The state closed in on its first balanced budget in two years Tuesday as the House of Representatives approved a measure to eliminate nearly 90 percent of this fiscal year’s $371 million shortfall.

The measure, which relies on a combination of spending cuts, additional federal revenue and raids on special accounts and trust funds  to slice $323.2 million off the current deficit, was approved 147-1. It is expected to be adopted in the Senate today, and signed by Gov. M. Jodi Rell shortly thereafter.

Part of a compromise deal negotiated last week with the Republican governor, the plan scraps earlier proposals to boost the tax on multi-million-dollar estates and to levy a 5.5 percent tax on hospital gross revenues. But legislative leaders warned those increases would be revisited soon as lawmakers and Rell tackle more deficits.

candelora, vincent, 4-14-10

Rep. Vincent Candelora: ‘We have plucked the low-hanging fruit’ (Keith Phaneuf)

With just 2½ months left before the fiscal year ends and most of the current budget already spent, three-quarters of the $323 million sliced off the deficit technically was achieved by raiding the next state budget, specifically by taking nearly $240 million in budget reserve funds originally assigned to 2010-11. But that raid was offset by a matching amount of spending cuts, additional federal revenue and transfers out of special accounts and trusts.

Regardless of the bleak outlook, majority Democrats in the House called Tuesday’s vote an important first step.

“It’s not perfect, it’s not pretty, but it’s something that’s necessary for us to do here today,” said Rep. Clark J. Chapin, R-New Milford.

“People know we have to make sacrifices,” House Speaker Christopher G. Donovan, D-Meriden, said before the 40-minute floor debate. “Everybody knows it. It was hard work.”

That “hard work” included cuts to programs, including a larger number of social service, health care and education services, worth nearly $90 million in total over the rest of this fiscal year and all of the next. These included higher co-payments and restrictions on vision services and prescription drug coverage for low-income patients covered by HUSKY and Medicaid.

But Rep. John Geragosian, D-New Britain, co-chairman of the Appropriations Committee, said Democrats also rejected many of the governor’s proposals to further reduce the state’s social services safety net. “We didn’t take a meat cleaver to the services the people need out there,” he said. “We made sure that that health care is there for them. It sounds good to cut across the board, but the needs are great out there.”

The bill adopted by the House did not include two controversial cost-cutting measures proposed earlier this session, specifically a $3 million savings proposed by Senate Democrats to be achieved by firing the 21 of Rell’s deputy commissioners starting July 1, and a $45 million cut the governor proposed in March to municipal grants for 2010-11.

Geragosian praised the compromise plan negotiated late last week between the Rell administration and the legislature’s Democratic majority for taking a balanced approach.

Besides nearly $90 million in spending cuts, it would bring an extra $103 million in additional federal aid into the state over this fiscal year and next. More than half of that would come from a Democratic proposal to move the health benefits provided through General Assistance – the state’s welfare program for single adults without children – under the umbrella of the federal Medicaid program.

The Rell administration had cautioned against such a move, noting that in order for a program to qualify for federal assistance through Medicaid, it must operate under “entitlement” rules, meaning all applicants who meet program guidelines are entitled to receive benefits. This prevents states from capping spending on the program, and in the long run could drive up General Assistance costs despite increased federal aid, the administration warned.

Though technically not part of the bill adopted Tuesday in the House, the deficit-mitigation effort in the legislation also would be assisted by new projections increasing anticipated federal assistance in providing prescription drug coverage for low-income seniors by $34.2 million in 2010-11.

The last major component of the bill involves nearly $87 million originally deposited in trusts and other funds for special programs, including public financing of state elections, biomedical research and business investments. Besides sweeping nearly $90 million from these smaller accounts, the bill also strips $10 million from the second-largest fund in the state budget, the $1.1 billion special transportation fund.

Based upon the $371 million deficit officially certified by state Comptroller Nancy Wyman on April 1, the House bill, if adopted in the Senate and signed by Rell, would leave state government with just $47.8 million in remaining red ink.

“I am gratified that both the House and Senate and both Republicans and Democrats have agreed – with a handful of modifications – to the deficit mitigation proposal I offered,” the governor wrote in a statement issued after Tuesday’s vote. ” It is a plan that eliminates the current year’s budget shortfall without increasing taxes or cutting municipal aid: two goals all of us can support.

“It is vital for all of us to continue to work together to surmount the remaining fiscal hurdles,” the governor added. “We must still reach agreement on a securitization proposal and on a plan to eliminate the deficit for the next fiscal year. Reducing spending – cutting the size and scope of state government – remains the best solution to our financial woes.”

Republican legislators also were quick to temper any enthusiasm about conquering most of this year’s deficit, noting that much larger shortfalls are just over the horizon.

The legislature’s nonpartisan Office of Fiscal Analysis has projected a $725.7 million shortfall for 2010-11 and $3.88 billion in 2011-12. The latter equals 21 percent of this year’s budget, and more than 60 percent of all projected revenue this year from the state income tax.

“Lead by example and get your fiscal house in order,” House Minority Leader Lawrence F. Cafero, R-Norwalk said, urging legislators to take  immediate action to mitigate the much-larger projected deficits. “We have an obligation as a legislature to take care of business and do our job. It’s a beginning and not an end.”

Rep. Vincent J. Candelora of North Branford, the ranking House Republican on the Finance, Revenue and Bonding Committee, chastised the legislature for not making more cuts, warning that gimmicks such as raids on special trusts and accounts cannot solve the larger deficits ahead.

“We need to look at our ongoing expenses, not the one-time accounts,” he said. “We have plucked the low-hanging fruit.”

Rep. Shawn Johnston, D-Thompson, who cast the lone dissenting vote, offered a similar criticism afterward, adding gimmicks such as fund raids could have been avoided if lawmakers hadn’t adopted a budget last fall that members knew relied on questionable spending and revenue assumptions.

“We knew the budget wasn’t balanced,” said Johnston, who voted against that measure as well. And we’ve known we’ve had this deficit all along and nothing happened until now.”

The bill adopted Tuesday also would reverse increases ordered last fall on various state park fees and hunting and fishing licenses. To offset that $5.3 million revenue loss, the bill also increases fines for certain motor vehicle violations, such as the minimum fine for speeding, which jumps from $35 to $50. These changes would take effect immediately.

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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