Legislature’s budget matches Malloy’s bottom line, reverses him on details

The state legislature’s budget-writing panel maintained a massive cut to hospitals but reversed a controversial reduction to health care for poor working parents in a $43.9 billion, two-year budget that effectively matched the spending level sought by Gov. Dannel P. Malloy.

“It’s one of the most difficult budgets, frankly. I sat in public hearings and saw grown men cry. And the truth of the matter is people are hurt by this budget. But, you know, we just don’t have the money to do a lot of the things we would like to do,” Sen. Toni Harp, D-New Haven, the co-chairwoman of the Appropriations Committee said Friday.

The Democratic-committee — which adopted the spending plan Friday in a vote along party lines — also balked at Malloy’s proposals to eliminate two non-education municipal aid programs, while supporting $152 million extra for Education Cost Sharing grants over the next two fiscal years.

Lawmakers said ‘no thanks’ to Malloy’s plan to make public colleges and universities responsible for paying for all of their employees’ health and retirement benefits. The institutions, which already have raised tuition and fees significantly over the past two years, warned this would leave them even more financially vulnerable amid rising health care costs.

The Democrat-controlled panel also rejected Malloy proposals to centralize more authority within the administration, including plans to centralize watchdog agencies and shift human resource functions into his budget office.

The committee’s budget, which would spend $21.5 billion in the fiscal year that begins July 1 and $22.4 billion in 2014-15, also gambles on finding bigger savings from staffing reductions and weeding out Medicaid fraud.

But it does endorse a 5 percent pay hike for Connecticut’s judges, whose last raise came in 2007. Those increases would cost $5.5 million in total over the next two fiscal years.The Appropriations Committee plan, coupled with revenue proposals due later Friday from the Finance, Revenue and Bonding Committee, will form the foundation for final budget negotiations between legislative leadership and the Malloy administration.

Republican leaders on Friday blasted the committee’s proposal which increases state spending.

“We are growing government by leaps and bounds.. It’s an insult to call it a budget,” said House Minority Leader Larry Cafero, R-Norwalk. He said that plans in the budget to create a new Office of Early Education and Department of Housing and other new state agencies is irresponsible.

The $43.8 billion, two-year plan Malloy offered in February sparked criticism for its heavy reliance on borrowing, cuts to social services and health care, and shifting of municipal aid from general government to education grants.

“They continue to borrow to cover operating expenses…. They continue to make poor choices,” said Senate Minority Leader John McKinney, R-Fairfield.

But House Speaker J. Brendan Sharkey, D-Hamden, said the GOP criticism means little, since Republicans have offered no alternatives to keep finances in balance.

During tough fiscal times, “the political tendency is to run away … and not make the tough decisions,” he said. “That’s what you saw.”

Office of Policy and Management Secretary Benjamin Barnes, Malloy’s budget chief, wrote in a statement Friday afternoon that “the administration appreciates that the Appropriations and Finance Committees have put forth proposals that are close to the framework laid out by the Governor.  There is a lot in this budget we agree on.

“There are also problems that will need to be addressed, including the need to continue key bipartisan education reforms, to support economic development initiatives that will grow jobs, and to provide real tax relief for middle class families.  As it stands, this proposal doesn’t get there. Despite those and other concerns, we believe the announcement today is a good step toward putting together a responsible budget for the coming biennium.  We’re confident that working together in the weeks ahead Connecticut can achieve an honest budget that does not raise taxes.”

Hospital cuts maintained
One of the most controversial of the health care cuts involved more than $550 million in reduced aid to Connecticut’s 29 acute care hospitals.

Despite a major lobbying effort by hospitals, the committee did not deviate far from Malloy’s proposal.

It upheld the full cut Malloy proposed, but endorsed giving some hospitals a small amount back: $15 million per year to bolster payments to hospitals that have lower-than-average costs and where at least 64 percent of patients are covered by Medicare or Medicaid. Appropriations Committee Co-Chairwoman Rep. Toni Walker said appoximately 11 hospitals will qualify.

Harp, the committee’s co-chairwoman, said smaller hospitals had convinced the committee that without extra help, they would join with larger hospitals or for-profit entities, or might have to close.

But Harp also signaled that legislators were influenced in part by the salaries hospital executives receive and concerns about hospital costs when they chose to maintain Malloy’s cut, rather than restore some funding and cutting other programs.

“It becomes very hard to make an argument that you reduce the little program that provides services to children for after school in order to enhance a system when we really don’t understand the way in which they operate,” she said.

In proposing the hospital-funding cut, the Malloy administration argued that health reform will mean more people will have insurance beginning Jan. 1, leaving hospitals with less uncompensated care.

Hospitals have disputed that idea, saying that many of the newly insured will have Medicaid, which doesn’t pay the full cost of care. They have argued that they’ll have little choice but to eliminate jobs if the cuts go through, and that care could be affected.

