Malloy pitches more spending cuts, some revenue to shrink deficit

Hours after inviting Republicans to help devise a bipartisan deficit-mitigation plan, Gov. Dannel P. Malloy offered a “road map” Friday to shave another $243 million off this year’s state budget deficit, again relying most heavily on cuts to social services.

The Democratic governor, who insisted that he wouldn’t raise taxes to close the current shortfall, is seeking over $22 million in additional tax revenue from corporations and power plants. The administration also says Connecticut can raise an extra $8.5 million by cracking down on tax fraud.

The proposal is intended to shape discussions scheduled to begin Monday with the administration and leaders of the Democratic majorities and Republican minorities in the General Assembly. The legislature is expected to return for a special session on Dec. 19 to vote on a deficit plan.

“We know what we have to do. They know what they have to do. We’ll share some information today,” Malloy said Friday, shortly before releasing his road map. “We’ll get to work next week.”

Malloy’s new ideas include borrowing $10 million to fund one year’s installment of the state’s long-term, $100 million commitment to stem cell research. He also would raid one-time sources of funds earmarked for environmental conservation sources.

The administration did not release details behind its “road map,” listing only spending reductions that would be assigned on an agency-by-agency basis. Specifics behind proposed revenue changes also were not available Friday, with most revisions limited to a brief description of a few words.

They now head to closed-door negotiations between the governor and legislative leaders.

“This won’t be easy, and parts of it will be very difficult,” Malloy wrote in a statement Friday. “We are very mindful of the fact that most of the cuts that will end up being part of the final package will have a real impact on people’s lives, so we want to do this as carefully as possible.  But the reality is we have no other choice; spending must be cut.”

In total, the governor proposed $220.1 million in spending reductions and $22.6 million in net revenue growth.

The governor had used his limited authority to order budget cuts unilaterally in late November, reducing spending by $170 million. But because some of those cuts — like some of the reductions proposed Friday — involved the federal Medicaid program, they also reduce the level of federal funding Connecticut can expect this fiscal year.

All totaled, the November cuts saved $123 million.

Friday’s proposal, coupled with the November savings, still don’t close the entire $415 million gap in finances projected Dec. 1 by state Comptroller Kevin P. Lembo. But it would leave the $20.54 billion state budget for this fiscal year with less than $50 million in red ink. It would close the entire deficit as tracked by the administration, which pegs that shortfall at $365 million.

The largest single-reduction proposed Friday involves $122 million aimed at the Department of Social Services, which administers a wide array of health care and other support services for the poor, aged and disabled, most of which are partially supported with federal aid.

That proposed $122 million cut is expected to save the state just $63.5 million since the reduction would trigger a $58 million loss in federal assistance.

The administration also is seeking cuts to the departments of: Public Health; Mental Health and Addiction Services; Developmental Services; and Children and Families.

Sheila Amdur, interim CEO of the Connecticut Community Providers Association, said Malloy seems to be targeting the services for people who can’t take care of themselves.

“It’s so unconscionable that I’m almost speechless,” she said Friday.

Amdur said state agencies have said in the past that cuts will come out of the nonprofits that contract with the state to serve people with disabilities, mental health and substance abuse issues. She noted that the governor has limited ability to lay off state workers or cut state employee benefits, and has said he doesn’t want to target education or municipal aid.

“He’s taken so much off the table that the only sector left that is a significant expenditure is health and human services,” she said. “And in a state like this that has been so concerned about…the population that is quite dependent on state services for survival, I am truly speechless.”

The governor also is recommending cuts of $13.7 million to the Department of Education and $1.3 million each for the University of Connecticut and for the Office of Higher Education.

Other large spending reductions proposed Friday includes $25 million from debt service — which could be achieved by borrowing less, refinancing, or both, — and more than $10 million from the Department of Correction.

Despite insisting that he would not raise taxes to balance the budget, the governor isn’t opposed to raising some additional tax dollars without boosting the actual rates.

Though full details were not available Friday, Malloy proposed collecting an extra $10 million with the “close of the electric generation tax loophole,” and another $12 million by revising a cap on corporation tax credits.

His budget chief, Office of Policy and Management Secretary Benjamin Barnes, said the electricity generation tax change is a fairness issue. “Some companies have restructured to avoid paying the tax,” assigning their generation and energy marketing functions to separate affilliates. “There’s no reason for that.”

Barnes said tax credits and exemptions are real expenses that drain resources from government, just as various service programs do. Businesses currently cannot offset more than 70 percent of their corporate tax liability in one year with credits. Barnes said the administration is looking to reduce that modestly for one year, though a final percentage hasn’t been resolved.

The governor did test one of his oft-stated fiscal principles in this plan.

That involves cutting $10 million from the operating budget that normally goes to support stem cell research. But the program won’t lose those dollars. Instead, state government would finance the necessary funds by issuing bonds.

But Barnes said that bonding for investments in bioscience research is similar to other business enterprise funding that also has been backed at times by state bond dollars.

“It is my hope — and I’ve communicated this to legislative leaders from both parties — that the final plan will be a bipartisan one,” Malloy wrote in a statement.  “That’s my goal, and if all sides come to the table in good faith, I’m hopeful we can get it done.”

Malloy added that the “road map” released Friday represents “areas in state government where we’ve identified targeted savings that we believe can be achieved.”

Mark Pazniokas contributed to his report.