Senate debate offers two visions of state’s fiscal future

As the Senate voted 22-13 to give final approval late Tuesday to a revised $20.5 billion budget for next year, there was bipartisan agreement that state finances were on the cusp of a major change.

But while Democrats said the package would close small deficits and preserve vital services until the economy rebounds in the near future, Republicans predicted that borrowing and gimmicks in the plan, coupled with tightening revenue projections, are harbingers of another looming budget crisis.

The bill, which Gov. Dannel P. Malloy has said he will sign, was approved by 21 Democrats and one Republican, Len Suzio of Meriden, who said the budget eliminated funding inequalities for schools in his district.

The package preserves most of Malloy’s initiatives for education and nonprofit social services while closing a $200 million-plus shortfall in current finances. It also restores a planned rate hike for commuter rail passengers in January and provides a special $13.5 million payment to assist the University of Connecticut Health Center.

It would add $143 million to the original 2012-13 budget adopted last spring while imposing no tax increases. Overall spending would rise nearly 2 percent above current levels, and the new budget falls $86 million below the constitutional spending cap.

Though many politicians often say governments should manage finances in the same way a household does, Sen. Toni Harp, D-New Haven, co-chairwoman of the Appropriations Committee, opened the budget debate arguing that this analogy doesn’t apply.

“The reality is the state budget is not like our budget at home,” she said, adding that unlike Connecticut households, state government has the job of trying its best “to make life meaningful” for all citizens.

The revised budget salvaged nearly $90 million of the $127 million in new education initiatives Malloy proposed in February, including a $50 million increase in education cost-sharing grants to cities and towns. This modest increase marks the first growth in the $1.9 billion ECS program since the 2007-08 fiscal year.

New education initiatives also include special assistance for the state’s 25 lowest-achieving schools, a small expansion in charter school enrollment and 750 new slots in school readiness programs.

Connecticut spends more than $1 billion annually hiring community-based, private, nonprofit agencies to provide the bulk of state-sponsored social services. And the new budget provides $8.5 million to fund the first increase for those agencies in four years, a 1 percent jump effective Jan. 1.

The new budget also allocates $13.5 million to help balance finances, particularly to cover employee fringe benefit costs, at the University of Connecticut Health Center in Farmington.

“Will you be able to find areas at the edges of this budget where we could have done a little bit more? Yes,” Senate President Pro Tem Donald E. Williams Jr., D-Brooklyn, said while meeting with Capitol reporters shortly before the start of Tuesday’s debate. “But this budget’s as good as it gets in a time of fiscal crisis.”

But Williams said Democrats made tough choices — including spending cuts — to preserve priorities like education, health care and social services without raising taxes.

The new budget forecasts saving $50 million by tightening eligibility and limiting nursing home coverage in a Medicaid program that serves poor adults who don’t have minor children. The changes include limiting enrollment to people with assets below $10,000, and counting family income in determining eligibility for applicants under 26. The program currently has no asset limit.

But the 2012-13 spending plan also raids nearly $75 million from special funds for transportation and banking to prop up general government programs while redirecting $222 million designated to pay down the state’s credit card to help close a 1 percent deficit in the current state budget.

“Our barometer is not going the direction that it should be,” Sen. L. Scott Frantz, R-Greenwich, said, predicting that Wall Street credit ranking agencies won’t appreciate the new use for that debt payment. “It looks as though we’re using borrowed money to shore up that hole. The rating agencies can see through that like glass.”

The new budget also draws more than $70 million away from transportation and into the general fund. It offsets that raid by borrowing to fund municipal road repair grants, delays financing for state infrastructure projects and raises rail fares 4 percent in January.

Another $4 million in fees paid by the securities industry that normally are deposited into the state’s Banking Fund also would be diverted to support general government operations in the new budget.

On the campaign trail two years ago, Malloy decried past administrations’ decisions to raid the special transportation fund to prop up non-transportation spending. He also pledged not to use borrowing to support state operating expenses.

These moves are gimmicks that will only further weaken the state’s fiscal position in the coming months, said Sen. Robert Kane of Watertown, the ranking GOP senator on the Appropriations Committee.

Republicans also noted that state fiscal analysts downgraded revenue expectations for the foreseeable future. The report reduced expectations by $150 million for the current budget, by $234 million in the fiscal year that begins July 1 and by more than $310 million in 2013-14.

Williams acknowledged the sluggish revenues before the debate, but he also predicted the problem wouldn’t last much longer. “We are still suffering the effects of the worst recession in our lifetime,” he said. “But we have turned the corner. We are poised to move forward.”

But Sen. Andrew Roraback, R-Goshen, said residents and businesses, still reeling from the $1.6 billion in state and municipal tax hikes ordered last spring, won’t understand why gimmicks are being used now. “

“We couldn’t tax our way into (economic) recovery,” he said. “After the largest tax increase ever we’re going to borrow our way into recovery?”