Only one year after 3,800 state employees left their jobs under a retirement incentive, Gov. M. Jodi Rell offered a new, early-retirement proposal Monday to help solve the state's budget problems for the next fiscal year.

Although precise details were not revealed, Republicans said that Rell's proposal was similar to a GOP plan that could be offered to an estimated 8,000 state employees. An estimated 2,000 employees would take the offer, and about 1,000 positions would be refilled - cutting the state workforce by 1,000 jobs.

Traditionally, early-retirement plans allow high-paid employees to retire at ages 52, 53 or 54. The 2009 plan offered a retirement incentive for those who were at least 55, rather than an early retirement that would include younger employees.

Although 3,800 employees left state service last year, 1,700 positions have been refilled - meaning that the state workforce dropped by 2,100 positions.

In a rare display of cooperation, the Republican governor stepped outside her Capitol office after meeting with key Democratic lawmakers and stood side by side with them as they talked about working together. Last year's budget process was marred by sometimes-bitter clashes over financial issues and by gubernatorial vetoes.

When asked if she believes the two sides can reach a deal for fiscal 2011 before the regular legislative session ends May 5, Rell responded, "I'm always optimistic."

Rell and the Democrats agreed to withhold some details because the plan will be reviewed by fiscal analysts in the coming days.

The early-retirement proposal would save money in the short term by prompting the departure of highly paid employees who would be replaced by lower-paid, new employees. The early retirement, Rell said, is "one of the things" that she has asked Democrats to consider.

"There are no taxes and no cuts to municipal aid," Rell said.

Rell's deficit-cutting plan also assumes that the state will receive about $356 million in federal stimulus funds to close a projected deficit of about $725 million in fiscal 2011. The new fiscal year starts July 1.

The Democrats and Rell have also discussed deferring another payment of $100 million into the state employees' pension fund. Some lawmakers, however, say that is essentially a shell game because the money must eventually be paid and no one's pension is being reduced. An initial $100 million was deferred for this fiscal year.

Republicans are also asking for $150 million in additional concessions from the state employee unions, but the unions have rejected that idea because they already have a contract through 2017 and an additional no-layoff deal that runs through June 30, 2011.

"Obviously, it is totally up to the unions," said House Republican leader Lawrence Cafero of Norwalk. "It's a unilateral thing."

When asked if the Democrats would support additional union concessions, House Speaker Christopher Donovan - a major union supporter - said, "We're looking at the governor's proposal right now, and it's not in there."

Besides trying to close the gap, Rell and lawmakers are looking for the best way to borrow $1.3 billion to cover operating costs for fiscal 2011. By law, they must find a way to "securitize" certain revenue streams to pay off those bonds. Despite a formal rejection by the Democratic-controlled legislature, Rell said Monday that she still supports legalizing the keno electronic gambling game and using about $60 million in keno revenue each year to pay off the bonds.

The Democrats have responded by saying they would use revenues from utility customers of the Connecticut Light & Power Co. - a plan that has ignited an intense newspaper and radio ad campaign by CL&P to fight the proposal.

"This hidden tax will cost electric customers $180 million every year for the next 10 years," says the print advertisement by CL&P. "Customers of municipal electric providers would be exempt from paying; UI customers won't pay until 2014. These funds would be used to float new revenue bonds designed to offset the state's deficit - creating more debt to pay existing debt. Don't let the state use your electric bill to pay for its own debt." "I have never liked that option from the beginning," Rell said. "I don't think there's a lot of support for that."

Getting Along

A follow-up meeting has not yet been scheduled.Donovan said that crafting an overall deal is possible because all sides are committed to moving forward.

"We've been working together - the bunch we have here [Monday]," Donovan said. "The governor has put forward a proposal that we're going to take a look at, building off the success of last week where we closed 2010. Our hope is that we continue that effort and close 2011."

"There was a huge step forward when we closed the deficit for 2010," said Senate President Pro Tem Donald Williams, the highest-ranking senator. "Everybody's resolved to roll up our sleeves and tackle this fiscal problem. ... I don't think anybody expected us to close the 2010 deficit in a bipartisan way this session."

Lawmakers who have clashed in the past seemed relaxed after emerging from the discussion.

"I'm more optimistic after the meeting that we can balance our 2011 budget - whether it's May 5 or shortly thereafter," said Senate Republican leader John McKinney of Southport.

"I think the governor's plan that she put forward is a pretty good one," McKinney said. "There are some things in there I don't like. Obviously, I don't like the deferral of pension funds. But, by and large, I think her openness to an early-retirement program for state employees, something that legislative Republicans offered about two years ago, helps us get to where we need to be, not just for 2011, but structurally for 2012 and 2013 as well."

Both McKinney and Cafero said there would be a much better chance for budget savings if Democratic leaders put more pressure on the State Employees Bargaining Agent Coalition for more concessions.

"Were the Democratic leadership to publicly say that SEBAC should come to the table and sit down with the governor ... that would go a long way to getting them to the table," McKinney said. "But the silence of the Democratic leadership gives a lot of strength to SEBAC's current position."