By Mark Pazniokas
One day after its release, a key piece of Gov. M. Jodi Rell's proposed $18.9 billion budget for the next fiscal year is in trouble, a harbinger of challenges awaiting legislators.
Opposition mounted Thursday as word spread that one of Rell's top options for borrowing $1.3 billion would require diverting money from special green-technology funds largely financed by a surcharge on electric rates.
Critics said the diversion would cripple a growing industry of energy-efficiency contractors who provide jobs and a low-cost means for businesses to cut energy costs.
"We are one of the highest-cost energy states in the country. We save more when we get it right," said Rep. Elizabeth Esty, D-Cheshire. "Why in the world would we cut that?"
Environmentalists, manufacturers and the state's largest utility, Northeast Utilities, all quickly suggested that the diversion would be short-sighted and undermine one of Rell's own priorities - promoting green technology.
"Kermit the Frog had it wrong all these years, I'm afraid. It is easy to be green," Rell said during her State of the State address. "Solar, fuel cells, wind turbines and geothermal all hold the kids to economic and energy prosperity."
"The line made for a nice sound bite," said Chris Phelps, the director of the advocacy group Environment Connecticut. "But apparently Gov. Rell didn't mean a word of it."
Northeast Utilities understands that Rell faces difficult choices, but the utility believes that ratepayer funds collected for conservation and energy efficiency should go for those purposes, said Daniel Moore, a lobbyist for NU.
Robert Genuario: 'Who's kidding whom?'
Robert Genuario, the Rell administration's budget chief, said no one claimed that the diversion of energy funds was good public policy, but the administration is obligated to find a revenue stream to support new borrowing of $1.3 billion.
"Nobody should think that $1.3 billion can be generated without impacting an existing program," Genuario said. "Who's kidding whom?"
Rell refused to recommend a tax increase Wednesday, saying that "higher taxes are not the solution to our problems."
Instead, she relied on $2.7 billion in one-time revenues, including $1.3 billion from "securitizing" or borrowing against future revenue. She did not specify the source of those revenues, either in her budget or speech to the legislature.
The options were spelled out in a paper sent to legislators Wednesday evening from the Office of Policy and Management and state treasurer's office.
The best choices are borrowing against energy funds and revenue from new forms of gambling, the paper said. It was prepared after Rell and the legislature agreed a year ago that securitization would be part of the budget for the next fiscal year.
It also explored establishing new highway tolls and borrowing against anticipated toll income.
"The hurdles that we'd face [with tolls] are much greater than the first two," said Jeffrey Beckham, who oversees legislative affairs for the Office of Policy and Management.
But the focus seemed to settle on existing electric surcharges that would be redirected from conservation projects to debt service.
"Given current market conditions, it is estimated that not more than $180 million of revenues from existing charges would be required annually to support the debt service on a ten-year financing that would produce $1.3 billion in net proceeds to the State," the paper said.
Assuming an average monthly residential use of 700 kilowatt hours, the average household would pay $4.55 a month.
Beckham acknowledged that the initial legislative reaction was adverse.
Senate Minority Leader John P. McKinney, R-Fairfield, and Democratic leaders of the legislature's finance and appropriations committees, Rep. Cameron C. Staples, D-New Haven, and Rep. John Geragosian, D-New Britain, all expressed skepticism or opposition.
"We're just completely shocked," said Jeff Gaudiosi, the chairman of the Energy Conservation Management Board, which oversees the disbursement of the energy funds.
The state diverted some of the energy funds about five years ago.
"The first time it happened, it really crippled the program," said Gaudiosi, who also is vice president of the Manufacturing Alliance of Connecticut. "It took us a few years to get on our feet. If it happens again, vendors will just leave the state."
The business is so reliant on the special energy funds that even talk of a fund diversion in 2008 caused some contractors to cut back on personnel and discouraged other businesses from undertaking conservation projects, he said.
"It meant jobs. It meant money," he said. "We can't afford as a state to do that again. Leveraging these funds is far more valuable."
In 2009, the funds directly supported 2,675 jobs, plus another 4,280 indirect jobs, he said.
"This money is more than changing light bulbs or motors or insulating homes," Gaudiosi said. "This money is actually a proven economic development tool for the state."
Every dollar spent from the energy funds leverage $4 in private investment, he said.
Rep. Diana S. Urban, D-North Stonington, said securitization usually means diverting resources from funds established for a specific purpose, such special license plates that raise money for children or the environment.
"Securitization in general is a bad deal. It's just a bad deal. It smacks of desperation," she said.
Beckham said that the legislature has to find other revenue if securitization is rejected.
"What's the alternative?" he asked. "If you don't do this, then how are you going to fill a $1.3 billion hole?"
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