Top state lawmakers aren’t worried about federal aid shortfall

Top state lawmakers are optimistic that even if new federal stimulus rules punch a $156 million hole into the new state budget, rebounding tax revenues will cover most of the gap.

House Speaker Christopher G. Donovan, D-Meriden, and Senate President Pro Tem Donald E. Williams Jr., D-Brooklyn, also said they don’t believe Gov. M. Jodi Rell will need to issue a deficit-mitigation plan before the November elections – a move majority Democrats in the legislature have described as a political nightmare.

“We have to see the overall picture develop over the next couple of months, but right now things are looking good,” Donovan said Monday.

Donovan and other officials learned last week that the stimulus extension adopted by Congress earlier this month includes $57 million less in Medicaid and child-welfare funding than anticipated.

Further complicating matters, Connecticut might have to allocate the entire $109 million in additional education stimulus it received to municipal school districts in addition to the $1.9 billion in Education Cost Sharing funds already scheduled to be paid out.

State officials had counted on $99 million in extra education stimulus, but assumed all of it could be used to help cover ECS program costs.

But the stimulus measure stipulates the additional aid cannot “supplant state funds in a manner that has the effect of establishing, restoring or supplementing a Rainy Day Fund” – the latter being a term typically used to refer to a state’s budget reserve.

Associations representing municipalities, public school teachers and school superintendents all insisted last week the funding must be used as supplemental aid to local schools.

Rell’s office has refused to comment on the stimulus question other than to say it is researching the state’s obligations under the law. The administration indicated it won’t be issuing a final opinion until Friday, when it discloses its first monthly assessment of this fiscal year’s $19.01 billion budget.

Donovan said he believes the administration will show that other revenue growth either largely or entirely offsets that potential loss in federal aid.

As evidence, Donovan cited the surplus for the just-completed 2009-10 fiscal year. That surplus, which was projected at $139 million in April, surged dramatically over the past few months, finishing at $393 million.

“I think things are getting a little bit better and we have to factor that in as well,” he added.

Williams said Monday he’s concerned about the federal stimulus but added that “we’re in a very different place than we were one year ago.” In August 2009, Rell and the legislature had just closed the books on a 2008-09 budget that finished $1 billion in deficit as tax receipts plummeted amid the recession. “The potential shortfall we’re watching now is not the result of declining revenue.”

Williams added that the current revenue picture, “while not perfect, has improved in the last six months. I think everyone should be cautious. We should be prepared for a slow recovery, but things have gotten better.”

But Sen. Andrew W. Roraback of Goshen, ranking Republican senator on the Finance, Revenue and Bonding Committee, said the federal stimulus shortfall is just the latest in a string of questionable decisions used to balance recent budgets, and helping to leave state government with a $3.37 billion deficit projected for next year.

Despite having nearly $1.4 billion in the state’s emergency reserve at the time, the Democrat-controlled legislature and Rell agreed to borrow $1 billion to eliminate the 2008-09 deficit. This enabled them to use the full reserve to prop up spending for ongoing programs in 2009-10 and 2010-11.

The governor and legislature also plan to borrow another $700 million to support this fiscal year’s budget. That borrowing will be paid off largely through a surcharge on monthly electric bills.

And legislators learned last week that state Treasurer Denise L. Nappier, following a plan approved by Rell in March 2009, borrowed another $580 million that spring to keep state government from running out of cash. Those funds also have not been repaid.

“The entire package has put us behind the eight-ball,” Roraback said. “No one really knows what the economy is going to do over the next year. What we do know is we’re borrowing a lot of money.”