Foley tackles long odds to balance budget without tax hikes

Tom Foley insists he can eliminate what effectively amounts to the largest state budget deficit in Connecticut history without raising taxes.

To get there, he concedes, will require breaking some new political ground, a polite way of describing what others would call long-shots: repealing binding arbitration; getting employee unions to accept concessions for both current and retired workers; and moving huge government programs, such as road maintenance and social services, into the private sector.

And those are the easy parts. Other components of the Greenwich Republican’s budget strategy are even more challenging than winning uphill battles with state labor unions or a Democrat-controlled General Assembly.

“I have no illusions about solving this problem with additional revenues,” Foley during an interview, referring to the $3.4 billion deficit that nonpartisan legislative analysts estimate the next governor will inherit.

That deficit, built into the 2011-12 fiscal year, equals 18 percent of the current budget and more than half of the annual receipts from the income tax, the state’s single-largest revenue source.

On paper, the $4 billion deficit that Gov. M. Jodi Rell and the legislature closed last September on the way to adopting this year’s $18.64 billion budget was larger. But just under half of that gap was closed with budget reserve and emergency federal stimulus grants, two resources that will be exhausted before July 2011.

And Rell and the 2009 legislature also employed $952 million in new tax and fee revenue to balance this fiscal year’s finances.

Foley stopped just short of pledging to veto any tax hike, but said “if the motive for raising taxes is that we need more revenues to solve this budget deficit, I’m going to say ‘no.’”

He left himself a little political wiggle room, saying that increases included in a larger tax reform package – such as boosting one levy while lowering another – might be acceptable. “If you say ‘absolutely no new taxes,’ that might require that you not sign legislation that overall made sense,” he said.

So how does Foley close a $3.4 billion gap equal to about three times the cuts to program levels ordered this year by Rell and the legislature?

One of the biggest sources the GOP gubernatorial frontrunner is counting on is the economy. Foley estimates that once Connecticut regains the 100,000 jobs it lost in the last recession, it can expect another $1.5 billion in new revenue.

But there are two big problems with that.

For one thing, state fiscal analysts already assumed much of that growth when they issued their last revenue forecast back on April 30. Specifically, they estimated state income tax revenues will jump almost $500 million, or 8.6 percent, in the 2011-12 fiscal year. In other words, state government needs $500 million in income tax growth just for the $3.4 billion deficit forecast not to get any larger.

Further complicating matters, not everyone agrees Connecticut’s economy will even reach that benchmark, let alone the number Foley is talking about.

The state has recovered about 6,000 of the 100,000 jobs lost so far, and University of Connecticut economist Fred V. Carstensen, who heads the Connecticut Center for Economic Analysis, said there’s no question about whether the remaining jobs will return in time to bail out Foley’s potential first budget. “They won’t be,” Carstensen said. “I can guarantee it as much as any forecaster can guarantee anything. We won’t recover all of those jobs before 2015, and that is optimistic.”

Carstensen added that given instability in the global market and a continued sluggish recovery at home, counting on any revenue growth behind the increases legislative analysts already have assumed as part of their $3.4 billion deficit forecast is “extremely problematic.”

Revenue growth isn’t the only component of Foley’s deficit-eradication strategy.

The first candidate to win the Republican State Convention endorsement for governor without previously holding elective office, Foley has amassed great wealth by acquiring and overhauling companies.

“I’m not convinced when I hear the other candidates that they actually believe they can get the job done,” said Foley, who said he believes even with revenue growth he must find a minimum of $2 billion in spending cuts to current state services. “I’m not somebody who is bound by the status quo or afraid of… upsetting the applecart a little bit and goring a few sacred cows.”

“You’re not hearing that from Michael Fedele or Oz Griebel or Ned Lamont or Dan Malloy,” Foley added, referring to his major party gubernatorial rivals. Chester First Selectman Tom Marsh, a Republican, also is running for governor as a petitioning candidate.

