If Republican Gov. M. Jodi Rell and the General Assembly fail to fulfill their responsibilities in the coming weeks, Connecticut will start the 2011 fiscal year with a $2 billion budget hole.

This isn’t the $4 billion dollar structural deficit that the next governor is going to inherit when he or she takes office on Jan. 5, 2011. Rather, this is a very immediate financial crisis that threatens to undermine the state’s fiscal house of cards (although one might not realize that by watching some of our state leaders).

The problem is two-fold. First, the budget that the Democrats passed and Rell allowed to become law was short of revenue by more than $700 million dollars. In the past few days that number has improved. Second, the budget includes an absurd and fiscally irresponsible plan to securitize $1.3 billion dollars. Securitize is a fancy term to describe borrowing money and redirecting future revenue to pay for that borrowing.

The present budget counts on a securitization plan that produces $1.3 billion, but as of now, Rell and the Democrats have failed to identify what revenue they wanted to pledge to back the securities. Without this pivotal step, the state will be unable to borrow funds that would, in turn, create a massive budget deficit before the fiscal year even began.

Faced with is impending disaster, the legislature’s Finance, Revenue, and Bonding Committee finally stepped forward and identified a revenue stream to securitize (this after rejecting Rell’s plan to introduce Keno in every bar in the state in order to pay back the borrowed funds).

In response to the legislative action, Rell blasted the Democratic plan because it relied on maintaining a surcharge on electric bills that was scheduled to end. Rell said she’d veto the Democratic proposal because Connecticut’s ratepayers deserved a state government that was helping instead of destroying them.

Rell then announced that she would offer an alternative to the Democratic plan, although some legislative Republicans claimed that despite the fact she is Connecticut’s chief executive officer she was under no requirement to propose a new alternative to solve Connecticut’s upcoming budget fiasco.

In any case, days ago, after some fits and starts, Rell finally announced her plan.

This one sounds very much like her old plan, except that instead of securitizing $1 billion, it borrows $1 billion and then uses dedicated revenue to pay off that debt. Incredibly, a primary revenue stream she proposes is the very surcharge on electric customers that she had, only days before, condemned as outrageous and unfair.

The difference being that the electric rate surcharge she proposed wouldn’t be as large as the one suggested by Democrats. To make up the difference, Rell would re-direct funds generated by a different surcharge on the very same electric bills – this time grabbing money meant for the state’s landmark energy conservation and clean energy program. This is the program that everyone (businesses, utilities, environmentalists and clean energy advocates) have called an incredible success and one that is not only making Connecticut more energy efficient, but which is successfully creating a significant number of private sector jobs.

Rell’s alternative plan also includes about $300 million in mythical state tax revenue growth that she believes will take place despite the faltering economy, and a new initiative to make Bradley International Airport a quasi-public agency, which she claims will somehow result in an additional $25 million more in revenue each year

If all that isn’t enough to confound observers, the most bizarre element of all is that since the state’s Constitution requires a balanced budget, Rell’s plan makes some extraordinary changes to THIS year’s budget in order to make next year’s budget “appear” to be balanced.


It’s no wonder – but don’t be. Here comes the explanation:

There is a general consensus that the Constitutional language does not allow Connecticut to borrow money ahead of time to balance an upcoming budget. However, state government can borrow money for a budget which, while balanced when adopted, later becomes unbalanced during the course of the year. In short, the law only requires that the state budget be balanced at the time it is adopted.

So to pull off what the governor wants to do, we must shift $1 billion from this year’s budget to next year’s budget. That way this year’s budget is $1 billion in deficit and we can borrow the money and next year’s budget looks, at least temporarily, like it is balanced, thus making it legal.

Bottom line, Rell’s plan takes the rainy day fund, which had been used to balance his year’s budget, and shifts the money to next year’s budget. She adds $300 million in mythical revenue growth and an incredibly profitable airport so there is no need for the securitization plan and all is good to go for next year.

This maneuver creates a billion-dollar shortfall in this fiscal year. Since that hole was unanticipated when this year’s “balanced” budget was originally passed, the budget is no longer balanced, which means the state can now go out and borrow a billion dollars to eliminate the deficit.

Oh, but forgotten in this entertaining shell game is the fact that next year’s budget, even after this creative solution, is still more than $700 million short. Recall the securitization issues only addressed $1.3 of the $2 billion problem.

Still to come is how to deal with the remaining shortfall without tax increases, draconian budget cuts, or additional borrowing. The newest proposal coming from the Rell administration is another early retirement incentive, even though state agencies are still reeling from last year’s retirement program and the suggestion that the state forgo yet another $100 million payment to its state employee pension program. In just the last year and a half, state leaders have failed to make $229 million in pension payments. With the lost benefit of compounding interest, this disastrous fiscal decision will mean the pension fund will be short over $450 million in just 10 years, creating yet another extraordinary burden on the next generation of Connecticut taxpayers.

But hey, there are still 60 days until the start of the fiscal year so the governor and the legislature have plenty of time to address these minor details.

One last little note. The governor’s plan failed to provide any details whatsoever as to what changes would be made at Bradley Airport to make it suddenly $25 million more profitable per year but we can assume making it “quasi-public” instead of simply “public” is an important first step.

Jonathan Pelto served as a member of the House of Representatives from 1984-1993. He was Deputy Majority Leader and member of the Appropriations Committees during the income tax debate of 1991. He presently works as a strategic communications consultant.