Legislature gives Malloy limited authority to cut budget

The state of Connecticut began the new fiscal year Friday with a divided General Assembly approving a measure giving Gov. Dannel P. Malloy only a portion of the additional authority he sought to cut the budget.

Called into special session by Malloy after unionized state employees failed to ratify a $1.6 billion concession deal, the House rebuffed Malloy’s request for authority to cut municipal aid by 2 percent, but granted him other limited rescission powers.

The Republican minority debated the bill just past midnight, symbolically keeping Malloy from beginning the new fiscal year with the tools necessary to finalize a budget passed with great fanfare in May.

The House passed the bill at 12:14 a.m. on a 78-56 vote, with 10 Democrats joining all 46 Republicans present in opposition. On a party-line vote, the Senate voted 21 to 14 at 2:29 a.m. before an empty gallery to approve and send the measure to the governor.

“Our goal has been achieved: Connecticut has a budget in place that is balanced honestly, with no gimmicks,” Malloy said in an emailed statement. “To be clear, that’s not a reason to celebrate. The $1.6 billion deficit we just closed involves a lot of pain for a lot of people in the form of thousands of layoffs and deep spending cuts.”

It was not a day that ran smoothly for the first-year Democratic governor, whose $40 billion biennial budget was passed two months ago with seeming ease by the Democratic legislature, following parameters set by Malloy.

Nailing down the last $1.6 billion has proved nettlesome, guaranteeing that his administration’s work on the budget will continue well into the summer, as will uncertainty over the concession deal and the fate of more than 6,000 state jobs.

The Democratic majority in the House refused to grant Malloy’s request for authority to cut municipal aid by 2 percent, prompting the Malloy Administration to say the governor instead will impose as many as 1,000 layoffs above the 5,500 previously announced.

The legislators are gambling that SEBAC, the coalition of state employee unions, can deliver on its promise to salvage concessions voted down last week in voting by individual unions. SEBAC’s board has delayed indefinitely what was expected to be a pro forma acceptance of those votes. It is to meet again today.

“If they choose to ratify the agreement that was recently turned down, and if they do so in a timely fashion, much of the pain that’s been inflicted over the past few days can be reversed,” Malloy said. “If they end up not ratifying the agreement, then the budget we now have in place is the one we’ll live with for the next two years.”

“Our hope is that we don’t do any of these cuts, and that the state employees eventually ratify the agreement and avert all layoffs and avert all cuts. That’s our number one hope,” said House Speaker Christopher G. Donovan, D-Meriden.

The Senate voted 30 to 6 on Thursday to approve some limited curbs on collective bargaining rights for state employees, which was widely seen as an effort by Malloy and the Senate to signal to organized labor that the failure to ratify the concessions was politically dangerous.

The House declined to vote on the bill, but Donovan warned that his chamber could yet vote on the measure if the concessions are not ratified.

“I would think that the state employees would take notice that the bill is alive and on our calendar,” Donovan said.

“While I think the House should’ve taken up the labor reforms I proposed, I’m glad we’ve at least started the conversation in a real way,” Malloy said. “We need to make the relationship between the state and our employee base sustainable, something it currently is not.”

The Republican minority leaders, Rep. Lawrence F. Cafero Jr. of Norwalk and Sen. John P. McKinney of Fairfield, taunted the governor for needing extra rescissionary powers to cope with the failure of the concession deal and the legislature for granting them to him.

“Never before in the history of the state of Connecticut have we given such power to the governor,” McKinney said during a press conference Thursday. “My question to my colleagues is why did you run for office? If you’re unwilling to make decisions, even tough decisions, get out. Step out of the way.”

On the floor of the Senate, McKinney said it might be easier and even produce a better result to let the governor adjust the budget, but it is not right.

“We weren’t elected to do things that are easy,” McKinney said.

But the bill passed early today requires the governor to submit a budget adjustment plan to the General Asembly by July 15. Lawmakers retain the ability to reject or modify the revisions.

“We are not ceding our authority to the governor,” said House Majority Leader J. Brendan Sharkey, D-Hamden. “We are taking decisive action.”

“It’s time we move forward,” said Senate President Pro Tempore Donald E. Williams Jr., D-Brooklyn.

The failed concession package was being counted on to provide $700 million in savings in the fiscal year that began today, and $901 million in 2012-13.

To compensate for that, Malloy and lawmakers agreed on a two-pronged plan to hit those same savings targets in a different way.

The administration announced Thursday that it likely would boost by 1,000 its layoff recommendations to department heads, approaching 6,500 in total, to complement another 1,000 vacant positions that would not be filled.

Lawmakers also expanded the governor’s emergency authority to reduce spending without legislative approval – but also left themselves a procedural back door to avert any unwelcome cuts before they could take effect.

Under current law, the governor has limited authority to unilaterally reduce many budget accounts by up to 5 percent, though municipal aid cannot be touched.

Though Malloy asked for that restriction to be waived, his fellow Democrats in the House majority balked at that option. The legislature did increase the governor’s ability to reduce other accounts, in either fiscal year, by up to 10 percent – but those changes have to be ordered within the next three months.

But while many other segments of the budget technically are subject to the rescission clause, realistically they also cannot be touched. 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.

State employee salaries and benefits, which represent nearly 30 percent of annual spending are set by contract, also are set by contract and cannot be reduced. And though the governor can order layoffs, the state still must pay accrued vacation and compensatory time to displaced workers, reimburse the state’s unemployment compensation fund and make pension payments based on all workers employed when the annual contribution amount was fixed.

Still, nonpartisan legislative fiscal analysts estimated that the governor’s effective budget-cutting authority after being doubled would reach $649 million in the new fiscal year and $644 million in 2012-13.

Malloy still must report any rescissions to the legislature’s two chief budgetary panels, the Appropriations and Finance, Revenue and Bonding committees. But the bill also allows the full legislature to substitute alternative cuts to any of the governor’s reductions by calling itself into special session.

Other components of the bill adopted today would:

  • Increase the administration’s ability to unilaterally transfer funds from one agency to another without approval of the state Finance Advisory Commission. The bill specifically raises the minimum transfer threshold requiring FAC approval from $50,000 to $250,000.
  • Reduce a household’s maximum benefit under the new state earned income tax credit from 30 percent of its federal EITC benefit to 25 percent. The change would increase state income tax revenue by $18.4 million next fiscal year, according to legislative analysts.
  • And extend the deadline for state employee unions to ratify a concession deal and automatically receive legislative approval as well. The legislature voted during the regular session in late June to pre-ratify the administration’s tentative deal with the State Employee Bargaining Agent Coalition, provided unions gave their approval by June 30. The new bill extends that deadline to Aug. 31.