Malloy hopes to bring perspective to budget debate

It’s barely three months since Election Day, but Gov. Dannel P. Malloy goes back on the campaign trail Monday — not to run for a second term but to sell one of the most painful budget proposals in recent state history.

The governor, who begins the first of 17 Town Hall-style meetings at 7 p.m. in Bridgeport, has no delusions: Residents will be angry, and state employees will be livid.

But whether their frustrations lie with higher income tax rates, new sales taxes on clothing and other previously exempt items, cuts to social services or a call for huge state worker concessions, Malloy said he hopes they all remember how Connecticut got into this mess–and agree that the route out isn’t easy.

“I’m not happy, so why should I expect other people to be happy?” Malloy said of the options he confronted.  Malloy inherited a built-in deficit for 2011-12 that equals nearly one-fifth of all current spending. “I know people are going to yell. I’m going to make the points I can.”

Much of that yelling likely will center on more than $1.5 billion in new General Fund taxes the governor is seeking for next fiscal year. Besides income and sales tax hikes, Malloy also would raise levies on gasoline, cigarettes, alcohol and hotel stays, extend a surcharge on corporate taxes, expand the range of estates subject to inheritance taxes.

And his tax plan climbs above $1.6 billion after adding in new municipal taxes on boats, aircraft, real estate sales, car rentals and music performances.

The governor said he doesn’t mind taking the heat, adding he knew coming into the job that he faced a deficit ranging from $3.2 billion to $3.7 billion. Malloy just hopes taxpayers remember how state government got into this shape as well.

“I don’t shy away from the fact that I didn’t create this,” the governor said. “I was hired to straighten it out.”

The Democratic governor’s Republican predecessor, M. Jodi Rell, spent much of the last two years butting heads with the Democrat-controlled legislature over how to respond to the recession and swelling budget deficits.

After taking considerable heat from her fellow Republicans for not vetoing $1 billion in new taxes for the 2009-10 fiscal year, Rell dug in during her last year in office, opposing any further revenue hikes.

Similarly, the legislature rebuffed most proposals to cut spending substantially.

The compromise was to use unprecedented levels of funding from one-time or otherwise limited sources to pay for ongoing programs — and avoid making either deep spending cuts or further tax hikes.

Over the last two fiscal years, Rell and lawmakers emptied the $1.4 billion emergency reserve, expended all $1.6 billion in federal stimulus funding, approved $2 billion in borrowing and raided over $300 million from the state employee pension account.

“The numbers were about to fall off the cliff,” Malloy said, adding that the reserve is gone, the stimulus program is expiring, the pension fund is in its worst shape since it was created nearly 25 years ago and gimmicks aren’t up for consideration.

But House Minority Leader Lawrence F. Cafero, R-Norwalk, one of the most vocal critics of the Malloy budget since it was unveiled last Wednesday, predicted residents are angry about more than just the fiscal mess Malloy inherited.

“I think he’s going to face some really tough questions,” Cafero said, adding that he believes most taxpayers wanted to see Malloy wield the budget axe more freely.

“People are ticked,” Cafero said, adding that Malloy created expectations for far greater spending cuts during last fall’s campaign. “Then you look down at the (budget) document and it just doesn’t add up,” the GOP leader added. “It just didn’t match the rhetoric.”

The governor’s plan cuts more than $1.7 billion from the current services budget, but $1 billion of that hinges on securing wage and benefit concessions and otherwise trimming state labor and management costs. Though the target never has been achieved by any prior Connecticut governor, Malloy insists it has to be met, or else he will propose deeper spending cuts to various services.

Cafero noted that Malloy’s budget technically increases spending by 2.4 percent over current levels. But that increase largely is an accounting maneuver — raising $315 million in new taxes on nursing homes and hospitals and then spending the money on those two health care industries. That tax-and-redistribute system would enable Connecticut to qualify for more than $160 million in new federal aid through the Medicaid program, a payoff Malloy said makes the illusion of a spending increase acceptable.

Cafero did praised Malloy for recommending huge labor savings, but the new governor was chastised this past week by the head of the Connecticut AFL-CIO, and unionized employees are expected to follow Malloy around the state to vent their frustrations.

“In our budget crisis, state employees are erroneously being defined as the problem, their wages and benefits deemed ‘unsustainable,'” AFL-CIO state president John W. Olsen said. “These are our state employees whom we depend on for our well-being and for the safety of our families and communities. … Connecticut’s working families didn’t create this economic mess, but we are left with the tab and told to share in the sacrifice. … We are willing to roll up our sleeves and be problem solvers, but let me be clear, when the economy was up, workers didn’t get their share.”

Since the governor presented his plan on Wednesday, administration officials also have tried to put some historic perspective on their tax plan, noting that due to the level of spending cuts Malloy wants, the revenue hike is comparable to those ordered under his last two predecessors. And it is far below what is arguably the most controversial tax package in state history, the 1991 plan approved by then-Gov. Lowell P. Weicker Jr. that created the income tax.

In terms of sheer dollars, Malloy’s plan ranks first with more than $1.5 billion in state taxes alone, and another $85 million in new municipal revenues.

But the 1991 increase of just over $1.1 billion clears $1.8 billion when adjusted for inflation.

And as a share of General Fund spending, the 1991 increase is in a league of its own at 16 percent. The Malloy proposal, which represents 8.5 percent of his requested spending level, ranks just above the increases approved during Rowland and Rell administrations.

“I believe most of the people share a belief in the foundations of this budget,” Malloy said, repeating his commitment to shared sacrifices, an end to fiscal gimmicks, transparent accounting and avoiding spending growth. “If I can get basic agreement on these points” during the budget meetings, “then I think we’ve made progress.”