Foley tests the limits of fiscal credibility

From the start, Tom Foley’s pledge to close the largest budget deficit in state history without tax hikes depended on economic factors that made it all but unachievable without considerable good fortune.

But after recent pledges to safeguard billions of dollars for education, Medicaid and early childhood development – and to restore funds for tourism – the GOP gubernatorial nominee has made the longest of fiscal longshots more difficult by at least one-third.

“I’m an expert on organizational performance. I’ve done it all my career,” Foley, a Greenwich businessman, said this week. And he said his critics are wrong to expect him to come up with a concrete plan to erase the entire deficit at this point.

“Some of the savings we’re going to have to find along the way. But it’s there,” he said. “The burden shouldn’t be on me to come up with every nickel.”

Still, much of Foley’s plans for closing the $3.26 billion deficit that looms eight months away depends on some risky assumptions.

Income tax revenues must grow by 7.5 percent next year, and overall tax revenues climb $620 million, just to maintain the $3.26 billion deficit projection. Several economists, including Fred V. Carstensen of the Connecticut Center for Economic Analysis, and Don Klepper-Smith, chairman of Gov. M. Jodi Rell’s Council of Economic Advisers, have said that forecast is optimistic.

Foley says it’s not rosy enough. He expects at least $1 billion in revenue growth from taxes, and $500 million more from Washington beyond what state analysts predicted.

To reduce labor costs without layoffs–while he hasn’t ruled then out, Foley has said he’ll try other means first–the Republican nominee also needs state employee unions to providing wage and benefit givebacks at unprecedented levels, something labor leaders have said won’t happen.

But even were Foley to lay off workers in large numbers, several factors typically cut the first-year savings in half, according to an Office of Legislative Research report.

  • Depending on the union involved, workers must receive two to eight weeks’ notice.
  • Because the first two weeks of all state workers’ salary is withheld and not paid until they end employment, that expense also must be met.
  • Accrued sick and compensatory time must be paid.
  • Payments to the Unemployment Compensation fund increase
  • Pension fund contributions, which average 39 percent of workers’ salaries according to the Office of Fiscal Analysis, are fixed for the year based on an actuarial study prepared the prior fall.

The Rell administration calculated last November that had the administration laid off 5,000 workers — roughly 1/10th of the work force–to cut costs in 2009, the savings in 2009-10 would have been just under $300 million.

Foley’s critics say many of the cuts he has proposed will produce long-range savings that will take years to develop rather than offset the deficit facing the state next July 1.

“My belief is that Tom Foley’s campaign has taken the position that people want fiscal austerity, and he will say whatever’s necessary to get the message across without much – if any – consideration as to how it will be implemented,” Independent Party nominee Tom Marsh said this week.

“This guy is just not speaking straight up about the budget,” Democrat Dan Malloy said. “He believes no one’s going to call him on it.”

Marsh and Malloy spoke one day after their GOP rival made strong statements at a Fairfield University debate about protecting Medicaid, a health program for the poor funded with federal and state dollars, one of Connecticut’s biggest – and fastest growing – expenses.

“I have said we will solve the budget deficit we have here in Connecticut, which is a very challenging problem,” Foley said during the debate. “But we will do it without hurting our most needy citizens, including our Medicaid population.”

Budgeted at $3.85 billion, Medicaid already represents 20 percent of this year’s $19.01 billion state budget, and legislative analysts already built a $286.5 million Medicaid increase into the deficit projection back in early May. Since then, the state Department of Social Services has estimated that Medicaid will need $957 million extra next year just to maintain current services and comply with current law.

Foley, who has said he hopes to cut state health care spending by as much as $700 million next fiscal year, was challenged by Malloy, who argued during the debate that Foley would look to dramatically curtail Medicaid eligibility and covered services for poor families.

One way to trim Medicaid costs without hurting patients, Foley replied, is to cut the cost of delivering health care. That means more emphasis on wellness programs, legal reforms to reduce the cost of medical malpractice insurance and moving more Medicaid patients into managed care organizations.

But these are measures likely to produce savings over the long-range, and Foley conceded during a telephone interview Wednesday that the full $700 million figure he cited during the debate wouldn’t be available to close the 2011-12 deficit.

A second way to attack Medicaid spending while actually helping patients, Foley offered during the debate, would be to move more elderly patients into home care.

While about two-thirds of the roughly $2.5 billion spent annually on long-term care is tied to nursing homes, a little less than half of the patients receiving state-funded care are in facilities.

Foley said Connecticut could save $600 million annually if it were more like Oregon, where nearly three-quarters of state-funded, long-term care patients are treated at home. But a recent study found that moving more patient into home care wouldn’t cut Medicaid spending, but would just slow its inevitable growth as baby boomers retire.

Foley said Wednesday that he never presented ideas like wellness and home care during the debate as immediate solutions to the 2011-2012 budget deficit. “No way, I never said that,” he said, adding that he raised them “as an example of the way government can save money in the long-term.”

But both Marsh and Malloy said the context was clear.

Foley “was talking about a long-term plan to reduce an increase like it was a short-term savings,” Marsh said. “I can’t imagine, with the expertise he has surrounded himself with, that he doesn’t understand the misdirection that’s being perpetrated.”

“We’re going to be spending more money taking care of older people,” said Malloy, who also charged Foley with weaving long-range cost-savings ideas into the 2012 budget discussion to reinforce his no-new-taxes position. “You can’t be that stupid.”

Marsh also spoke out last month when both Foley and Malloy pledged to municipal leaders they would not cut the Education Cost Sharing grant program, which represents $1.9 billion, or 10 percent of the current budget.

The major party candidates also have agreed not to cut about $213 million in early childhood development funding and to restore a $15 million cut to the statewide tourism promotion budget. But Malloy, unlike Foley, has acknowledged tax increases likely would be needed to eliminate a deficit equal to 17 percent of current spending and half of all annual revenue from the state income tax.

If Foley cannot significantly cut Medicaid after ruling out changes that limit coverage for the poor, and given his pledges regarding education and tourism, he has effectively taken nearly $6 billion, or roughly 30 percent of the current budget off the table.

And with another $2.2 billion of the budget tied to debt service, an obligation state government is legally required to meet, more than 40 percent is out of play.

Malloy has said repeatedly that Foley will have no choice but to gut the remaining $900 million in non-education grants to cities and towns, forcing huge property tax hikes.

Foley fired back Wednesday that he has offered more plans to cut state spending than either of his rivals, saying he believes Malloy is gearing up to raise state taxes between $2.5 billion and $3 billion next year. “If anyone here doesn’t have credibility, it’s Dan Malloy.”

But Foley said that while he’s convinced more than $2 billion of the deficit can be closed through a combination of privatizing services, freezing hiring, negotiating state worker concessions, consolidating agencies, improving purchasing policies and cutting wasteful programs, he can’t spell out every detail.

“I’m getting hit over the head because I won’t take (taxes) off the table?” Malloy said. “Look at the impossibility of what he is saying.”