If union deal fails, lawmakers could face hard decisions on town aid

One of the few things Gov. Dannel P. Malloy didn’t get from his fellow Democrats in the legislature’s majority is the power to cut municipal aid mid-year in the face of a fiscal emergency.

But if the state employee unions rejects a tentative concession deal later this month–punching a $700 million hole into next fiscal year’s state budget and forcing officials to find cuts elsewhere–lawmakers might wish they had let Malloy be the bad guy.

Expanding the governor’s budget authority “was a non-starter for us,” House Majority Leader J. Brendan Sharkey, D-Hamden, said Thursday, one day after the regular 2011 session adjourned. “Our members felt we could not hold back money to cities and towns after they begin their fiscal years.”

Both Sharkey and Senate Majority Leader Martin M. Looney, D-New Haven, said Democrats’ reluctance to expand the governor’s authority to adjust the budget without legislative consent had nothing to do with Malloy, but stemmed from concerns about separation of powers and the necessity of giving fiscal certainty to cities and towns.

“They’ve been putting together their budgets and relying on the municipal aid totals we’ve built into our budget,” Looney said.

Both Senate President Pro Tem Donald E. Williams Jr., D-Brooklyn, and House Speaker Christopher G. Donovan, D-Meriden, said one of the party’s top priorities this year was to solve the budget crisis without worsening a tax system that already relies heavily on property taxes.

“Businesses and families are still hurting from the worst recession in our lifetime,” Williams said.

“Shifting costs to towns? What happens?” he added. “Local property taxes zoom and people pay through the nose.”

Since the enactment of the state income tax, the legislature has granted the governor limited authority to unilaterally reduce many budget accounts by up to 5 percent, though municipal aid cannot be touched.

In his initial budget proposal in February, Malloy sought to raise the limit on rescissions to 10 percent, and more importantly, to end the exemption for municipal aid.

But while many segments of the budget technically are subject to the rescission clause, realistically they also cannot be touched. For example, state employee salaries and benefits, which represent nearly 30 percent of next fiscal year’s $20.14 billion budget, are set by contract. Medicaid, which is more than 20 percent, is governed by federal entitlement rules that require states to serve all eligible patients, and debt service, about 11 percent, also is a legal obligation.

Past governors generally have cut spending by no more than $150 million through rescissions.

Doubling the limit to 10 percent presumably would allow Malloy to cancel closer to $300 million in spending. But ending the exemption for municipal grants, which total about $2.8 billion, would allow the governor to cut another $280 million without having to seek legislative permission.

James Finley, executive director of the Connecticut Conference of Municipalities, has said mid-year cuts to state aid would cripple local governments statewide because they have few options to adjust mid-year to reductions beyond layoffs, program cuts or supplemental property tax bills.

The governor has said that if unions reject the deal he would order thousands of layoffs, likely exceeding the 4,700 pink slips he issued earlier this year, and then withdrew after the tentative deal was announced in May.

But according to the nonpartisan Office of Legislative Research, several factors typically cut into layoff savings in the first year, and one of those is the notice that must be given. The warning period varies based on each bargaining unit’s contract, but it ranges from two to eight weeks.

So if Malloy is forced to look beyond layoffs to balance the budget, town aid is one of the last large areas that hasn’t been touched yet.

The 34 bargaining units within 15 parent unions in state government aren’t expected to complete their votes on the tentative concession deal before June 24. The package includes a two-year wage freeze, new limits on pension and retirement health benefits, a wellness-based health care program that adds costs to workers who don’t receive regular physicals and other screenings. Workers would receive a four-year guarantee against layoffs in exchange for the givebacks in exchange for the deal, which the administration says is worth $700 million next year and $900 million in 2012-13.

Malloy said Thursday that while lawmakers might have been better served expanding his budgetary authority – and letting him take the heat if further tough cuts have to be made, he understood their reluctance wasn’t personal.

“Their approach to additional rescissionary rights was based on their experience with past administrations,” he said. “I’ll work with them.”

But the governor also said that if unions vote to reject the deal, state government would not ignore a $700 million hole. “We’re going to have a balanced budget,” he said.

With the exception of a Republican Senate majority in 1995 and 1996, both legislative chambers have been under Democratic control since 1986. And with Malloy, Connecticut’s first Democratic governor since 1990, there is a new dynamic in Hartford that allows both the Executive and Legislative branches to respond quickly to problems, Donovan said.

“Instead of saying, ‘We have differences, let’s have a fight,’ we say ‘we have differences, let’s sit down and figure them out,'” the speaker said.