Senator-elect Joe Markley

A taxpayer lawsuit challenging Connecticut’s scheme for funding Economic Recovery Revenue Bonds could delay the sale of that debt until the lawsuit is resolved, according to an exchange of letters between Gov. M. Jodi Rell and Treasurer Denise Nappier.

The bonds will be sold to fund the state’s deficit. The state anticipated selling as much as $1.3 billion in ERRBs, but will only need to sell $650 million this year.

“There is a potential legal issue that may well affect the timing of the sale, of which you may or may not be aware,” Nappier wrote in a Nov. 15 letter to Rell. “Senator-elect Markley has filed a law suit  alleging that the underlying statute authorizing the sale of ERRBs supported by utility revenue is an unconstitutional taking.”

“Until this litigation is resolved, our ability to go into the market is questionable,” she wrote.

There is a hearing scheduled for Dec. 6 on a motion to dismiss filed by the state.

Under Public Act 10-179, the state will fund the ERRBs by continuing a fee collected by the Department of Public Utility Control called the competitive transition assessment.

The CTA was levied on ratepayers to fund costs associated with the transition to competitive electric markets. The assessment was set to expire in 2010 for Connecticut Light & Power customers and in 2013 for customers of United Illuminating. Instead, the CTA will continue until the ERRBs are paid off.

State Senator-elect Joe Markley, R-Southington, filed the lawsuit in New Britain Superior Court on Oct. 13. He is challenging the Department of Public Utility Control’s role in collecting the revenue that will pay for the bonds.

“It indicates that people realize there is something to this lawsuit,” Markley said, referring to the correspondence between Rell and Nappier.

Markley said his suit is based on two arguments, that DPUC is not a taxing authority and that the tax is not being applied equally.

Markley said, for example, the tax won’t impact anyone served by a municipal electric company because they never had to pay the original CTA.

“My goal is to stop the government from putting their hand in our pocket and especially to do it in such an underhanded way,” he said. “It seems to me the only way to get them to confront the explosive growth in spending.”

“It’s a tax that’s going to be collected on an ongoing basis for a one-time solution,” he added.

According to Markley’s complaint, nowhere “is the DPUC given the authority to tax residents, businesses or other entities of the State of Connecticut, unrelated to the public service companies.”

“Under the new financing order, the CTA revenues will be a direct tax on all electric ratepayers in the State of Connecticut, unrelated to public service companies and utilities.”

Mitch Gross, spokesman for CL&P, said the company is interested in the case.

“We had an extensive campaign” against continuing the CTA, Gross said.

“It’s an unfair tax. It has no place on an electric bill and it unfairly burdens CL&P customers,” he said. “We will be watching this case with interest.”

“We have to comply with the law, but that doesn’t make it right,” he added.