Growing surplus giveth, taketh away

Quick state budget riddle: When is an extra $100 million in surplus dollars not necessarily good news?

Answer: When the revenue trends behind it could require Connecticut to pay a matching amount into the employee pension fund.

If that bit of fiscal logic seems hard to follow, it’s because it’s based on a new $19.01 billion spending plan that critics say offers more choices than a Swiss Army Knife.

Gov. M. Jodi Rell hailed the latest development Tuesday as good news. Specifically, the Office of Policy and Management reported the $18.64 billion budget for 2009-10, which expires on June 30, now is on pace to finish $242.9 million in the black.

That’s $104 million above the level that the Republican governor and the Democrat-controlled General Assembly were counting on to carry forward into 2010-11 to balance the next budget.

There’s just one problem with that. This next budget also counts on deferring $100 million in contributions to the state employee pension fund. That can only happen if 2010-11 revenues fall $300 million short of projections, based upon a concession agreement negotiated in spring 2009 by Rell and state employee labor unions and ratified by unions and the General Assembly.

That savings already seems like a contradiction, since the new budget assumes revenues will run nearly $72 million higher than the level assumed in the preliminary $18.93 billion budget adopted last September for 2010-11.

Rell’s budget agency, the Office of Policy and Management, wrote Monday in their monthly budget report to the state comptroller’s office, that the new $242.9 million surplus forecast – up $76 million since mid-May and $104 million since late April–was due in part to nearly $60 million in revenue growth. About half of that is tied to sales tax collection, with the remainder coming from permits, license fees, fines and other smaller sources.

“These OPM projections are the latest in a week of some very good economic news for Connecticut,” Rell said Tuesday.

The new budget stipulates that any 2009-10 surplus above the $139 million mark be used to reduce the nearly $990 million in borrowing Rell and the legislature built into the 2010-11 budget to avoid tax hikes or further spending cuts.

“Our state is now in a much stronger position to cut down borrowing,” the governor added.

“The latest budget projection from the Office of Policy and Management for the current fiscal year is good news for Connecticut’s bottom line,” said Senate President Pro Tem Donald E. Williams Jr., D-Brooklyn. “Revenues are rebounding as our economy begins to recover from the global recession.”

Despite Rell’s and Williams’ claims, General Fund revenues, excluding federal aid, are less than $320 million ahead of last fiscal year’s pace, despite just over $950 million in tax and fee hikes.

And Rep. Vincent J. Candelora of North Branford, the ranking Republican representative on the Finance, Revenue and Bonding committee, said the new budget – which Republicans unanimously opposed in both chambers – was built on contradictory assumptions. And Williams and Rell, he added, are conveniently forgetting the $100 million hole that the new $104 million in surplus growth effectively creates.

“This is about perception and deception,” Candelora said, accusing Williams of election-year posturing. “It’s about intentionally trying to deceive the public so they perceive we are balancing the budget and doing our job. Come January 2011, everybody is going to be faced with a cold dose of reality.”

Rell is not seeking re-election.

State Comptroller Nancy Wyman is responsible for developing the official, monthly state budget assessment. Her next report, which would include a review of the administration’s latest numbers, is due on July 1.