State to slash budget in face of rising deficit

Just last month the state budget deficit was projected at $108 million. On Thursday, Gov. M. Jodi Rell said that number has now tripled, rising to more than $350 million.

Connecticut legislators will meet Monday in special session to close this growing budget gap for the next fiscal year. Deficit reduction measures introduced by Rell last month will close the shortfall without raising taxes, laying off employees or dipping into the state’s $1.4 billion “rainy-day fund,” which will be needed to fend off further deficits.

A $115.6 million drop in sales tax revenues and $100 million in lost taxes on energy companies have contributed to the larger-than-expected deficit. Rell has already cut over $180 million from this year’s budget by implementing a hiring freeze and ordering executive agencies to cut nonessential services, but she said those measures have not been enough.

“Like Connecticut families, state government must face the bare fact: There is not enough money to do everything,” Rell said in a statement Thursday. “We are going to have to defer some of our desires until the economy picks up again — as we know it will. I am ready to work with anyone who has the best interests of Connecticut’s taxpayers at heart — and ready to drag the rest along, kicking and screaming if need be, until we get the job done.”

The budget reduction proposal will raise new revenues for the state, collecting $157 million from the federal government after the settlement of a Medicare rates dispute. A tax amnesty program, originally proposed by state Democrats, is expected to raise an additional $40 million for the state.

The need for action has brought both sides of the aisle together on the issue.

State Democrats, who have control over the General Assembly, indicated Thursday that Rell’s proposal is mostly acceptable. They diverge from the governor only on a proposed change to state retiree pharmacy benefits and a proposal to funnel unclaimed returnable bottle deposits back to the state.

But state House Speaker James Amann voiced concern Thursday that the bottle deposit provision would hurt the beverage industry, possibly forcing further layoffs.

“We ask businesses to do these things. We commit to them a certain revenue source. When you pull their revenue source away, you’re really just taxing them,” Amann said, according to The Associated Press. “Do we really need do that at this point?”

Also of concern to elected officials and state House staffers interviewed is the state’s bond rating, currently rated Aa3 by Moody’s. It was previously downgraded from Aa2 in 2003, when the state faced similar budgetary crises. Further erosion of the state’s bond rating will make it harder for the state to borrow on credit, exacerbating rising debt-service costs, according to the Fiscal Accountability Report released Nov. 12 by the Office of Policy and Management. The state currently has one of the highest debt-per-capita ratios in the country.

The state is also suffering from increases in unemployment and has been hit hard by layoffs in the insurance and financial service industry, which have eliminated 1,600 jobs in the state since July. Overall, 3,600 Connecticut residents lost their jobs in the month of October — raising the state’s unemployment level to 6.5 percent, the national average, from 6.1 percent in July, according to the governor’s office.

State Senate President Donald E. Williams said it is clear that this will be a long recovery process.

“What happens Monday will be a good first step toward addressing the current budget deficit,” he said. “But make no mistake: This will only be a first step in what will be a very long path.”

According to General Assembly staffers interviewed, the budget reduction measure is expected to pass despite some opposition, but that will not be the end of the state’s budgetary woes. The state budget deficit is expected to reach $2.6 billion in fiscal year 2010 and almost $3.3 billion in fiscal year 2011, according to data released last week by the OPM.

Rell will introduce her budget for fiscal year 2010, which begins July 1, 2009, in February, said Adam Liegeot ’94, a spokesman for the governor.

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