creating 26 annual pay periods. But every 11 years, there is a 27th payroll. Wyman said a typical two-week pay period costs the state $120 million.

In good fiscal times this has not been a problem, as legislators and governors routinely have drawn the funds from budget surpluses. But what happens when the bill comes due when the state is in deficit?

The measure Rell will sign requires state government to create a new account and contribute annual installments equal to 1/11th of the projected cost of an extra payday.

Geragosian said the proposal was based on common sense. “All it requires us to do is set up and account,” he said. “Obviously it’s easier to handle this if we gradually set the money aside every year.”