If there’s a silver lining to the difficult task of closing the $726 million shortfall built into the next state budget, it’s that the job also could reduce a deficit five times its size looming less than 15 months down the road.

But nearly three-quarters of the plan Gov. M. Jodi Rell offered Monday to balance 2010-11 – the last budget of her tenure – would rely on more funds from special accounts, reserves, emergency federal grants and other limited sources that won’t be around to help her successor close the much bigger hole in July 2011.

And that’s not counting another $65 million that Rell wants to save next fiscal year by offering the second employee retirement incentive program in two years. Though that projected savings presumably would carry forward for years to come as vacated posts are left open or filled with lower-paid workers, union officials already have said they would oppose the plan because it would deplete a workforce already stretched thin.

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While Democratic and Republican legislators alike conceded Tuesday that talks with the administration centered on more fiscal gimmicks, they said that’s about all they can agree on.

“We’re at a standstill,” House Speaker Christopher G. Donovan, D-Meriden, said, adding that many in the Democrat-controlled legislature still would like to discuss boosting estate tax rates on households inheriting more than $3.5 million. Rell has threatened to veto the proposal, which could raise an estimated $70 million annually.

“That’s money that’s ongoing that could balance out some of this for years to come,” Donovan said. “It makes sense. We support it. She doesn’t.”

Republican legislators remain staunchly opposed to any tax increases, but House Minority Leader Lawrence F. Cafero, R-Norwalk, said tax hikes aren’t the only budget-balancing options that work year after year.

“I would have liked to see more systemic changes” in the governor’s plan, Cafero said. “We could look at consolidations, privatization, and other ways to cut spending. We have to do things differently in this place and instead we keep missing the opportunities to make real change.”

Cafero added that he suspects the Republican governor would have proposed more options for shrinking government and reducing spending, but was trying to reach out in compromise with Democrats, who have argued the state’s social service and health care safety net already has been cut too deeply.

“What we tried to do was put out a deficit-mitigation package that will pass,” Office of Policy and Management Secretary Robert L. Genuario, the governor’s budget director, said Tuesday. “But we are certainly willing to continue looking at ways to reduce ongoing expenses.”

Still, most of the deficit relief Rell offered Monday expires after she has left office, and one proposal likely would boost costs down the road.

The single-biggest solution Rell proposed to close the $726 million gap involves more than $365 million her budget office estimates Connecticut would receive next year – if Congress eventually adopts a proposal to increase 2010-11 grants in the third and final year of the emergency stimulus program.

“We’re obviously going to include federal money whenever we think it will be available,” Genuario said.

The governor indicated she also plans to order the third consecutive reduction in annual contributions to the state employee pension fund in 2010-11, bringing the total of unpaid contributions to $329 million since 2009.

Both administration officials and legislators concede that reducing these payments now only will require larger contributions in future years to compensate.

Other limited budget solutions the governor offered this week involved reassigning transportation and banking funds to cover general government operating costs, as well as propping up ongoing programs with $17 million from a one-time settlement reached with the federal government involving disputed Medicaid and Medicare expenses.

State government faces a similar fiscal problem, but on a much larger scale, in the 2011-12 fiscal year. According to the legislature’s nonpartisan Office of Fiscal Analysis, more than 70 percent of the $3.88 billion shortfall projected for that year stems not from declining tax revenues or inflation, but rather from the cost of maintaining ongoing programs whose ‘one-shot” sources of revenue will vanish starting in July 2011.

More than $2.7 billion out of that nearly $3.9 billion gap involves federal stimulus aid, funds from state government’s emergency reserve and a $1.3 billion lump-sum payment obtained by selling future revenues at a discount and built into the 2010-2011 budget. The next governor and legislature also must begin repaying principal and interest, about $216.5 million in 2010-11, to cover $1 billion borrowed in 2009. Rell and the legislature bonded the state’s $1 billion operating debt last year, despite having $1.4 billion in reserve at the time, so they could instead use those reserve dollars as “one-shots” to avert more tax hikes or spending cuts in their last two budgets.

Rell’s latest plan drew criticism Tuesday from several of the Democratic gubernatorial candidates.

Simsbury First Selectwoman Mary A. Glassman called the suggested pension payment cut “another example of quick fixes that shift very real and significant costs of government onto another budget rather than making a budget plan that required difficult and disciplined decisions… This action ignores the long term obligations for both pension and medical benefits that must be paid.”

“It’s time to stop kicking the can down the road,” Greenwich businessman Ned Lamont said Tuesday, who also complained that another retirement incentive program would hinder the next governor’s efforts.

“What this plan does is rob our state agencies of their most experienced workers at a time when our state needs the best and the brightest,” Lamont said.  “The worst part is that the ‘savings’ this short-sighted proposal offers are a drop in the bucket – savings that are overshadowed by the loss of talent and the time, energy, and money it will take to train their replacements.”

Former Stamford Mayor Dan Malloy said the retirement incentive program offered last year also was a mistake. “Apparently the governor and her staff are hoping that two wrongs really do make a right,” he said.

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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