No new taxes as one-time revenues plug budget gap

In her final State of the State address, Gov. M. Jodi Rell Wednesday issued a call for political civility and fiscal responsibility, then proposed a budget that leaves a huge deficit to the next governor and legislature.

Her proposed $18.9 billion budget for the fiscal year beginning July 1 relies on $2.7 billion in federal stimulus dollars, borrowing and other one-shot revenues and exhausts the last of the state's fiscal reserves.

Rell proposed a series of fiscal reforms that she says could help establish a foundation for recovery, but she did not deny leaving a horrific balance sheet for whomever is elected governor this fall.

"Quite frankly, the dire circumstances we are facing today will pale in comparison to the challenges that will face the next governor, the next legislature," Rell said.

With less than a year before she leaves office, Rell proposed creating a 24-member commission that would conduct a top-to-bottom review of government and recommend changes in December.

She tried to sweeten her last budget with a few initiatives, including a job-creation tax credit program and borrowing $100 million to guarantee private-sector loans and provide direct loans to small businesses. The borrowing could leverage $400 million in private lending, she said.

Rell also proposed expanding the sales tax exemption to include materials used in renewable energy and green technology.

"We will rebuild our economy. We will create jobs. And we will put our state back on firm financial footing if we work hard and confront our problems with courage and common sense," she said.

Rell also proposed a program to forgive up to $10,000 in loans for graduates of Connecticut schools who enter a targeted field in the state: green technology, life sciences or health-related information technology.

But her budget and her speech were mainly about getting by with less – though much of the pain would be deferred until after the election.

Rell avoided deep, sweeping cuts. She would impose co-pays on Medicaid recipients and increase co-pays for prescriptions covered by Medicare.

Her budget has no tax or fee increases and would increase spending by sixth-tenths of one percent.

She would borrow $1.3 billion against future revenue, drain the last $300 million of budget reserves, sell $45 million in state assets and raise $20 million by introducing a new form of legalized gambling, Keno.

Sen. Toni Harp, D-New Haven, the co-chairwoman of the Appropriations Committee, said Rell's reliance on one-time revenue guarantees that her successor will be forced to raise taxes in 2011.

"It's an enormous hole in the next biennial budget, an enormous hole," Harp said. "We can't cut our way out of that kind of hole. Whoever becomes governor is set up with having to aggressively tax the people of this state."

Rell and the legislature also still have to close a $500 million gap in the current-year budget.

"I think she left some heavy lifting for us," said House Majority Leader Denise W. Merrill, D-Mansfield. "I see a lot of common ground on the job creation. It remains to be seen how we get to the finish line on the $500 million deficit."

Republicans were more understanding, crediting Rell with highlighting structural problems in her speech, such as the unfunded liabilities for state pensions and retiree health costs.

"She's trying to get that ball in motion. Whatever she started, the next governor can pick up," said Lt. Gov. Michael C. Fedele, a candidate for the Republican gubernatorial nomination.

"We have difficult choices to make," said Senate Minority Leader John P. McKinney, R-Fairfield. "We're going to have to cut spending, and we're going to have to make government more efficient."

The governor entered the ornate Hall of the House to sustained applause.

"Welcome back to the House," said House Speaker Christopher G. Donovan, D-Meriden.

Rell was elected to the House in 1984 and served for 10 years. She was elected lieutenant governor in 1994, then became governor after a corruption scandal forced the resignation of her running mate, John G. Rowland. She won a full term in 2006, but declined to run this year.

"It's always my pleasure to be back in here," she said, pointing to her old seat on the Republican side of the chamber.  "I also ask that you indulge me since this is my last State of the State."

Rell asked the legislators to acknowledge her husband, Lou, and son, Michael, who sat at the front the chamber. She said her daughter, Meredith, who lives in Colorado, watched the streaming video on line.

But she wasted little time on nostalgia.

"We gather today to mark the opening of the 2010 legislative session, and we do so at a time of continued challenge, continued anxiety. None of us need to be reminded of the unparalleled struggles that we have endured over the last 22 months."

State tax revenues have plummeted, and nearly 94,000 residents have lost their jobs since the start of the recession in March 2008. Rell said the state's residents are hungry for leadership.

"They want action and assistance. And they want an end to the theatrical histrionics of political press conferences and partisan pinball," she said. "They want us to act like adults."

Rell praised President Obama for addressing the coarseness of politics in Washington in his State of the Union last week.

"Frankly, he could have been speaking of our own State Capitol here in Hartford," Rell said. "I will echo his sentiment and be a bit more blunt: We need to stop the game-playing and name-calling and constant bickering that has come to consume too many at the Capitol."

Donovan and Senate President Pro Tem Donald E. Williams Jr., D-Brooklyn, each said that the legislature's Democratic majority was prepared to work with the governor.

Her standing-room audience in the ornate Hall of the House included a roster of Democrats and Republicans either seeking her job or seriously considering entering the race.

Former U.S. Rep. Christopher Shays, who lives in Maryland and works in Washington D.C., flew up for the day, setting off fresh speculation he soon will be a candidate.

He chatted before the speech with a Democrat expected to formally announce in coming weeks, Dan Malloy, the former mayor of Stamford.

Reaction from those who see themselves as the next governor was mixed.

"I didn't hear much about things that are going to be done this year. There is a deficit this year already," said Tom Foley, the Republican frontrunner. "We need to get started on reducing expenses this year in order to have any prospect of avoiding a major deficit next year."

Foley called her speech "a good start, a little light on specifics."

Danbury Mayor Mark Boughton, who declared his candidacy Monday night, said Rell laid the groundwork for the next governor.

"The taxpayers can't be asked for a greater contribution until we make a concerted effort to downsize the size and scope of state government," he said.

Democrats said she was leaving too much undone, though some tried to soften their criticism by recognizing that she is approaching retirement.

"The governor deserves a lot of credit. She's had a distinguished public career," Malloy said. "Unfortunately, she is going to be remembered as the governor who presided over a sea of red ink."

He said her proposals to examine retirement costs, other long-term expenses and government reorganization was a good idea that would have been a better idea five years ago.

"Although I think there is a valiant attempt being undertaken here, it is a little too little and a little too late," Malloy said.

Mary Glassman, the Simsbury first selectwoman and a likely Democratic candidate for governor, heard little to praise.

"What I heard was a governor on autopilot today," Glassman said. " A 30-minute speech that talks about tax credits for business and a study commission to merge agencies, which she has the ability to do, is unacceptable."

The Connecticut Business and Industry Association praised the speech.

"We are pleased that there are incentives to help businesses create jobs, but it's only a beginning," said John R. Rathgeber, the group's president.

A leader of the Connecticut State Employees Association and Service Employees International Union said Rell tried to avoid devastating cuts without offering any long-term solutions.

"We need a bold vision and real programs to put the people of Connecticut back to work," said Catherine Osten, president of Local 2001 of CSEA/SEIU.

Under a concession deal reached last year, most state employees are immune to layoffs through June 30, 2011.