Gov. Dannel P. Malloy proposed a $19.87 billion budget Wednesday that cuts most state agencies and previously approved municipal aid, and potentially eliminates "thousands" of jobs, while avoiding tax hikes to close a nearly $570 million deficit.
Malloy’s plan departs dramatically from decades of past practice. Instead of spelling out how much money each department should spend on specific programs, the proposal — in many instances — largely assigns agencies a lump sum.
This approach would shift more control over line-item spending from the legislature to agency heads and the governor’s budget office.
Malloy's proposal would reduce general fund spending 3 percent below the preliminary 2016-17 budget he and the legislature approved last June. It essentially keeps spending flat compared with the current fiscal year, increasing it by a rounding error – 1/12th of 1 percent – and would spend $720 million below the level nonpartisan analysts say is necessary to maintain current services
The Democratic governor’s plan also repeated his earlier calls to restructure the cash-starved pension funds for state employees and public school teachers — which could cost the state more money in the long run — and to craft an enforceable constitutional spending cap.
Though the governor proposed no tax hikes, he did propose eliminating minimum bottle pricing for alcoholic beverages, capping Probate Court estate fees and setting a modest personal property tax exemption for businesses. The governor's budget would also close one prison, but does not identify the facility.
Malloy's plan also avoids tapping the state’s $406 million rainy day fund. Preserving the fund is seen as crucial by some state officials, who argue Connecticut will need it one year from now when it faces a much larger deficit, projected to top $1.7 billion.
"We have to adapt even more," Malloy said in his budget address to the General Assembly. "Connecticut state government must reset our expectations of what we can afford, how we provide services, and how we save for our priorities. It won’t be easy, and it often won’t be politically popular. However, it is absolutely necessary if we want to create a more sustainable and enduring economy."
The governor added that, "This budget is based not on how much we want to spend, but how much money we actually have to spend."
Workforce reduction coming
Malloy's budget doesn't project state employee workforce levels. But his budget director, Benjamin Barnes, said the recommended cuts could eliminate jobs "in the thousands" by attrition and layoffs.
The governor's budget calls for each agency and department to face a 5.75 percent cut. And this workforce downsizing will be part of the way they absorb that reduction, Barnes said.
"We will be reducing the number of funded positions by several thousand," he added. "Exactly how that breaks out between attrition and layoffs is unknown."
Some programs are exempt from the 5.75 percent reduction, including education cost sharing funds for municipalities, Medicaid and other entitlement programs, subsidies for early child care and education, community residential services for people with developmental disabilities, certain funding in the Department of Children and Families and major fee-for-service programs in the Department of Mental Health and Addiction Services.
Labor cost-cutting isn't the only tool agencies will need to handle the prescribed cuts. Department heads and Barnes' office also would have to decide which programs and services might be reduced or eliminated. The budget director acknowledged much of this cutting will come from each department's discretionary spending, but couldn't say exactly how the fiscal pain would be spread out.
Department heads offered an indication of potential cuts late last year, though, when they submitted options for spending reductions to Malloy’s budget office. Some of those options submitted by social service and health care agencies suggested that a 5 percent cut could be difficult to achieve or gave a glimpse at the potential consequences.
In an October memo, Miriam Delphin-Rittmon, commissioner of the Department of Mental Health and Addiction Services, identified $11.9 million in potential cuts, but noted that they fell short of the 5 percent Barnes had asked for. She added, “[T]he department sought to identify initiatives that we could realistically achieve and still provide the safety net necessary to the people we serve.”
Under the proposal released Wednesday, Delphin-Rittmon's department will have to find $34.5 million in savings, in addition to $20 million in specific cuts the Malloy administration proposed.
The Department of Public Health, meanwhile, identified $1.57 million in potential cuts in October in response to Barnes’ request. But the agency suggested that the reductions it identified could, among other things, “increase the rates of children who become lead poisoned;” reduce services provided to pregnant teens at risk of using drugs, alcohol or tobacco; reduce access by school-aged children to primary care, mental health, dental care and health education at school-based health centers; and “significantly impact public health services and programs” by local health departments.
Malloy's proposal tasks the agency with finding $3.8 million in savings.
And the state Department on Aging offered the option of a 10 percent cut in the statewide respite care program for people with dementia, which gives those who care for them a break. But the agency warned that the cut could affect families who don’t have any other means of support, and “will increase the likelihood of costly nursing home placements and certainly increase the probability of negative health outcomes for caregivers.”
Malloy's proposal includes a cut to that funding, although at a lower level than 10 percent.
And at least one nonprofit social service provider said Wednesday that the industry can't sustain more cuts.
“We are much worse off than we were a year ago,” said Heather Gates, president and CEO of Community Health Resources, a mental health and substance abuse treatment provider. “Pretty much anything that is about supporting people in the community who don’t have any other options is being attacked.”
The chief lobbying agency for the business community, the Connecticut Business and Industry Association, gave an early, cautious endorsement of the Malloy plan.
CBIA President and CEO Joseph F. Brennan said the group still was reviewing the details, "but I think it's a tough budget. I think the governor has responded to what he has heard from individuals and from businesses. If these spending changes are enacted, it's definitely going to instill greater confidence that Connecticut is becoming a good place to invest in."
