Fedele is sure about no tax hikes, less certain on how to cut deficit

Michael C. Fedele has no problem drawing a line in the fiscal sand.

For the Republican gubernatorial contender from Stamford, that means the enormous deficit looming over state government has to be closed without higher taxes, higher fees, or additional borrowing. There are no loopholes.


Facing the budget: Last in a series.


“I don’t think this legislature gets any more revenue,” Fedele, who has been lieutenant governor under M. Jodi Rell since 2007, said during a recent interview in his West Hartford campaign headquarters. “We clearly have been spending more than we have been taking in, but the new norm is that things are not going to be like they were.”

Fedele isn’t alone in insisting that tax hikes aren’t the solution to what effectively amounts to the largest budget deficit in state history, though he insists his GOP rivals – Greenwich businessman Tom Foley and former Greater Hartford Metro Alliance President Oz Griebel – aren’t as thorough as he is when it comes to keeping new revenue sources out of the General Assembly’s hands.

But critics say his plan lacks details and fiscal reality, and ultimately can’t be achieved.

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Michael Fedele says he will eliminate the state budget deficit without borrowing money or raising taxes and fees (Keith M. Phaneuf)

And as certain as Fedele is about how he wouldn’t cut the deficit, he isn’t as decisive about how he would eliminate the $3.37 billion budget gap within his first six months in office. That gap equals 18 percent of current spending and is more than three times the size of the largest budget cut achieved by any administration and legislature up to this point.

Nearly half of this fiscal year’s $19.01 billion budget is dedicated to state employee salaries and benefits, payments to the teachers’ retirement fund, or municipal aid. And much of the latter is tied to teachers’ and other municipal employees’ compensation.

Like the entire gubernatorial field, Fedele also said public-sector workers have to sacrifice to help balance the next budget. But how deeply?

“I don’t have an exact number,” he said. When asked for any perspective on the role cuts in personnel spending would play, Fedele added. “I don’t have an exact proportion.” After several additional clarifying questions he conceded, “They could be a major piece.”

The lieutenant governor said he would do things somewhat differently than Rell did when she reached a concession deal in May 2009 with the State Employees Bargaining Agent Coalition.

Rell forfeited her ability to impose layoffs on most of state government in exchange for a package now estimated to be worth just over $900 million, with most of that total savings spread equally across this fiscal year and last.

But nearly half of that $900 million, two-year total, didn’t come out of unionized worker’s pockets. Instead $314.5 million in required payments to the state employees’ pension fund were deferred, though the actual benefits the state must pay out were not reduced. And another $125 million in immediate savings came from offering extra incentives to encourage more than 3,800 workers to retire.

But these incentive programs rob pension funds earlier than planned of dollars that otherwise would be invested and earning returns.

A new report received last month by a state commission studying post-employment benefits shows the state’s annual contribution to the pension fund must increase by at least $217 million next fiscal year to offset these recent losses suffered by the fund.

“Governor Rell got the best deal that she could,” Fedele said, adding that she also relied on “some economic assumptions that were too rosy. I think you have to be pretty sure about what the economy looks like before you sign that right (to order layoffs) away.”

Fedele said he’s hoping layoffs don’t have to be part of his budget solution, though he concedes that downsizing through other means, namely annual attrition, is all but certain.

The lieutenant governor said he also would consider several temporary and long-term measures proposed by cities and towns to help them control labor costs. These include a short-term suspension of binding arbitration as well as long-term changes such as revising how a community’s ability to afford municipal wage increases is calculated.

“Try it. Let’s see how it works,” said Fedele, who led a 2008 state task force that studying fiscal burdens on cities and towns. “We can always go back and change the law.”

Rell took considerable heat in 2009 for proposing a wide array of cuts to Connecticut’s health care and social safety set net for the poor. Fedele said he believes Connecticut still is far more generous than other states, and cutbacks can be made in this area without abandoning the most vulnerable in society.

“I think the citizens of our state can accept that,” he said. “When times were great, we did a lot of things. Times have changed.”

But Fedele said he also believes much of the safety net can be retained and run more cost-effectively by turning to the private sector. “If we can’t do something most cost-effectively than the private sector, maybe we have to ask ourselves, ‘Should we be in that business?'” he said. “I think we’re at that point.”

State government already is expected to spend more than $1.1 billion this fiscal year to deliver the majority of its social services through contracts with community-based, private, nonprofit social service agencies.

But Connecticut still relies heavily on state employees in some areas, including services to the mentally ill and those with developmental disabilities.

Besides asking the private sector to take a larger role in these areas, state government should invest more in community-based programs that help the elderly stay longer at home – at out of nursing homes – through assisted living programs, the lieutenant governor said.

Nearly 7 percent of the entire state budget, about $1.3 billion this fiscal year, will be spent on one-half of 1 percent of the population, or about 17,300 elderly patients whose nursing home care is covered through the Medicaid program. Fedele said he believes state government could save $100 million in the first year, and as much as $500 million annually five or six years down the road, with a dramatic new commitment to home care.

But advocates for the elderly say home care often is mistaken as an alternative to nursing home care, when – in most cases – it only defers admission. It has value, but only enough to lessen inevitable increases Connecticut and other states face over the next two decades as more of the Baby Boomer generation retires.

A study released in March by the Connecticut Regional Institute for the 21st Century – an alliance of public, private and institutional leaders – echoed that position. That report projected that a dramatic shift toward non-institutional care would save $900 million between now and 2025. But that would offset only about one-quarter of the $3.4 billion increase in annual costs Connecticut faces between now and then.

