Democrats may sidestep spending cap

Struggling to secure the super-majority necessary to exceed the current spending cap by half-a-billion dollars, legislative leaders are weighing a plan to green-light the extra spending with a simple majority.

According to sources close to budget negotiations, the Democratic majority has discussed effectively shifting more than $400 million in Medicaid spending off the books over next fiscal year. The process is common in other states, but rarely used here and never involving that much money.

It was unclear Wednesday whether Gov. Dannel P. Malloy, also a Democrat, would accept that option. The governor’s press office said it wouldn’t discuss matters related to confidential budget talks.

But Republican leaders in the House and Senate, who have not been involved in the negotiations, said this option would violate the constitutional amendment voters ratified 21 years ago in response to the passage of the state income tax.

Both Malloy and the Appropriations Committee proposed budgets for the next two fiscal years that would exceed the spending cap under current rules.

The governor’s plan would exceed the cap by $466 million next fiscal year, while the committee plan would go over by $582 million, according to the legislature’s nonpartisan Office of Fiscal Analysis.

Both proposals include new cap rules to bring them into compliance, but the state constitution requires a three-fifth’s vote in both legislative chambers to do so. That means at least 91 out of 151 possible votes in the House and 22 out of 36 in the Senate.

Democrats, who hold 98 seats in the House and 22 in the Senate, have conceded they are struggling to hit the 22-vote mark in the Senate, where they have no margin for error.

Republicans in both chambers have said they won’t support new cap rules.

To solve the problem, sources said, Democratic leaders are considering changing how the state budgets a key component of one of its largest programs: Medicaid.

A federal program offered in cooperation with states, Medicaid helps pay for health care for the poor and disabled, including nursing home care for much of the elderly population.

States pay most costs up front, and then receive reimbursement to cover a portion or all of the costs of various services.

Connecticut has long used a “gross appropriation” approach when budgeting for most of its Medicaid program. That means reporting the full cost of a Medicaid service as a state expenditure – even though some or all of it will be covered with federal money. Those dollars from Washington show up in the budget as revenue.

The approach sources said the committee is considering – for one segment of Medicaid services – is the “net appropriation” approach.

That means subtracting any federal reimbursement from the initial program cost listed as a budget expenditure, and reporting none of the reimbursement as revenue.

The true cost to the state remains the same with either approach.

But when it comes to a constitutional cap that counts budget appropriations, less overall spending on Medicaid leaves more room under the cap to spend somewhere else.

Sources said the Democratic legislators negotiating the next budget want to “net appropriate” to take advantage of federal health care reform.

Commonly known as “Obamacare,” it allows states to expand eligibility for Medicaid starting next fiscal year entirely on the federal government’s dime. By contrast, federal reimbursement currently covers only about half of most state spending on Medicaid.

That means state Medicaid expenses eligible for 100 percent federal reimbursement could effectively be subtracted from the budget’s bottom line – even though the services would continue.

Connecticut is expected to add nearly 100,000 poor people to the Medicaid rolls in the next budget.

In sheer dollars, total proposed spending both in the governor’s plan and in the committee budget could be reduced by more than $440 million next fiscal year, and by 

That “net appropriation” approach – coupled with $93 million in savings recently found in health insurance costs — and the governor’s complies with existing cap rules.

And the committee budget isn’t far behind. A package originally estimated to exceed the cap by $582 million would need only $43 million in additional cuts to fall under the current cap system.

In terms of politics, the benefits are clear as well.

If no change in cap rules is needed, a super-majority no longer is necessary to adopt a budget. That means just 76 votes in the House and 19 in the Senate.

Rep. Toni Walker, D-New Haven, co-chairwoman of the Appropriations Committee, declined to discuss any of the budget negotiations, but said “many approaches” to the spending cap challenge are on the table.

Walker also said nearly all states use the “net appropriation” approach in their Medicaid budgeting, which makes it easier for voters to see the true cost of health care to their state.

“It’s very hard to find out how much in this state we are really spending on Medicaid, “ she said.

Connecticut has used the “net appropriation” approach in its health care budgeting before, though it involved significantly fewer dollars than the funding under consideration in budget talks now.

Certain poor seniors are eligible for coverage under both Medicaid and Part B of the federal Medicare program.

The 2001 Legislature and then-Gov. John G. Rowland recognized that Connecticut was paying the federal government to cover these patients through Medicare – an option that was cheaper than the state covering these seniors through Medicaid.

Rather than budgeting the full cost of treating these patients under Medicaid – and also planning for the subsequent savings that followed by shifting them onto Medicare – officials agreed to just record the net cost to the state.

This effectively removed $45 million from the annual budget in 2002 without affecting any services.

But House Minority Leader Lawrence F. Cafero Jr., R-Norwalk, said if this approach is taken in the final budget sent to the House and Senate this year, it would be a clear violation of the Constitution.

“For taxpayers, the state spending cap is one of our last and most important protections against unaffordable and out-of-control government spending,” said Senate Minority Leader John P. McKinney, R-Fairfield. “For state Democrats, it is nothing more than an annoying obstacle in the way of their efforts to grow government and protect government employees.”

Why did the governor and the Appropriations Committee propose new spending cap rules if the problem could be avoided simply by changing how Medicaid dollars are counted?

The last-minute discovery of this budgeting option to avoid a difficult spending cap vote “shows the pattern, the mantra of the one-party government we have in Connecticut,” Cafero said.

“They do whatever they care to in order to make themselves look good, … and they do it because they can.” he added. “What they are now saying is ‘Let’s ignore the Constitution, rewrite the cap, and rewrite history.”

Cafero has said Republicans would participate in budget negotiations, and offer plans to balance finances for the next two years, if Democrats commit to follow the current cap system.

McKinney noted that the over the next two fiscal years combined, roughly $1 billion in state spending would take place off the books under the approach Democratic legislative leaders are considering.

“Whether they do it by a vote in the legislature, or in a less transparent way by moving more than $1 billion to a so-called ‘off-budget’ account, they are destroying the spending cap as we know it,” McKinney added. “If Democratic legislative leaders are proposing to move more than $1 billion to an off-budget account, I urge Governor Malloy, who promised no more taxes and no more gimmicks, to reject them outright.”

Enrollment in the new Medicaid for Low Income Adults program has nearly doubled since 2010, something officials did not anticipate when they created it. At the time, many of the people expected to qualify — about 46,000 — were covered by a state-funded program, and officials expected that the federal reimbursement the state could get by covering those people through Medicaid would lead to an overall savings.

Instead, enrollment soared, in part because Medicaid rules required the state to remove certain eligibility restrictions that applied to the old state-funded program. The program, commonly known as LIA, covers adults without minor children and now enrolls close to 90,000 people. The Malloy administration has consistently cited it as a reason why the state’s Medicaid costs have been higher than budgeted — although some advocates say other parts of Medicaid are the real culprits.

Calling the program financially unsustainable, the Malloy administration sought federal permission to scale back the program by adding eligibility restrictions and limiting benefits. But the federal government rejected those ideas.