More cuts needed? Malloy budget bursts spending cap

Unless Gov. Dannel P. Malloy softens his position on the constitutional spending cap, legislators already reeling from deep proposed cuts could be scrambling to make at least $100 million more per year.

The governor’s new budget exceeds the cap by almost $55 million next fiscal year — a problem the administration reported Tuesday, citing a calculation error.

But the governor’s plan actually bursts the cap by almost twice that amount in 2015-16 — unless Connecticut can escape from a promise made to its investors two years ago.

Malloy’s budget agency, the Office of Policy and Management, notified nonpartisan analysts for the legislature Tuesday that it had miscalculated the allowable growth under the cap.

The 1991 General Assembly tried to temper outrage over enactment of the state income tax by drafting a statutory spending cap. Voters would add the cap requirement to the state Constitution one year later by adopting the 28th Amendment.

The cap is supposed to keep spending increases in line with the annual growth in personal income or inflation. But if the governor and legislature agree, they can change the rules or exceed the cap legally.

The governor reported last week that his biennial plan — which would spend $19.7 billion in the 2015-16 fiscal year and $20.3 billion in 2016-17 — was a razor-thin $6 million under the cap in the first year, with a more comfortable $136 million cushion in the second year.

“First, we must balance our budget by living within our means and living within our spending cap,” Malloy told the legislature on Feb. 18 in his annual budget address. “I will not support any effort to exceed our spending cap by emergency declaration.”

But the administration announced Tuesday that, based on its revised calculations, the budget exceeds the cap by $54.5 million in the first year, and falls under it by $80 million in 2016-17.

According to a statement from Benjamin Barnes, the governor’s budget chief, the error was tied to faulty data collected from a data collection system set up by an outside vendor.

But the problem doesn’t end there.

Starting next fiscal year, Connecticut must begin depositing about $48 million annually into a special reserve account as part of its conversion to Generally Accepted Accounting Principles.

Two years ago, when GAAP standards showed state finances were about $1.2 billion out of balance because of decades’ worth of fiscal gimmicks, Malloy and the legislature agreed to borrow about half of those funds.

But the state also pledged in the contract with its investors not only to close the rest of that shortfall by hitting annual savings targets — but that it would appropriate these GAAP deposits in the official budget.

But the governor’s plan moves these payments outside of the budget – an accounting move that wouldn’t change the amount saved — but would exempt them from the cap.

Sen. Robert Kane of Watertown, ranking GOP senator on the Appropriations Committee, reminded Barnes during a hearing last week that putting the GAAP savings in the budget — and thus under the cap — is a contractual obligation Connecticut has with its investors that can’t be disregarded.

Factor in the GAAP savings payment, and Malloy’s budget is more than $100 million over the cap in 2015-16, and only about $32 million below the cap in 2016-17.

Barnes responded last week by suggesting to Kane that legislators instead identify $48 million per year in cuts to compensate for this problem.

“I think we do have a $100 million problem,” Senate Minority Leader Len Fasano, R-North Haven, said Tuesday, adding he fears the governor and his fellow Democrats in the legislature’s majority will seek other gimmicks — such as the effort to move GAAP savings payments off budget. “The goal in many of these budgets has been finding ways to circumvent the cap, not to deal with the problem.”

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