Borrowing needed to balance state budget
http://www.theday.com/article/20100205/NWS12/302059849/1018
State to ’securitize’ debt against future revenues
By Ted Mann
Publication: The Day
Published 02/05/2010 12:00 AM
Hartford - Gov. M. Jodi Rell’s advisers began their effort to sell state legislators on the Republican governor’s $18.9 billion plan for fiscal 2011 Thursday.
In the process, they also began the debate on one detail Rell didn’t mention at all in the budget address she gave a day earlier: the $1.3 billion the legislature will have to borrow against the state’s future revenues to make this budget balance.
Appearing before the legislature’s Appropriations Committee, Robert L. Genuario, the governor’s budget chief, faced skeptical questioning from some legislators about the options the administration offered to “securitize” those future revenues.
The securitization plan was a part of the two-year budget agreement passed by Democrats last fall that Rell allowed to become law, and required Genuario and his staff at the Office of Policy and Management to work with state Treasurer Denise Nappier to come up with potential financing schemes that would allow the state to borrow the money to avoid cutting more services or raising taxes in the coming fiscal year.
Rell didn’t mention the plan in her address, and no details about it were provided in briefings Wednesday for reporters or legislators. But a copy of the report provided Thursday to legislators shows policymakers leaning toward issuing bonds backed by revenue from an existing state surcharge on electricity bills, or possibly from new revenue that would come from expanded offerings of the Connecticut Lottery, including keno.
By redirecting money from the existing surcharge on utility bills, the authors of the OPM/Treasurer’s report write, the legislature would avoid imposing any new increase on utility ratepayers’ bills - and would also avoid siphoning off money from the general fund.
Also considered in the agency’s report to lawmakers were other sources of revenue, all of which were described as less stable, damaging to the state’s already imperiled credit rating, or too costly to finance.
They include borrowing against future payments from the settlement of the multi-state suit against tobacco companies; establishing new taxes, fees or highway tolls; securitizing revenues that now flow into the general fund, including those from the state’s Indian casinos; or avoiding securitization entirely by selling $1.3 billion worth of state assets, a major undertaking that the report says could probably not be achieved before the end of the 2011 budget year.
Borrowing against general fund revenues in particular would hurt the state by damaging its credit rating, the report says.
“The rating agencies, in general, do not look favorably on the use of debt to finance current operating deficits, and we attempted to take all possible steps to minimize any further deterioration in the State’s credit rating,” the authors write.
During the Appropriations meeting, Sen. Andrew Maynard, D-Stonington, wanted to know the advantage to “going this route as opposed to relatively more straightforward revenue measures.”
Maynard and other lawmakers said they saw a disconnect between Rell’s speech, which included proposals to spur “green” job growth, and the cuts in funding for energy efficiency programs that are now funded out of the existing surcharges on utility bills - which would be diverted for up to 10 years to pay off the $1.3 billion the state will borrow.
The move would be “effectively gutting” those clean energy programs, even as some private companies have shaped businesses and hired workers based on their incentives.
“There’s no way to get the $1.3 billion of funding called for in the adopted budget without diverting revenue from some program or another,” Genuario said. “You’ve got to pay for the $1.3 billion.”
“Nobody,” Genuario added later, “should have voted for that (budget) and promoted that without thinking there were almost predictable consequences for that.”
The results of securitization “may be negative on programs that have been helping to create jobs,” said Maynard, one of the Democrats who opposed the budget on its passage last year. He went on to criticize the “veiled and conflicting assertions” about the state’s commitment to green job growth.
“If we are planning on pulling the rug out from under them, we should let people know that,” he said.
“It’s probably worse to say we are offering green jobs and then take away programs that are actually working,” said Rep. Elizabeth Esty, D-Cheshire.
But the report to lawmakers leans heavily toward using the utility surcharge, as the legislature did in 2004 to close a deficit. The structure of the financing is “tried and true,” Genuario said, and the tax-exempt bonds it would generate would be among the cheapest for the state to finance.
That is no consolation to advocates who have watched the governor and legislators twice raid funds supposedly earmarked for investments in improving efficiency just to bring an unruly state budget into balance.
The report “really does put a very big thumb on the scale in favor of raiding the energy funds,” said Chris Phelps of Environment Connecticut, a nonprofit advocating for conservation and environmental protection.
t.mann@theday.com
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