Rell says state budget in deficit

"In all candor I believe we will see the revenues continue to decline," said the Republican governor, who asked state lawmakers to come up with a list of funding priorities as they continue to debate what to do with the 2008-09 budget, which begins July 1.

Legislative leaders and Rell met privately on Wednesday and have until May 7 to reach a deal on a revised budget or allow the $18.5 billion tax and spending plan already approved last year to take effect without any changes.

The cause of the diminishing surplus appears to stem from a combination of slowing state revenues and a delay in federal Medicaid reimbursements.

The bad fiscal news prompted Rell on Tuesday to threaten a veto of a key crime bill that includes tougher penalties for repeat violent offenders and $10 million for more prosecutors, state police, probation officers and other programs, such as housing for sex offenders.

She said the state couldn't afford the spending portion of bill.

On Wednesday, the governor said she's found about $5 million so far to cover part of the expense and urged lawmakers to make cuts elsewhere to cover the remainder.

Senate Democrats have proposed a tax amnesty program to boost revenues and estimate it could bring in about $35 million to $50 million - enough to cover the criminal justice expenses.

"The fact is, we have to deliver this for the people of the state of Connecticut," said Sen. Andrew McDonald, D-Stamford, co-chairman of the Judiciary Committee.

The crime reforms stemmed from deadly home invasions in Cheshire and New Britain.

Connecticut last had an amnesty program in 2002. The three-month program gave delinquents the chance to pay back taxes without fear of penalty or prosecution, and granted them a 25 percent break in interest owed. It raised $109 million.

Lawmakers are being pressured by numerous groups and municipal leaders to set aside money for them in the waning days of the session. A group of big city mayors are trying to persuade the legislature to fully fund state reimbursement programs for property that's not taxable. It would cost about $60 million.

Hartford Mayor Eddie Perez said he'll likely have to raise taxes and lay off workers even if the payment in lieu of taxes program is fully funded. But if it's not, he'll have to lay off even more and raise taxes higher.

"People are up here saying they don't want to increase taxes here, but what they're doing is forcing it down on the local municipal leaders to do that," Perez said.

But House Speaker James Amann said the funding request comes at a difficult financial time for the state.

"Certainly, we'd love to help everyone in the state of Connecticut," said Amann, D-Milford. "But I think we're all hurting, including the state government right now. The best thing we can do is have a balanced budget."