Foley said he’s prepared to look for savings everywhere, regardless of whether it involves big dollars, or whether it attracts political heat.

For example, state government is approved to spend just under $1.9 million total in the fiscal year that begins July 1 on six agencies whose primary responsibility is to advocate for the interests of seniors, women, children or racial or ethnic minority groups. Their combined cost represents roughly 1/100th of 1 percent of the entire $19.01 billion budget, a savings that many legislators have said is too modest to risk the political heat offending voters across the demographic spectrum.

But Foley said he “absolutely” would consider reducing or eliminating funding for any agency not found to perform a vital service. “I personally don’t understand why the government should be paying for, essentially, advocacy groups for discrete constituencies,” he said, adding he doesn’t believe the huge backlash some officials believe this would generate is likely to occur. “Career politicians are over-sensitized to the impact of their actions on voters.”

Still, there are only so many coins Foley can find in state government’s couch cushions.

A March analysis prepared by a coalition of public sector labor unions and social service advocacy groups, and overseen by former state budget director William J. Cibes Jr. – a Democrat who served under Gov. Lowell P. Weicker Jr. from 1991 through 1994 – projected no more than $1 billion likely could be cut without eliminating basic education, public safety, health care and road maintenance services.

Out of nearly 70 state agencies and departments in total, abolishing the 53 with the smallest budgets would save $451 million out of this fiscal year’s total budget.

Not dismayed, Foley said he’s prepared to go after the big agencies as well.

The Department of Transportation is one of the largest and most expensive, spending more than $490 million this fiscal year. An even larger one, the Department of Developmental Services, which spends double that of DOT, also is a target for savings.

The key, Foley said, is to move major tasks performed by state government’s roughly 50,000 unionized workers – such as road maintenance and social services – even more into the private sector.

“There are probably big opportunities to save money by outsourcing,” he said, acknowledging this would put him on a collision court with both the unions and a legislature that has long been under Democrat control.

Former state Rep. William Dyson, D-New Haven, who retired in 2008 from a 32-year-career in the legislature that included 16 as co-chairman of the budget-writing Appropriations Committee, questioned whether Foley is prepared for how legislators from both parties would react to proposed cuts of that magnitude.

“What he’s talking about, that’s going to be real hard to do,” Dyson said, adding it could take years to gradually reduce government as Foley has proposed. “It’s going to cause an uproar. If they hear about things they haven’t thought about before, the response is going to be: ‘No, no, no, I can’t do that.’”

Charging Rell with achieving too little in savings in a 2009 concession deal with labor, Foley also said he wouldn’t sign away his right to impose layoffs without major givebacks. “I’ll not only preserve it, I’ll use it if I don’t get the cooperation of the unions that we need,” he said.

Foley said that could mean wage and benefit concessions for existing employees and benefit givebacks for retired workers – the latter being new ground in the history of state labor relations.

“The benefit levels for retirees are very generous,” he said. “They can be reduced. They can be brought in line with what people have in very generous plans in the private sector without people suffering.”

But a spokesman for the State Employees Bargaining Agent Coalition, Matt O’Connor, said Foley’s budget formula – no tax hikes, concessions from workers and retirees, and privatization of state services on a major scale – adds up to a stalemate. “We have to be part of a comprehensive solution where we’re not the only answer, the only source of relief,” O’Connor said. “There have got to be some revenues and they have to be fair.”

Foley was a little less specific when it came to whether Connecticut’s income tax is fair.

Union leaders and many Democratic legislators argue the system, which taxes most income at either 5 or 6.5 percent, is overly burdensome on middle-income families.

Does Foley believe the tax should be more graduated, or remain largely flat?

“I don’t really have an opinion” on that subject, he said, adding he is more focused on Connecticut keeping its top tax rate well below those in New York, New Jersey and Massachusetts. “I think we need to look very carefully at making sure whatever our tax policy is, it is not one that drives high income people out of our state,” he said. “We need to make sure we remain competitive.”

 

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