Spending cap, deficit projection, limit options for budget

The legislature’s budget-writing committee is expected to make few major changes Thursday as it reports out Gov. Dannel P. Malloy’s $20.7 billion proposal for the fiscal year that starts July 1, finding itself largely constrained by the constitutional spending cap and a projected deficit 15 months away.

“We’ve tried to fix any of the holes we think we see in the budget, but we’re trying very hard not to go too far from the governor’s bottom line,”  said Sen. Toni N. Harp, D-New Haven, co-chairwoman of the Appropriations Committee. “With the cap, it’s going to be tight.”

That’s because the plan Malloy unveiled Feb. 8 fell just $5.9 million under the cap, based on administration numbers, a cushion of just 1/35th of 1 percent.

The governor and legislature left an even smaller gap of $1 million when they adopted the current budget last spring. And though the administration remains under the cap with just three months left in the fiscal year, Malloy has had to order emergency spending cuts in response to cost overruns in more than a half-dozen agencies.

One major area where the Appropriations Committee budget could differ from Malloy’s is on changes to a Medicaid program that serves about 74,000 poor adults without minor children, according to both Harp and the panel’s other co-chairwoman, Rep. Toni E. Walker, D-New Haven. The administration is counting on the changes to save $22.5 million in the coming fiscal year.

The state began the program, known as Medicaid for Low-Income Adults, or LIA, in 2010. Enrollment grew faster than officials had predicted, rising by 60 percent between June 2010 and August 2011, although it has since been relatively stable. The program’s costs also grew faster than expected; it was responsible for a $139 million shortfall last fiscal year.

Malloy’s budget proposal calls for restricting eligibility for the program and scaling back benefits. People would be eligible only if they have assets below $25,000, excluding a house and car; currently, there is no asset limit. For applicants under 26 who live with their parents or are being claimed as dependents, family income and assets would be taken into account in determining eligibility.

The administration hasn’t specified how benefits would be adjusted, but in a “concept paper” sent to federal officials last fall, Department of Social Services officials said the changes could include limiting nursing home coverage to 90 days per admission and restricting the number of outpatient hospital visits, non-emergency emergency room visits, occupational, physical and speech therapy services and home health visits.

But Harp and Walker have expressed skepticism about the proposed changes, questioning whether the restrictions are needed since DSS is not over budget. Harp has also said that the people served by the program are likely those who were previously served by other state programs and are more effectively covered through Medicaid.

“It was a savings we weren’t sure we could count on,” Walker said this week of the administration’s $22.5 million projection. And even though the Appropriations panel will recommend restoring those funds, Walker added she expects the issue will remain a topic of discussion as legislative leaders and administration officials negotiate a final budget package in the coming weeks.

The regular 2012 General Assembly session is scheduled to adjourn May 9.

Office of Policy and Management Secretary Benjamin Barnes, Malloy’s budget director, has said it appears that Medicaid LIA is covering people with limited income but high levels of assets — such as well-off retirees — and young adults who could be on their parents’ insurance. But critics of the proposed changes have said they could increase the number of people without health insurance in the state, and that reducing Medicaid benefits would set a dangerous precedent and weaken a much-needed program.

The budgetary impact of Medicaid LIA is expected to be short-lived — at least, if the federal health reform law doesn’t get struck down by the U.S. Supreme Court. Because the state created Medicaid LIA to expand coverage after the health law passed, the federal government will pay the full cost of the program beginning in 2014. Eventually, the state will be responsible for 10 percent of the program’s cost. Currently, the federal government and state each pay half.

To make the changes Malloy proposed, the state must get permission from the federal Centers for Medicare and Medicaid Services, and any application to do so must be approved by key legislative committees, including Appropriations.

Though Medicaid LIA likely will be altered in the committee plan, lawmakers are expected to back the governor’s other major initiatives, including bolstering payments into the state employee pension fund and increasing education cost-sharing grants to cities and towns by a total of $50 million.

Malloy would pay for the extra spending largely by consuming what is left of the nearly $555 million fiscal cushion he and legislators built into the preliminary 2012-13 budget adopted last spring. But the plan does rely on more than $8 million in new revenue to be generated by allowing Sunday liquor sales.

The governor’s proposal also has raised concerns among some lawmakers from both parties because the administration’s own projections show it to be in balance only for one year.

In 2013-14, that package would run $424 million in the red, and $650 million over the spending cap. But Malloy officials have been quick to note that there is plenty of time to address that problem in the regular 2013 session, which begins next January.

Republican leaders have argued that Malloy is setting a fiscal pace that far exceeds Connecticut’s slow-moving economic recovery.