While leaders of the Appropriations Committee have said for months that they wanted to minimize that cut, they also said they were feeling pressure to bring in a plan close to the governor’s bottom line. The committee proposed about $11 million more spending than Malloy in the first year and about $38 million more in the second — a fraction of 1 percent.

That’s because Malloy and many of his fellow Democrats in the legislature’s majority have spoken of the need to avoid further tax hikes after enacting a record-setting $1.5 billion increase two years ago to close a deficit of history proportions.

Harp said she thinks the hospital cut is too large, but that it wasn’t possible to reduce it if tax increases are not an option.

Taxes and credits

Malloy insists he didn’t propose any tax increases, but his new budget does rely on extra revenue to close more than one-third of the $1.2 billion projected deficit in the fiscal year that begins July 1.

The governor would continue a corporate tax surcharge, an electricity generation tax and a limit on insurance premium tax credits. All were set to expire next fiscal year.

“A lot of promises were made to the people of Connecticut regarding no more tax increases — those promises have been broken,” said McKinney, the Senate Republican leader.

Malloy also has proposed reducing the value of the earned income tax credit — which goes to low-income workers — from 30 percent of the federal credit to 25 percent. That would cost working poor families about $18 million this year.

The legislature’s tax-writing committee is scheduled to meet Friday afternoon to consider its response to Malloy’s proposals.

HUSKY cuts reversed

Despite the fiscal challenges facing the state, the Appropriations Committee balked at another controversial health care cut sought by the governor.

Its plan would maintain Medicaid coverage for approximately 37,500 poor parents served by the state’s HUSKY program.

When federal health reform rolls out next year, those parents will be eligible for federal subsidies to buy coverage through the state’s new health insurance exchange marketplace. Cutting them from HUSKY — which is a Medicaid program — would save the state $5.6 million this fiscal year and $58.8 million in the next, but would likely leave the parents to pay premiums and copayments for their coverage. Medicaid is currently free.

Critics of the cut warned that many parents would likely forego coverage and that it could leave their children less likely to have insurance or get medical care.

Legislators factored other Medicaid savings into their budget that could potentially offset the continued coverage for parents, although they are not guaranteed to be achieved. One is $180 million in savings over two years from catching Medicaid fraud. Malloy’s budget counted on $120 million in savings related to stopping fraud.

Another projected savings is $55 million over two years from preventing hospitalizations. The legislature’s proposal would require the organization that administers the Medicaid program to work with health care providers to increase preventive care as a way to reduce hospitalizations, which cost more.

Under the committee’s proposal, some Medicaid patients would be charged copayments for unnecessary emergency room use. The budget projects that doing so would save $675,000 per year. Federal law allows states to implement copayments of up to $7.90, although they can’t be charged for the care of some patients, including children. Currently, there are no copayments in the Medicaid program.

Higher education help

Appropriations Committee members also have said they have felt considerable pressure to assist public colleges and universities.

Over the previous two fiscal years, lawmakers and the governor cut 14 percent, or nearly $100 million, in funding that the state had been sending the University of Connecticut, the Connecticut State Universities, community colleges and online Charter Oak State College. The cuts have resulted in the college systems raising tuition and students at the Connecticut State Universities protesting.

The committee’s proposed budget would increase funding for the Board of Regents system — which governs the community colleges and state universities — by $14.7 million a year over the next two fiscal years.

Some of that funding will go to pay for the required 5 percent a year raises required for unionized members and the remainder to fill vacant faculty positions and hire additional counselors.

UConn’s budget would see a $20.3 million annual increase, which would pay for employee raises and hire new faculty and counselors so the governor’s “Next Generation” initiative to expand enrollment could move forward. However, the committee proposal would only provide about 57 percent of the operating funding the governor sought to launch the initiative in the 2014-15 school year.

The committee budget did embrace changes Malloy sought in providing financial aid to private and public colleges and universities, rolling several initiatives into a single one known as the Governor’s Scholarship Program. It also restores $1.3 million Malloy cut from financial aid.

However, the cuts to financial aid that the colleges have experienced over the last several years have been too much, Republicans say. They said those cuts are the perfect example of state lawmakers protecting state workers while cutting support for private residents.

“They have chosen to protect government spending [on] the government class,” McKinney said. “It’s mind boggling.”

Officials from the private colleges have testified against the consolidation, fearing it would lead to more financial aid going to students at public institutions. The Appropriations Committee budget requires that 38 percent of the $42 million in funding for the upcoming year be directed at the private institutions.

Republicans were non-committal on whether they are supportive of the major cuts public colleges and universities have incurred in the last two fiscal years.

