On paper, Gov. M. Jodi Rell and the legislature’s Democratic majority are very close to a tentative plan to balance the next state budget.

In reality, though, one sticking point remains, and according to sources close to both sides, it is arguably the most controversial item in the preliminary, $18.93 billion budget adopted last September for 2010-11.

The plan to raise $1.3 billion now by securitizing, or selling the rights to, nearly $1.8 billion in future state revenues has drawn widespread criticism over the past three months, and continues to keep budget negotiations from crossing the finish line.

The next budget, as it stands right now, needs that $1.3 billion to remain in balance. But the preliminary plan never spelled all of the details necessary to make it happen.

The governor offered an alternative last week that involved using spending cuts and new revenues to whittle that target figure down to $1 billion, and then employing more traditional borrowing to close the gap. But aspects of that scenario, particularly raiding energy conservation funds to pay off that borrowing, drew objections from Democrats.

The legislature’s majority countered over the weekend, sources said, by revisiting a proposal to add a Keno lottery game, but still hadn’t signed onto enough spending cuts to lower the securitization target to the governor’s satisfaction,

“All of the pieces are in place to make a deal happen, but we still have some work to do,” Senate President Pro Tem Donald E. Williams Jr., D-Brooklyn, said late Saturday.

Rep. Cameron C. Staples, D-New Haven, co-chairman of the Finance, Revenue and Bonding Committee, said both sides are working to reduce that $1.3 billion target figure. And while he declined to discuss specifics, Staples conceded that “we know where we want to get, but we don’t agree on how to get there.”

Where both sides want to get is a place where state government has to securitize or borrow as little as possible.

That task was made somewhat easier last week when fiscal analysts for the governor and legislature issued a joint report that showed modest growth in state revenues from taxes and federal grants.

Revenue projections are up $375 million for next fiscal year since the last joint forecast was issued in mid-January, enough to erase slightly more than half of the $726 million deficit projected for 2010-11. The second half would be covered by $366 million in a proposed increase in emergency federal stimulus. And even though the National Conference of State Legislatures warned recently that this funding was “on the ropes” and at jeopardy of bogging down in Congress, both the Rell administration and the Democratic legislative leadership have been willing to build it into a revised 2010-11 budget.

All that remains is securitization.

To date, the legislature has not fulfilled the requirement spelled out in the preliminary budget and identified which revenue sources would be sold at a discount to raise $1.3 billion.

A finance committee plan, patterned after a proposal from Rell’s budget staff, would have raised $180 million annually or $1.8 billion over the next decade, by imposing surcharge between $5 and 6 per month on Connecticut Light & Power Co. and United Illuminating customers.

Rell thought that surcharge, dubbed a “hidden tax” by critics, was too steep.

The governor, who proposed more than $260 million in cuts to the preliminary budget in the revised budget she proposed in February, has said the securitization target figure could be reduced to $1 billion or less. Besides the cuts Rell put on the table, the Democrat-controlled Appropriations Committee offered about $60 million in new cost-saving ideas in its revised budget.

And with legislative analysts now projecting the budget for this fiscal year, which ends June 30, to be headed for a roughly $140 million surplus thanks to recent revenue growth, administration sources say there is no reason the securitization target can’t be reduced well below $1 billion.

But sources say Democratic leaders have rejected most of those cuts proposed by the governor as well as those offered by their fellow Democrats on the Appropriations Committee. Rell continues to remain opposed to a Democratic proposal to raise about $70 million more annually by increasing the tax on multi-million-dollar estates.

Still, if the two sides can manage to settle on a reduced securitization target, there are more details to resolve.

If the target is reduced to $1 billion or less, the governor suggests that lawmakers scrap securitization, and employ more traditional borrowing means to cover the remaining gap. To cover the $154 million in resulting annual debt service, Rell proposed raising funds from three sources:

  • A lesser surcharge on electric bills, ranging between $2.37 and $3 per month, for most customers, which would raise $74.5 million per year.
  • Raiding $54.5 annually from energy conservation funds.
  • And $25 million in new annual profits to be raised by turning operations of state-run Bradley International Airport in Windsor Locks to a quasi-public authority.

But Williams says Democrats are wary of raiding the energy conservation funds, which clean energy advocates contend support thousands of private-sector jobs such as solar- and wind-powered home improvements and other energy efficiency projects.

One option that was offered by Democrats on Saturday involved revisiting a proposal the Rell administration offered both last year and again in February: expanding legalizing gambling to offer a new Keno lottery game. The administration has estimated this could raise up to $60 million annually.

Rell’s budget office declined to comment over the weekend though it confirmed both sides continue to talk.

But the governor’s office has repeatedly warned over the past three months that if a Keno game is to be launched, it needs to be resolved well before the end of the budget process. That’s because the administration would want to negotiate any plans to add the game with the Mashantucket Pequot and Mohegan Indian tribes, which operate separate casinos in southeastern Connecticut.

An agreement with those tribes provides state government with 25 percent of all slot revenues from the casinos, a deal which is worth $381.7 million to Connecticut this fiscal year, according to the Office of Fiscal Analysis. But that arrangement also restricts the state from offering the same games provided by the tribes, and Keno is offered at both casinos.

Spokesmen for the Mashantucket Pequots and the Mohegans said Saturday their respective tribes remain convinced a Keno-styled lottery game would violate the agreement.

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Keith M. PhaneufState Budget Reporter

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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