New administration plan revives talks with legislators to reduce 2010 deficit

With just 12 weeks left in the fiscal year, Gov. M. Jodi Rell and the Democrat-controlled legislature moved closer Thursday to agreement on eliminating the current $371 million deficit–without tax hikes–based on a compromise plan offered Monday by Rell, sources close to the administration and the Democratic caucuses said.

But those sources also said Democrats are still urging the Republican governor to reverse her opposition to tax increases when it comes to resolving the $725.7 million shortfall projected for the preliminary $18.93 billion budget for next fiscal year.

Neither administration officials nor leaders of the House and Senate Democratic majorities would discuss the negotiations. Sources said all sides agreed to a “media blackout.”

But according to documents obtained by The Connecticut Mirror, Rell provided legislative leaders with a plan during a closed-door meeting this week that includes elements of the deficit-mitigation bill adopted March 27 in the Senate, with two major changes.

First, the governor’s counter-offer eliminated two tax hikes: a broad-based increase in rates on the tax on multi-million-dollar estates expected to raise about $70 million per year; and a 5.5 percent levy on hospital gross revenues. That tax would raise $207 million, which state government would immediately redistribute to hospitals, giving more to facilities that treat more uninsured and Medicaid-funded patients. This expenditure would, in turn, qualify Connecticut for $103.5 million in additional federal health care aid.

Secondly, in place of those potential tax and grant revenues, Rell proposed about $65 million in additional spending cuts, mainly in education and social services programs, and the reassignment of another $40 million originally designated for state election campaign financing, medical research and other special trust funds to support General Fund spending.

The governor’s proposal also does not go as far in balancing the budget as the Senate Democrats’ plan does.

The Senate bill, which the House never voted on after Rell threatened to veto it, would have eliminated this year’s entire $371 million deficit and sliced about $80 million off the 2010-11 shortfall. The governor’s latest proposal would leave about $10 million to $20 million in red ink this year, based on the deficit certified by Comptroller Nancy Wyman, and wouldn’t reduce the shortfall in 2010-11.

Rell has remained steadfast in her opposition to raising the estate tax, which currently applies to inheritances worth more than $3.5 million. Before January, Connecticut had taxed all estates worth more than $2 million. That threshold was raised as part of a compromise between Democrats and Rell after the governor agreed to back a new top state income tax rate of 6.5 percent on individuals earning more than $500,000 and couples earning more than $1 million.

The governor had proposed her own hospital gross revenues tax back in a March 1 deficit-mitigation plan. But that involved a 3.25 percent tax rate designed ultimately to leverage just under $65 million per year in federal aid.

Since then, industry officials and several legislators from both parties have complained that either hospital tax proposal would harm too many acute care centers still reeling from the recession.

State Sens. John A. Kissel, R-Enfield, and Tony Guglielmo, R-Stafford, called Thursday for any tax to be revised to exempt hospitals in financial distress. They noted that Johnson Memorial Hospital in Stafford would pay $2.26 million in new taxes under the 5.5 percent rate proposal, despite having filed for bankruptcy.

“The fact that this bill will impose a new tax on a hospital that is in the middle of bankruptcy proceedings shows the full extent of the legislature’s inability to make wise choices for the future of our state,” Kissel said, adding the hospital employs 1,200 people. “This plan is not a step in the wrong direction; it’s a giant leap.”

The new spending cuts offered by Rell touch upon some sensitive areas traditionally protected by Democrats, particularly in the House. These include new cost-sharing requirements and restrictions on vision services for Medicaid patients, a cut to school-based health clinics, and a delay in planned funding for early childhood learning programs.

But the administration’s latest plan also embraces some spending reductions first suggested by the Democrat-controlled Appropriations Committee earlier this month. These include a wide array of education-related cuts targeting transportation, charter schools and bilingual education programs, further cuts to social services, and elimination of several vacant positions in both the Judicial and Executive branches.

Rep. John Geragosian, D-New Britain, co-chairman of the Appropriations Committee, declined to discuss negotiations Thursday but did confirm that the governor found some common ground with his panel in her latest plan. “There are certainly some things we can work with here,” he said.

The governor’s latest plan does not include the $45 million reduction in municipal aid she proposed on March 1.

Rell also did not include the Senate Democrats’ proposal to save $3.1 million by eliminating 21 deputy commissioner posts from her administration effective July 1.