Governor M. Jodi Rell today announced that her budget proposals include wide-ranging fiscal reforms intended to safeguard the state’s “Rainy Day Fund,” cut down on borrowing and reduce the amount of debt that is burdening the state – including the debt attributable to underfunded state employee pensions and health benefit plans.
“Fiscal responsibility is rooted in common sense,” Governor Rell said. “Simply put, state government cannot – and must not – spend what it does not have. The far-reaching and devastating effects of the national recession laid bare areas of our budget process that must be strengthened and improved to ensure that Connecticut can weather this economic downturn and economic maelstroms of the future.
“The changes I am proposing would require contributions to the Rainy Day fund throughout the fiscal year, based on surplus projections from the Comptroller,” the Governor said. “Like any household would do, if there is something left over at the end of the month it goes straight into the savings account.
“I am also proposing legislation that would address the timeliness of bonding,” Governor Rell noted. “Any bonding item that languishes for five years without ever being approved by the state Bond Commission will be automatically dropped from the list of authorized projects. This will ensure that Connecticut borrows only the most urgently needed projects and will restore our credit rating to a robust status.
“Through an Executive Order, I am establishing a broad-based commission of state and union officials, financial experts and business leaders to remedy the growing debt caused by years of under-funding state employee retirement and health benefit plans,” the Governor said. “The state of Connecticut has a commitment to its work force that must be honored. We cannot do that if we fail to meet our financial obligations to these accounts.
“Finally, it is critical that the chief executive officer of this great state have the necessary fiscal tools to do so effectively,” Governor Rell said. “I am reiterating my call to give not just this Governor but all who will follow me expanded authority to make budget rescissions. The budget process must remain a balanced process among all three branches of government – but there must also be provisions to restore that balance in extreme circumstances such as those we have experienced over the last two years.”
Specifically, the Governor’s reforms include:
Budget Reserve Fund
If the state Comptroller projects a budget surplus for the current fiscal year and the Budget Reserve Fund – the “Rainy Day Fund,” or RDF – is less than 10 percent of the General Fund appropriations for the year, then at least half of the surplus must be deposited into the RDF within five days of the Comptroller’s estimate.
Once the RDF reaches 10 percent of the General Fund, any surplus must be deposited into the State Employees Retirement Fund, which is currently underfunded by $9.3 billion, or to pay down debt.
Bonding Agenda
Any specific bonding item authorized for funding by general obligation bonds of the state shall expire five years after the effective date of its authorization if no amount has been allocated by the State Bond Commission.
If the commission has allocated any portion of the money during that period, then the entire authorization will proceed unless terminated by law.
Pension & Benefit Plans
The State Employees Retirement System is currently underfunded by $9.3 billion; the State Employees Post Retirement Health and Life Benefits are $24.6 billion under-funded. The unfunded liability is considered debt and has negative impact on the state’s position with bond rating agencies.
The Post-Employment Benefits Commission, established by Executive Order, will recommend short- and long-term remedies. It will include representatives from:
Office of the Treasurer
Office of the Comptroller
Office of Policy and Management
Office of Labor Relations
State Employees Bargaining Agent Coalition
Certified public accountants and actuaries
The business community
All appointments are to be made by February 15, 2010. The Commission will deliver its first report to the Governor on or before July 1, 2010.
Gubernatorial Rescission Authority
Under existing law, a Governor can make rescissions when a budget deficit greater than 1 percent of the General Fund exists. Current rescission authority is limited to up to 3 percent of the total appropriation from any fund or 5 percent of any appropriation.
Governor Rell is proposing that a Governor’s rescission authority be increased incrementally:
Up to 6 percent of the total appropriation from any fund or 10 percent of any appropriation when a deficit of 3 percent or more exists
Up to 10 percent of the total appropriation from any fund or 15 percent of any appropriation when a deficit of 5 percent or more exists
The rescissions statute does not allow a Governor to cut aid to municipalities. In addition, as a practical matter, a Governor is constrained from cutting appropriations for entitlement programs or pension and health benefits for state employees and retirees – expenditures that comprise much of the budget.
