08/01/2011 01:21 pm ET Updated Oct 01, 2011

Connecticut's future hinges on U.S. debt bill: official

NEW YORK (Reuters) - Connecticut's financial outlook "could be significantly compromised" even if Congress approves a last-minute compromise plan raising the federal debt ceiling, a state official said on Monday.

Local politicians around the nation said even a compromise debt cap plan to avoid the first-ever U.S. default poses a potential hazard: the loss of billions of dollars of aid for states, counties, cities and towns.

"Dollars that we depend on year after year could suddenly disappear if federal spending cutbacks result in drastic funding cuts to Connecticut," Democratic state Comptroller Kevin Lembo said in a statement.

"One year's federal stimulus money could become another year's devastating federal cutbacks," he added.

Like New York and New Jersey, Connecticut has gotten the benefit of Wall Street's recovery but this bounty is limited to the tri-state's commuting suburbs. That has left a number of old industrial cities, from Camden, New Jersey, to Bridgeport, Connecticut, out in the cold.

Many states opted to slash spending and layoff workers or negotiate savings with them to balance their latest budgets in the face of strong anti-tax hike sentiments and the expiration of the stimulus plan. The plan attempted to lift the nation out of the worst recession since the 1930s by giving states extra funds for education, healthcare and the like.

With the federal government now promising to slash its deficit, as states and local governments already have done, the task of spurring the economy and adding jobs falls to companies. Private employers in turn are fearful consumers have shut their wallets, squeezing demand for services and products.

Connecticut was one of 24 states that lost payroll jobs in June, Lembo said, predicting that at the current rate of job growth it will take more than a decade for the state to win back the over 100,000 jobs lost due the recession.

The still-weak real estate market also could hobble the recovery. In Connecticut, for example, home prices slid 9.9 percent in the first quarter of 2011 compared to 2010, Lembo said.

Connecticut has a surplus of just under $160 million but those funds have already been earmarked to pay off debt and future liabilities, Lembo said. He called on state politicians to replenish the rainy day fund and boost its cap.

(Reporting by Joan Gralla; Editing by Andrew Hay)