Municipal aid and education funding

The governor proposed expanding the main source of aid to cities and towns, the Education Cost Sharing grant, in two ways, but the Appropriations Committee endorsed only one of them.

The budget panel backed the governor’s plan to add $51 million next fiscal year and $101 million in 2014-15 to ECS to be distributed through a revised formula that funnels more dollars to the state’s 10 worst-performing school districts.

But it declined to support a more controversial Malloy plan to close out a grant that supports non-education programs in cities ands towns and to transfer the $74 million distributed annually through it to ECS.

The committee opted instead to maintain the PILOT — or Payment In Lieu Of Taxes — program that reimburses municipalities for a portion of the revenue they lose because state properties are tax-exempt. But it did cut $11 million from the $74 million total grant pool.

The panel also cut $11 million from a second PILOT grant pool that offsets municipal revenue losses tied to tax-exempt college and hospital property.

A third town aid proposal from the governor that would have cost communities most of their share of revenues from the state’s two casinos also was rejected by the committee.

The governor proposed cutting $56 million of the $61 million distributed through that program — which towns can spend on any non-education programs — and replacing it with $56 million that would be channeled to communities through a grant that must be used only for capital improvements. The governor had proposed that dollar-for-dollar swap because the capital improvement grant is financed with borrowing, and therefore doesn’t affect the bottom line of the state’s operating budget.

The Appropriations panel is backing the governor’s proposal to nearly eliminate state funding to help school districts pay to bus students to and from school. They also propose nearly eliminating funding to bus non-public school students to school.

Town leaders have been very critical of the governor’s proposed changes to municipal aid. On Friday, Jim Finley, the leader of the Connecticut Conference of Municipalities, said they Appropriations Committee budget is better than what Malloy was proposing.

“This budget is a step in the right direction,” Finley said.

Several education initiatives that legislators celebrated funding last year also saw cuts. Funding to roll out the state’s new teacher evaluation system that links student performance to tenure and dismissal decisions was cut at least in half. Additionally, funding for the state to intervene in the lowest-performing school — known as Commissioner Network schools — was also reduced.

‘This budget is a step in the right direction’ said Jim Finley of the Connecticut Conference of Municipalities

Mental health funds restored

The committee also proposed reducing but not eliminating cuts Malloy made to grants that fund mental health and substance abuse services for people without adequate insurance coverage. Malloy proposed cutting $21 million this fiscal year and $42.1 million in the next, under the premise that more people will have insurance coverage once federal health reform rolls out Jan. 1.

The Appropriations Committee budget proposal also cuts the grant funds but by significantly less, reducing funds by $5.26 million this fiscal year and $10.5 million the next.

It also reversed cuts Malloy made to funding for the Connecticut Mental Health Center in New Haven and the Connecticut Legal Rights Project, which serves poor people with psychiatric disabilities.

The committee’s plan would also restore part of a cut Malloy proposed in reimbursement for certain behavioral health services, including methadone maintenance. Malloy’s proposal would cut the funds by $4.1 million this fiscal year and $5.1 million the next. The committee’s budget would make no cut in the first year and cut $1 million next fiscal year.

And it adds $5 million a year in grants for psychiatric clinics to provide trauma-focused cognitive behavioral therapy, a treatment for children experiencing the effects of exposure to trauma. The funding is intended to expand access to the treatment.

Borrowing and Gimmicks

The Appropriations Committee plan does rely upon controversial borrowing sought by Malloy and endorsed by the finance committee to remain in balance, and adds a few other gimmicks as well.

Because state government has struggled periodically over the last two years to find the cash to pay its bills, the governor proposed borrowing $750 million, and refinancing a $1 billion operating debt amassed in 2009 under Gov. M. Jodi Rell.

Republicans criticized Malloy’s plan because it defers repayment of much of the interest from these moves — about $217 million — until the fiscal year that begins July 1, 2015.

The finance committee endorsed that plan earlier this week with a few changes — increasing the post-election costs even more but scrapping a controversial tax on power plants after June 30.

The finance committee proposal — which the Appropriations Committee budget relies upon — delays another $152 million in total debt payments and related expenses due over the next two years until after mid-2015, and increases the interest owed after the next election by $14 million.

The Appropriations plan also relies on some other questionable fiscal assumptions to stay in balance. It assumes:

Nearly $57 million in total can be saved over the next two years, beyond saving Malloy already is assuming, by limiting state hiring and raises.

And an extra $30 million will be raised from bond premiums. This involves additional payments state government receives from investors who buy state bonds in exchange for higher-than-usual interest rates. The Malloy administration has been criticized by Republican legislators over the last two years for using much of the funds raised from bond premiums to support ongoing expenses, rather than to reduce state debt.

Connecticut Mirror reporters Arielle Levin Becker and Jacqueline Rabe Thomas contributed.