Malloy is following a game plan of cuts now, taxes later

As Gov. Dannel P. Malloy rolls out a string of agency consolidations and other steps to shrink state government, he is executing a plan to establish his credentials as a budget cutter before proposing $1.7 billion in tax increases next week.

Malloy announced two major agency consolidations plans in two days this week, with a third expected as early as today. Last week, the Democrat endorsed by labor put state employees on notice that his budget also will rely on wage-and-benefit concessions, calling their compensation levels unsustainable.

And two weeks ago, Malloy outlined some fiscally conservative parameters for his budget: no borrowing and no gimmicks; no early retirement plan that offers short term gains at higher retiree health costs, and no deferral of pension investments.

“What you are seeing publicly is a reflection of what happened privately in the budget meetings,” said Roy Occhiogrosso, the governor’s senior adviser for politics and media.

Malloy will begin to learn if it works Wednesday, when he delivers his budget to a joint session of the General Assembly.

The pace is quickening at the Capitol as Malloy nears the release of his budget, a blueprint for how he intends to erase a structural deficit of nearly $3.7 billion in the fiscal year that begins July 1. His budget chief, Benjamin Barnes, has warned that the governor wants the state to swallow its fiscal medicine in one slug.

With a blur of proposals and hints dropped in visits to newspaper editorial boards, speeches to business groups and other public comments, Malloy is trying to make the case that his prescription is the only cure for fiscal ills long-neglected by his Republican predecessors and a Democratic legislature.

“Get ready,” Malloy told reporters Wednesday afternoon, two hours after his office released his plan to shake up the administration of higher education. “We’re going to do a lot of consolidating. At least I’m going to be recommending a lot of consolidating.”

Malloy is taking a calculated risk. Even as he follows a plan to rely on budget cuts for $2 billion of his deficit reduction plan, he still will need a major tax increase, a step that neighboring governors, Andrew Cuomo in New York and Chris Christie in New Jersey, have insisted they will not take.

In recent weeks, Malloy has prepared legislators, business leaders and taxpayers for what he hopes will be greeted as a sound and sane plan to share the fiscal pain – and to prepare them for new taxes as part of his prescription. But Malloy also has taken steps to share the political risk with the state’s mayors and public-sector unions.

On Wednesday, with the mayors of Bridgeport, Hartford and New Haven standing behind him, Malloy promised he would not cut education aid to municipalities, a move that distinguishes him from Christie, who is slashing municipal aid in New Jersey, forcing the weight of that state’s fiscal crisis onto its cities and towns.

The promise, which reaffirms a pledge he made during the campaign, won praise from an old foe, Mayor John DeStefano of New Haven, who beat Malloy in a primary for the Democratic gubernatorial nomination in 2006.

“It is worth saying something obvious,” said DeStefano, who is locked in battle with his unionized work force over concessions. “It’s good to have people mean what they say. And the governor in this instance has meant what he has said, not only as a candidate, but as governor of the state. And that’s a good thing for us to acknowledge and be grateful for as well.”

In maintaining funding for the Education Cost Sharing formula, Malloy is distancing himself from teacher layoffs, which still may be necessary in some municipalities, even with level ECS funding. He effectively has said he meeting his responsibilities; now the rest is up to the mayors and teachers’ unions.

“To do otherwise in my opinion would lead to large-scale layoffs of teachers, even larger enlargement of classes that might otherwise occur, furthering endangering students,” Malloy said. “I certainly am honoring my side.”

If that was too subtle, Malloy then bluntly suggested that teachers step up with any concessions that might be needed to balance school budgets.

“Whether or not there are teachers laid off will be a local issue,” Malloy said. “I’ll go a step further and say that I would hope that the labor organizations representing teachers will do everything in their power to make sure that there aren’t any layoffs of teachers.”

The exact cost he will impose on state employees is unknown.

In proposing the consolidation Tuesday of the Department of Environmental Protection with utility regulators at the quasi-independent Department of Public Utility Control and and energy planners in the Office of Policy and Management, he has not identified jobs that can be eliminated.

The same is true of a more sweeping plan outlined Wednesday to combine the state’s two largest elements of public higher-education, the Connecticut State University System and community colleges.

Even though Malloy said that most of the savings from the higher-education merger will not come until the second year of his biennial budget, the document released Wednesday will have to show current positions and those that will be left in two years.

In a Jan. 19 speech to the Council of Small Towns, Malloy talked for the first time about cutting the number of rank-and-file state workers, along with managerial ranks that Malloy insisted during the campaign were bloated.

On Jan. 25, Malloy told his commissioners during a public meeting that he would rely on a 55 to 45 ratio of spending cuts and new taxes, which means about $2 billion in cuts and $1.7 billion in taxes.

Promising to eschew the budgetary gimmicks of his predecessors, including borrowing and deferrals of pension contributions, he said, “We need to change our state in a profound way.”

Occhiogrosso said that Barnes, who oversees the preparation of the state budget as the secretary of policy and management, has been doing privately what Malloy is doing publicly: Work on shrinking costs before selecting taxes to raise.

“He was very clear with Ben and the rest of the team,” Occhiogrosso said. “Ben was very clear with his staff at OPM that the way the governor wanted to attack this problem was in a very methodical fashion, that there would be no discussion of revenue until spending had been cut, until real savings had been found, until a target number for savings with state employees had been identified. And after all those were done to the maximum, then he would talk about revenue.”

That day is coming soon.

As the winner of the closest gubernatorial election in a half-century, Malloy came to office without a surplus of political capital, but he promised on his first full day as governor he would use what he had.

“I think political capital is just that. It’s supposed to be expended,” Malloy said. “To leave office with a bank of political capital because I had failed to take on the big challenges would be wrong.”