Gov. Rell proposes safeguards for ‘Rainy Day Fund,’ expansion of authority to cut budget

Gov. M. Jodi Rell today [Feb. 2, 2010] 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.

The announcement comes the day before Gov. Rell is scheduled to deliver her State of the State address.

“Fiscal responsibility is rooted in common sense,” Gov. Rell said today. “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.”

“The changes I am proposing would require contributions to the ‘Rainy Day’ fund throughout the fiscal year, based on surplus projections from the Comptroller,” Gov. Rell said.

“I am also proposing legislation that would address the timeliness of bonding,” Gov. Rell said. “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 [for] only the most urgently needed projects and will restore our credit rating to a robust status.”

Also, “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,” Gov. Rell said.

She also restated her intent to extend the governor’s authority to alter the state budget.

“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.”

The proposed “expanded authority” would change the governor’s role in the following ways:

The “Rainy Day” fund

If the state Comptroller projects a budget surplus for the current fiscal year and the Budget Reserve Fund - the “Rainy Day Fund” (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 under-funded by $9.3 billion - or to pay down debt.

An ‘expiration date’ on bonded projects

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 and benefit plans

The State Employees Retirement System is currently under-funded 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 Feb. 15, 2010. The Commission will deliver its first report to the Governor on or before July 1, 2010.

Governor’s rescission authority

Under existing law, a governor can make rescissions [cuts] 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.

Gov. Rell proposes 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 may not cut appropriations for entitlement programs or pension and health benefits for state employees and retirees - expenditures that comprise much of the budget.

Posted Feb. 2, 2010