Rell’s budget office defends its deficit forecast

A day after legislative analysts issued a deficit forecast more than $300 million higher than Gov. M. Jodi Rell’s, the governor’s budget office defended its projection for the coming year, saying that most of the gap arises from differing assumptions on the level of funding to cities and towns.

Office of Policy and Management officials, who projected a $3.37 billion deficit in the transition budget submitted this week to Gov.-elect Dan Malloy, were careful not to criticize the legislature’s nonpartisan Office of Fiscal Analysis, which pegged the 2011-12 shortfall at $3.67 billion.

But the governor’s staff said about 70 percent of the $304 million difference between the forecasts simply reflects two different, but equally appropriate, procedures for calculating one of the largest components of the state budget.

“From a big picture perspective, there are no major differences between OPM and OFA,” Rell budget director Brenda L. Sisco said. “It is important to note that the OPM report is not under-estimating the deficit.  The vast majority of any differences are attributable to differing approaches to how a current services budget is constructed.”

For example, Rell’s staff assumed that the PILOT grant would not increase next year. An acronym for Payment In Lieu Of Taxes, PILOT reimburses communities for a portion of the municipal taxes that cannot be collected on exempt properties, such as state-owned parcels, colleges, hospitals, and new manufacturing equipment.

Though state law calls for regular increases to the PILOT program, Rell and lawmakers have overridden that requirement for the last three fiscal years–a practice past governors and legislators also adopted during tough fiscal times.

Legislative analysts included the statutorily-required PILOT increase, $184 million, in their deficit forecast.

Similarly, the Rell administration assumed no growth in the Education Cost Sharing grant, while legislative analysts calculated that based on inflationary trends, the ECS formula would call for a $42.7 million increase next year.

After major ECS increases in 2007-08 and 2008-09, Rell and the legislature have suspended any ECS growth over the last two fiscal years.

“Both approaches (to deficit forecasting) are reasonable and one is not better than the other,” Sisco said.

The legislature’s nonpartisan fiscal office traditionally does not comment beyond its written reports.

Though Malloy pledged in the campaign that he would not cut ECS funding, and would try to spare non-education grants from deep cuts, he said on several occasions that no community should count on increased funding next fiscal year.

James Finley, executive director of the Connecticut Conference of Municipalities, said that while his organization would push hard to expected aid for the state’s poorest cities, “Our advice to our members is that it’s going to be a fight to keep aid to cities and towns–education and non-education aid–level-funded.”

There were some other differences in the two budget offices’ latest assessments of the deficit released this week.

For example, funds from dormant bank accounts and other types of abandoned property must be turned over to the state, which then provides millions of dollars of refunds annually to the original owners who later reclaim them.

After years of neither budget staff including those refunds in their deficit forecast, legislative analysts – noting these refunds have been on the rise in recent years – counted nearly $60 million toward the deficit. The Rell administration didn’t count any, but acknowledged Wednesday that OFA’s decision was valid.

There were a few areas of disagreement, not over budget reporting procedures, but over the actual fiscal trends facing state government.

Executive and Legislative branch analysts disagreed over the growth in cost for Medicaid, state employee fringe benefits, grants for child welfare and social services, school choice programs and even miscellaneous expenses. But the net difference between all of those competing assumptions totaled less than $35 million, with the governor’s office assuming the higher cost.