Treasurer warns budget stalemate could damage state’s credit

By Keith M. Phaneuf Journal Inquirer Saturday, August 1, 2009 HARTFORD — State Treasurer Denise L. Nappier warned Gov. M. Jodi Rell and the legislature Friday that their ongoing budget stalemate could harm Connecticut’s standing on Wall Street, and ultimately mean higher interest rates when borrowing. The treasurer also reminded officials that if they want to use the $1.4 billion reserve, or Rainy Day Fund, to support the next budget, they have only one month left to approve borrowing to cover the nearly $1 billion deficit from the last one. One of the major Wall Street investment rating firms, Fitch, cited the state of Illinois’ failure to adopt a budget in a timely fashion as one reason for recently downgrading its bond rating, Nappier wrote. “If Connecticut’s ratings were downgraded, it would increase our state’s cost of borrowing and limit the market for our bonds,” the treasurer wrote, adding it could have implications not only for the next budget but “over the long haul.” Connecticut has one of the highest levels of bonded debt per capita of any state in the nation. About 11 percent of last fiscal year’s $18.4 billion state budget was used to cover debt payments. Only three states in the nation — Connecticut, North Carolina, and Pennsylvania — remain without approved budgets in this fiscal year, which began July 1. Rell, a Republican, and the Democrat-controlled legislature have been at odds since February over how to balance state finances for this fiscal year and next as Connecticut struggles to climb out of a global recession. The two sides remain far apart in terms of spending and taxes based on the latest budget proposals they submitted this past week. The governor has recommended $391 million in new taxes over the next two years, limiting her proposals to higher cigarette, liquor, and business levies. The legislature’s Finance Committee recommended $1.8 billion in new taxes centered on higher income and estate levies on the wealthy, as well as business and cigarette tax increases. The legislature also would spend nearly $850 million more than the governor, who has proposed deep cuts to social services and health care for the poor, as well as to higher education. Both sides want to use the full Rainy Day Fund to prop up revenues in the next state budget. But Nappier reminded the governor and lawmakers on Friday that unless the nearly $1 billion deficit from the 200809 fiscal year is closed before Sept. 1, state Comptroller Nancy Wyman will be required by law to draw money from the Rainy Day Fund to cover it. Both Rell and the legislature have proposed borrowing to cover the 2008-09 debt, but no legislation to authorize that borrowing has been enacted to date.

Journal Inquirer