The post-session spin: Dems, GOP fight to define the state’s fiscal health

For the past four months, Gov. Dannel P. Malloy has struggled to frame the next state budget.

A sluggish recovery, antagonistic opposition leaders with an eye on his job, and a huge tax increase just two years in the rear view mirror, the Democratic governor vowed to hold the line.

There would be no new taxes. Spending would fall under the constitutional cap, and the conversion to Generally Accepted Accounting Principles would continue.

The massive red ink he inherited in 2011 would continue to disappear, and key investments in education and economic development would continue.

But as the smoke cleared Wednesday on the 2013 General Assembly session, Malloy was left trying to put the best face on a new two-year spending plan riddled with controversial choices.

  • Expiring taxes would be extended and new limits placed on tax credits, costing taxpayers an extra $220 million over the biennium.
  • With Connecticut headed for a 4-cents-per-gallon gasoline tax hike July 1 — the result of a law passed eight years ago — the new budget siphons all of the $120 million collected at the pumps over two years out of the transportation system and into the general fund.
  • That’s just one of about $550 million worth of fund raids, account sweeps and other one-time gimmicks like amnesty for tax delinquents used to balance the new plan — leaving a serious deficit after the 2014 election.
  • It took a new interpretation of Medicaid spending that shifted more than $6 billion off the books to bring the budget under the spending cap.
  • And Connecticut will borrow — rather than gradually collect through savings — about two-thirds of the $1.2 billion it needs to complete its GAAP conversion.

“No session is perfect, but I believe we made good progress,” Malloy told Capitol reporters Thursday.

The new budget does increase funding for education and economic development, including $1.6 billion in bonding for a major science and technology program expansion at the University of Connecticut.

What about the taxes?

“I think that there are no taxes in this budget that were not present previously,” the governor said. “There are no new taxes.”

Connecticut’s hospitals might disagree.

Hospitals accepted a $350 million per year new tax in 2011 because the state returned every dollar as part of a mechanism to capture more federal aid.

The new budget cuts those reimbursements by $400 million.

“It really was a status quo budget — status quo in reinforcing our anti-business attitude here in Connecticut,” House Minority Leader Lawrence F. Cafero, R-Norwalk, said Thursday.

Malloy took a huge political gamble two years ago, signing $1.5 billion in taxes into law to help close the $3.7 billion annual deficit he inherited from former Gov. M. Jodi Rell, a Republican, and from the Democratic-controlled 2010 legislature.

The top Republican in the Senate, John P. McKinney of Fairfield, said Malloy’s first budget was plagued by excessive taxes, labor concessions that came up short and overly optimistic assumptions about Connecticut’s recovery from the last recession.

“The Malloy budget of the first two years is a failure,” McKinney said, adding that the deficit projections continue to haunt state finances. “Both the governor and the Democrats continue to ignore reality.”

Though the current budget was on pace to finish $220 million in the black, Malloy and the Democratic majority spent all of it to balance the next budget.

The new budget would boost spending 10 percent over two years and shatter the cap “if you take away the new math the Democrats put in,” Cafero said.

And the legislature’s nonpartisan Office of Fiscal Analysis projects a $712 million hole in the first state operating budget after the 2014 elections — when most of the gimmicks used to balance the newly adopted budget expire.

“The very definition of kicking the can down the road is that you don’t solve your problems now,” McKinney said. “That is the frustration that we face.”

Both the governor and Democratic legislative leaders note that Cafero and McKinney are weighing bids for governor in 2014.

But the GOP leaders’ credibility is particularly weakened, they add, by their refusal to submit a minority budget proposal this year — after six years of doing so.

“Where is their secret plan?” Senate President Pro Tem Donald E. Williams Jr., D-Brooklyn, said Thursday. “This was a tough choices year. There were extraordinary challenges. They demanded extraordinary solutions.”

House Speaker J. Brendan Sharkey, D-Hamden, bristled at the suggestion that because of the challenges of balancing the next state budget — contractually mandated employee raises, a surging Medicaid caseload and a costly plan to bolster a cash-starved pension system — Republicans had no obligation to offer solutions.

“The bottom line is the Republicans checked out on this weeks ago,” Sharkey said.

The speaker called objections to the raids on transportation and energy programs “a fair criticism,” particularly given the rising gas taxes and high electricity rates in Connecticut.

Malloy offered no concessions Thursday, instead returning to a familiar message delivered throughout his 2 ½ years in office: that the state’s fiscal woes stem from a mess he didn’t create.

He reminded voters that this new budget needed to put nearly $900 million more into “the worst-funded pension obligation pool in the nation,” a problem created over decades before Malloy took office.

“I didn’t do that,” he said. “I wasn’t governor before that. That was done by my predecessors.”

The new budget has fewer fund sweeps and one-time revenues than those Rell and the 2010 legislature employed in creating the deficit he inherited, the governor said.

The new budget is under the cap, as promised, albeit one that uses a drastically different calculation. And Malloy added that most of the new spending taken off the books involves Medicaid programs reimbursed 100 percent by federal funds.

And as for the deficit analysts say Malloy is leaving to be resolved in the next gubernatorial term, the governor says not to worry.

“We’re confident that just as we handled the worst in the nation deficit two years ago and what (nonpartisan analysts) said would be a very large deficit this year, we’ll do it again. That’s what we’re in the business of. I was hired to turn this place around.

“We’re in substantially better shape than we were when we began.”