As deficit deadline nears, is budget ‘raid’ an option?

There’s a $515 million hole in this year’s budget, and four months left in which to fill it. The question now percolating around the Capitol is, will Gov. M. Jodi Rell try to raid next year’s budget to plug the gap?

It’s not a new idea: Since Rell and the legislature’s Democratic majority deadlocked on deficit reduction in December, sources say both sides have considered shifting one-time revenues allocated for the fiscal year starting next July 1 into the current year.

But with Rell under the gun to produce a deficit mitigation plan by March 3, and options limited, the prospect of even more borrowing against the future looms large. And because Rell is not running for re-election, the fallout from such a move would likely be felt by her successor.

That’s because the 2010-2011 budget already has its own $726 million projected deficit, according to legislative analysts. And although the legislature has to come up with a spending plan that balances on paper, the next governor almost certainly will have to patch holes in that budget in early 2011 just as Rell is doing with the current budget now.

The governor’s budget director, Office of Policy and Management Secretary Robert L. Genuario, refused to dismiss the possibility of dipping into the 2010-11 budget when interviewed about the deficit-reduction plan under development. “I wouldn’t rule anything out. I wouldn’t rule anything in,” he said. “I really can’t comment on it.”

Genuario added that the plan should be completed within the next 10 days. State law requires the governor to submit a budget-balancing plan to the legislature within 30 days after the comptroller has certified any shortfall greater than 1 percent of the General Fund. The $515 million deficit reported by Comptroller Nancy Wyman on Feb. 1 represents a nearly 3 percent gap.

Rell, a Republican, has said repeatedly that she would not support any tax increases to close this year’s deficit. Her last deficit-mitigation plan, issued on Nov. 24, relied primarily on two things: taking advantage of existing budget language that allowed a previously-approved, Jan. 1 sales tax reduction to be suspended if overall tax revenues shrink; and making nearly $340 million in new spending cuts spread across most agencies and funds.

The Democrat-controlled legislature countered in December with nearly $40 million in proposed cuts and also called for cancellation of a scheduled Jan. 1 reduction in the tax on wealthy estates. Rell vetoed the plan.

Rell no longer has cancellation of the sales tax reduction to count on; Wyman included that $130 million in revenue in her latest forecast. Many Democratic legislators have said they expect the governor’s new plan will revive many of the spending reductions offered in November, except for an $84 million hit aimed at municipal grants that drew bipartisan criticism from town leaders.

Rell would need between $200 million and $250 million in new deficit-trimming measures to close out the larger $515 million target, even if she proposes most of her November cuts a second time.

The governor announced in early February she would take advantage of a provision in the concession deal reached last May with state employee unions and reduce government’s annual contribution to their pension fund by $100 million, both this fiscal year and next.

But there is an option the governor could employ to move all $200 million of that estimated pension fund savings, and even more, into this fiscal year’s budget.

Both the 2009-10 and 2010-11 spending plans adopted last September are supported heavily with revenues from two, limited sources: just under $1.4 billion from emergency reserve, commonly known as the “Rainy Day Fund,” and $1.47 billion in federal stimulus grants. 

Just over $1.9 billion of this $2.85 billion in special funding was dedicated to shore up shrinking tax revenues in this fiscal year’s budget, and the remaining $914 million was reserved for use in 2010-11.

All it would take to transfer some funding away from next year’s budget and into this year’s would be an act of the legislature and Rell’s signature.

But while this year’s deficit would be addressed under that scenario, the $726 million shortfall that nonpartisan legislative fiscal analysts are tracking in 2010-11, would get worse. That fiscal year doesn’t end, however, until June 30, 2011, six months after Rell will have left office and the current legislative term is over.

“It doesn’t really solve the problem,” Rep. John Geragosian, D-New Britain, co-chairman of the Appropriations Committee, said of that option, quickly adding he’s not ready to rule it out either. “I’d have to see how much, and in the context of an overall plan.”

“That would certainly be problematic but we will not close the door at anything at this point,” Senate Majority Leader Martin M. Looney, D-New Haven, said, adding there has been too little consensus reached on deficit-cutting to do otherwise.

Rep. Craig Miner of Litchfield, ranking House Republican on the Appropriations Committee, said such a maneuver would amount to a shell game, and predicted minority Republicans in both chambers would shun it. “I think it’s premature to be talking about shifting anything around,” he said, adding he believes substantive spending cuts still could be achieved this fiscal year provided they are approved soon.

Miner added that with legislative analysts predicting a much larger, $3.9 billion deficit built into the 2011-12 fiscal year, raiding future budgets increases the likelihood that debt from this recession will haunt taxpayers for decades to come. “The lives of our grandchildren depend on us dealing with this now,” he said.