New state budget balanced on some risky assumptions

The newly adopted state budget counts on a $100 million cut to the employee pension fund contribution, a savings that’s allowed if revenues slip by $300 million.

There’s only one problem: That same budget doesn’t project any revenue loss. In fact, it expects revenues to run nearly $72 million higher than the level assumed in the preliminary 2010-11 budget adopted last September.

The fiscal riddle behind the pension fund contribution tops a list of questionable, if not contradictory, assumptions in the revised, $19.01 billion budget adopted last week for the fiscal year that begins July 1.

“I don’t know how you can project an economic recovery that will prevent you from meeting the trigger to achieve the pension savings – and then still take the savings,” said Rep. Vincent Candelora of North Branford, the ranking Republican on the Finance, Revenue and Bonding Committee.

“If that (revenue loss) doesn’t come through, they can’t get the savings,” Hartford lawyer Daniel Livingston, chief negotiator for the State Employees Bargaining Agent Coalition, said.

The new budget includes a $563.3 million contribution next year into the pension fund, $100 million less than the required level originally negotiated by SEBAC and state government.

That’s because the Democrat-controlled legislature and Gov. M. Jodi Rell took advantage of a clause in a 2009 session agreement that allowed contributions for this fiscal year and next each to be reduced by $100 million. But the reduction could occur only if revenue projections fall $300 million or more below anticipated levels built into the original biennial budget for 2009-10 and 2010-11.

That benchmark was achieved easily this fiscal year, as revenue losses topping $340 million were projected by February.

But things are a little trickier when it comes to 2010-11.

Because state government follows a two-year budgeting process, the legislature took its first attempt at planning spending and revenues for the 2010-11 fiscal year roughly eight months ago. The preliminary $18.93 billion spending plan it adopted was supported by a matching amount of revenues, and it’s that budget that defined the revenue test spelled out in the concession deal.

Yet even though the revised plan approved last week upgraded revenue expectations for 2010-11 by $71.6 million, it still assumed the pension savings that is tied to revenue loss. And since legislative leaders continued to talk enthusiastically last week about positive economic signs, how can they spend both the recovery, and the emergency savings designed to cushion against an economic downturn?

“It seems like they want it both ways,” Rep. Shawn Johnston, D-Thompson, one of 20 House Democrats who voted against the budget.

SEBAC spokesman Matt O’Connor said sooner or later, state officials must look at tougher fiscal choices. The unions have offered a series of proposals leaders believe can make government run more efficiently without reducing rank-and-file worker numbers, but a big part of the long-term solution must include tax increases, he said.

“Over the last year since the (concession) deal with had an opportunity to have a very constructive dialogue about the future of this state and how to shore it up from a fiscal point of view,” O’Connor said. “we should be discussing innovative ideas instead of this approach of having your cake and eating it too.”

When asked about the fiscal contradiction, Rep. John Geragosian, D-New Britain, co-chairman of the legislature’s Appropriations Committee, said the 2010-11 labor savings had been raised in budget talks by the Rell administration about one month ago. “It just kind of got rolled into the budget,” he said.

Jeffrey Beckham, spokesman for the governor’s budget agency, said the savings was based on a legitimate provision in the concession deal.

But when the governor first offered 2010-11 budget adjustments that included the pension savings in mid-April, the state still was reviewing new income tax data that would later lead to increased revenue expectations.

State Comptroller Nancy Wyman, a Democrat from Tolland, noted last week that the new budget stipulates any and all surplus from this fiscal year, which still has seven weeks to go, will help balance 2010-11 spending.

That budget counts on at least $139.3 million, the surplus projected by the nonpartisan Office of Fiscal Analysis. Yet Wyman, who certifies the official budget assessment at the close of each fiscal year, is tracking a surplus of $105 million.

If Wyman is correct, that’s a $34 million problem for the next budget.

And other legislators also have criticized the new budget for including $365.6 million in additional federal stimulus funding that has been proposed, but not yet approved, on Capitol Hill. The National Conference of State Legislatures sent out a warning in late April advising that this proposed increase was “on the ropes” due to a lack of funding, and urging legislatures not to count on the funds.

“I think this all points to a bigger question,” Candelora said. “Are we doing a budget for the sake of actually doing a budget? It served its political purposes for the Democratic majority, but it didn’t really balance anything.”

Republicans charged after the session ended last Wednesday that while the new budget doesn’t increase taxes, it is balanced on flimsy assumptions, borrows nearly $1 billion which it repays – in part – with a surcharge on monthly utility bills, and does little to mitigate the $3.37 billion shortfall built into the 2011-12 budget that the next governor and legislature will inherit.

But Geragosian responded that Republicans brought their own political agenda to the budget process, trying to remove unpleasant choices like borrowing with half-baked fiscal solutions. “This is coming from the people who were going to get us $800 million for an airport?” he said, referring to a House GOP plan to avoid the borrowing largely through the proposed sale of Bradley International Airport in Windsor Locks.