With Gov. M. Jodi Rell about to submit another deficit mitigation plan, state lawmakers will, once again, be asked to take a hard look at this fiscal year's budget.

Rell is required by state statute to present the legislature with a plan when the projected deficit exceeds 1 percent, or $177 million, of the general fund for fiscal year 2008-09. She receives monthly financial reports from the state comptroller and has one month to react.

The governor's budget office, the Office of Policy Management, is anticipating a deficit of $288 million. This takes into account the $71.8 million package of cuts approved by the legislature in November.

The Office of Fiscal Analysis, the legislature's budget office, is predicting an even larger deficit, of $320 million.

"We have a problem before us," said Rep. Christopher G. Donovan, D-Meriden, who is poised to be named speaker of the House next month.

The General Assembly is scheduled to convene Jan. 7, and when it does, the governor's mitigation plan will be waiting. Lawmakers will also have to craft a new biennial budget for fiscal years 2009-10 and 2010-11. More than $6 billion in deficits is already projected for those years.

This is not the first time Connecticut has had financial troubles, but it is the first time many lawmakers will be asked to make difficult decisions, said Sen. Thomas P. Gaffey, D-Meriden, referring to tough times in fiscal years 1991-92 and 2002-03. November's $71.8 million in cuts was a baby reduction, he said.

"That was a picnic compared to what we are facing," Gaffey said. "It's just so gloomy even to talk about."

The magnitude of the state's fiscal situation has prompted House Democrats to already begin discussing the current and future budgets, Donovan said. Lawmakers are going to look at every option, he said, adding that he hopes the state will soon be getting some help from the federal government.

Connecticut has done everything right when it comes to the budget, Donovan said, citing the outgoing Bush administration and greed on Wall Street as the reasons why Connecticut is facing a deficit. But no matter who is to blame, Donovan recognizes that the General Assembly must deal with the problem, and he said it plans to do so by letting the legislative committee process do its work. The state must look at all its resources and make sure the money is allocated in a fair manner, Donovan said.

It must also study what past legislatures did when they faced deficits, added Rep. John C. Geragosian, D-New Britain, who will assume the role of co-chairman of the Appropriations Committee when the session starts.

"We are trying to learn from the past," he said.

Thankfully, the state has a $1.4 billion rainy day fund, and the Bush administration is on its way out, Donovan said. Connecticut will likely spend its rainy day money, but will need to determine how best to use it, he said.

"That's the whole purpose," Donovan said. "It's raining now."

Although Rell has said she does not want to tap into the rainy day fund to help the deficit at this time, Geragosian said the money will probably be used to offset this fiscal year's deficit. This would allow the legislature to start with a clean slate when planning for the following two fiscal years, he said.

But using the rainy day fund - especially to offset this fiscal year's deficit - worries Republicans such as House Minority Leader Lawrence F. Cafero Jr., R-Norwalk, and Sen. Sam S. Caligiuri, R-Waterbury.

Caligiuri worries that using rainy day funds will impact the state's credit rating, and Cafero says dipping into the fund should be used as a last resort. Cafero considers raising taxes and asking unions for concessions last resorts, as well.

Lawmakers have not specifically mentioned a desire to raise taxes, but with the help of a high-profile attorney, Rell's administration has already begun talking with the State Employees Bargaining Agents Coalition, which negotiates health and pension benefits for unionized state employees. Rell's office would not comment on negotiations Tuesday and the coalition's chief negotiator could not be reached.

Disagreeing with Cafero, Caligiuri said unions will have to make some reductions to combat the deficit. If that does not happen, union employees will probably see an early retirement plan or layoffs, he said.

"I think we are on that path," Caligiuri said.

Donovan, who plans to quit his job as a union organizer for Local 531 of the Service Employees International Union by the end of the year, says he is pleased to see that the unions and the Rell administration are chatting about the budget and says he hopes some ideas surface that can be used.

With ideas for deficit mitigation swirling, Gaffey has his own thoughts. Gaffey says he wants to start the budget process by looking at the state's tax exemptions. Put them all on the table and make supporters of each exemption make their case, he said.

Gaffey also wants the state to consider putting tolls near the Rhode Island-Connecticut and New York-Connecticut borders to generate revenue, and he said that lawmakers should also look at laws that have already been approved, but not yet implemented. Maybe the legislature should reconsider funding some of them because money is tight, Gaffey said.

Even if the state eliminates some tax exemptions and establishes tolls, the budgets will still need to be trimmed, and choices will have to be made, Gaffey said, adding that he worries about education funding. The state Department of Education has already proposed to cut $250 million in Education Cost Sharing grant money - a move Gaffey, the Education Committee co-chairman, does not support. It would cause a tax shift from the state to cities and towns, he said, noting that municipalities will be lucky if they see the current level of state education funding.

"It's not going to be pretty," said Gaffey of future state budgets. "That's for certain."

With everyone trying to fight for the programs they favor, Gaffey said the legislature is in for a long five months. He is already predicting a budget will not be passed by June 3, the General Assembly's scheduled adjournment date.

"I'd tell people not to schedule any summer vacations," he said.

afalcone@record-journal.com

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