Fedele said he believes the private sector also can help state government chop into a Correction Department budget that topped $650 million this fiscal year by rehabilitating more non-violent offenders in community settings rather than in prison.

That has been a common assertion among many gubernatorial candidates.

But while Connecticut’s inmate population has receded from the record mark of nearly 20,000 two years ago, research from criminal justice planners in the Rell administration says the number of prisoners the state must house, feed, guard and care for will remain relatively stable over the next two years.

“Without major changes in existing sentencing trends and guidelines, prison admits and the mean-length-of-stay of inmates should remain relatively constant,” the state Office of Policy and Management’s Criminal Justice Policy and Planning Division wrote in its 2010 inmate population forecast.

Rep. John Geragosian, D-New Britain, co-chairman of the legislature’s Appropriations Committee, said that while Fedele isn’t alone in decrying tax hikes as part of an overall solution, that approach simply isn’t realistic.

“I don’t think it’s possible and I think it’s irresponsible,” Geragosian said. “Mike Fedele knows better than all of the other candidates out there what the options are.”

Geragosian and his committee attempted in March 2009 to identify nearly $1.4 billion in potential annual budget cuts. That exercise was launched after lawmakers reacted angrily to a new, two-year budget proposal from Rell that would have been more than $2.7 billion out of balance based on nonpartisan legislative analysts’ estimates.

The committee’s report would have closed six community colleges, two regional campuses for the University of Connecticut and two prisons. It also would have chopped between 10 and 20 percent in payments to cities and towns, nursing homes and social service agencies and cut funding for hospitals, child welfare programs, and mental health treatment facilities.

Geragosian said the report, which wasn’t recommended by his committee, would have been rejected by the legislature, and if Fedele tried to impose deep cuts on the poor and disabled, he would face similar opposition.

No legislature and governor effectively have cut even $1 billion from the annual projected cost of maintaining current programs.

Legislators pointed with pride in the fall of 2009 to the $18.64 billion budget they adopted after an eight-month battle with Rell – a package that cut $1.15 billion off the current services projection for the General Fund.

But that plan also hinged on state government setting new records in achieving mid-year savings, and it ultimately spent $190 million more than the $18.64 billion bottom line, effectively pushing the net reduction back under $1 billion.

Fedele remained adamant not only he could save more than three times the level ever achieved before, but he could begin reversing state government’s use of fuel tax revenue to support non-transportation spending.

In a report issued earlier this year, the Transportation Department projected a $926.4 million gap between the cost of planned highway, bridge and transit projects for the next five years, and the level of anticipated funding available.

But nearly 60 percent of the roughly $1.5 billion state government has collected from the wholesale fuel tax since the 2005-06 fiscal year has been spent outside of the Special Transportation Fund, according to budget records.

The legislature’s nonpartisan Office of Fiscal Analysis projected in a May that the fund – a $1.1 billion component within an overall state budget – would fall more than $40 million into deficit by the 2011-12 fiscal year.

“You need fiscal discipline,” Fedele said, adding that while the siphoning of fuel revenues for non-transportation purposes wouldn’t end immediately, state government could begin to move in the other direction. “The first thing we have to do is stop raiding it. We have to keep our hands off of it.”

Fedele pledged to be a more active governor than Rell was in terms of fighting for more federal transportation aid in Washington, D.C.

But Donald J. Shubert, spokesman for Keep CT Moving, a transportation advocacy coalition comprised of labor and business groups, said that while a strong Connecticut voice on Capitol Hill would help, it would be a mistake to count on major federal funding for the next two years.

“All signals are Congress is not going to pass a major authorization bill for about 25 months,” he said, adding that new projects centered on mass transit and supporting urban development stand the best chance of winning federal assistance.

Fedele said he is comfortable with the state’s current income tax system, which taxes most income at 5 percent, though it levies a 6.5 percent rate on earnings above $500,000 for individuals and $1 million for couples. A personal exemption and a 3 percent rate levied on the first $10,000 each individual earns also ensure most households with incomes below $35,000 pay little or no income taxes.

“Is it balanced? Is it fair? Yes,” he said, disagreeing with those who argue it is not progressive enough and that it overburdens middle-income households.

The lieutenant governor said he is open to tax reform when it comes to the nearly $5.3 billion in credits, exemptions and other breaks Connecticut has on the books covering its entire tax network.

Though Fedele insisted he isn’t looking to raise new revenue, if a tax break isn’t creating or preserving new jobs, or serving another vital government purpose, it could be eliminated and the revenue used to offer a new one that does. “Anything we do has to provide a return on our investment,” he said.

Further complicating Fedele’s task, the lieutenant governor said he also wouldn’t use another tool his current boss has relied on: the state’s credit card.

Rell and the legislature authorized nearly $990 million in bonding, to be paid off largely through a surcharge on utility bills, to help balance this year’s budget. That borrowing to cover ongoing expenses was one of the factors cited last month when a major Wall Street credit rating house lowered Connecticut’s bond rating.

“We’ve done too much borrowing in this state,” Fedele said. “In my administration, discipline is the operative word.”

This is one of a series of stories on gubernatorial candidates’ plans to address Connecticut’s budget crisis. Other stories covered Republicans Tom Foley and Oz Griebel, Democrats Dan Malloy and Ned Lamont, and Independent candidate Tom Marsh.