Less municipal aid
Overall municipal aid would increase under the governor's budget compared with this fiscal year. But it falls about $50 million below the level built into the preliminary 2016-17 budget. This potentially undercuts the biggest campaign initiative this fiscal year of the legislature's Democratic majority: to bolster property tax relief to cities and towns.
Democratic lawmakers enacted a plan last June that calls for the state to share about $220 million in sales tax receipts with cities and towns next fiscal year, and $290 million in 2017-18.
Municipal leaders and Republican legislators have expressed fears Connecticut will not deliver on this promise because of the major budget deficits projected over the same period – deficits that outstrip the promised aid.
The Connecticut Conference of Municipalities, the single-largest lobbying group for cities and towns, issued a statement Wednesday warning lawmakers not to believe that a $50 million cut from previously approved town aid would be harmless.
"It is shifting a greater burden back on the 169 Connecticut communities that still must maintain vital basic services," CCM wrote. "As a result, towns and cities of all sizes – and their residential and business property taxpayers – will have to make up the difference in lost revenues the only way the state allows, by increasing the property tax. Remember, the property tax remains the most burdensome and regressive tax paid by residents and businesses across Connecticut."
The mayors of three of Connecticut's largest cities, Joe Ganim of Bridgeport, Toni Harp of New Haven and Luke Bronin of Hartford, expressed a similar concern in a joint statement.
“Connecticut cities, already limited in their capacity to generate revenue, depend on state assistance to bridge a gap created by significant property tax-exemptions built into state law," they wrote. "Our cities can thrive or merely survive depending on funding levels of municipal aid programs. We will meet with the governor and legislators in the weeks ahead to champion inclusion of critical aid to Connecticut’s three largest cities and all municipal governments.”
Less education funding
The state share of funding for public colleges and universities would be cut by at least 5.75 percent, or $13.99 million for UConn and $20.24 million for the Board of Regents.
Additionally, Malloy's proposal would transfer responsibility for the costs of health care, retirement and other fringe benefits for thousands of employees to the state's public colleges and universities – a move college leaders have warned will likely throw their budgets deeply into the red.
The governor's proposed budget would send lump-sum payments to the Connecticut State Universities, the University of Connecticut, community colleges and online Charter Oak State College. Money for medical and other fringe benefits would be included in those allocations. (Read more about that here.)
The Education Cost Sharing Grant -- the state's largest grant that helps municipalities run their elementary, middle and high schools – was largely protected. However, a small $7.4 million increase in the $2.1 billion grant that was promised in the previously approved budget was rescinded.
Forty-nine other grants and line items in the State Department of Education budget that fund things like reading, school health, bilingual and after-school programs were merged into one line item and cut by 5.75 percent, or $52.9 million. It would be up to the commissioner to determine which programs are cut or completely eliminated to realize the savings.
Additionally, adult education programs would be cut by $1.6 million, public school transportation by $1.3 million and magnet schools by $18.7 million, which would largely stall future growth in enrollment. A grant that pays for things like after-school and summer school programs would be cut by $2.6 million.
These cuts come as a trial is underway in Hartford Superior Court to determine whether the state is spending enough money to provide children with the education the state Constitution says they are entitled to.
The state's previous plans to provide universal access to preschool may also be stalled. In consolidating nearly two dozen line items in the budget for the Office of Early Childhood, the budget provides for an overall reduction of $3.6 million. The preschool program is among those consolidated items.
The governor is also proposing changing the way the state funds arts, tourism, workforce development, community development and youth development programs. The money for each type of program would be pooled, rather than earmarked for specific programs, and awarded on a competitive basis, Barnes said, based on a process that involves legislators.
Malloy has in the past proposed consolidated funding for arts and workforce development programs, but legislators have generally rejected those proposals. In this year’s proposal, Malloy would also reduce funding for those programs by 25 percent.
Malloy's budget drew very different reactions along partisan lines.
Democrats generally praised the governor for setting a frugal tone, but were wary when it came to proposals to scale back staffing and the growth in municipal aid, as well as the concept of shifting program-cutting authority to the Executive Branch.
"We can't sustain the level of government that we currently have," House Speaker J. Brendan Sharkey, D-Hamden, said.
"I think the governor recognized the challenge that we face," said Senate President Pro Tem Martin M. Looney, D-New Haven.
But Looney also said the municipal aid initiative approved last year is "imperative."
"We are not supportive of anything that would undermine that initiative," he said.
Who will control spending?
Will Democrats be willing to forfeit some budget control to the governor?
"First I have to have the details," Sen. Beth Bye, D-West Hartford, co-chair of the Appropriations Committee said. She added, though, the the legislature's current role in the budget process includes significant public participation, and she is concerned that any shift could interfere with the public's ability to comment on budget priorities.
How about downsizing the state's workforce by "thousands" of employees?
"That's a lot of people," said Sen. Jon Fonfara, D-Hartford. 'We're going to have to get testimony on it and then decide."
But Fanfara added that it is important for legislators to realize that "we're not going to go back to a pre-recession budget. I think some people in this building don't want to recognize that."
Republican leaders attacked Malloy's plan on several fronts.
House Minority Leader Themis Klarides, R-Derby, said that downsizing the state workforce, "certainly is something that should be on the table," but it is not enough to do the job. Democrats must begin to call for labor concessions and other "very serious structural changes" that would lower spending dramatically, she said.
Senate Minority Leader Len Fasano, R-North Haven, echoed Klarides on reducing labor costs, and both leaders also said the legislature can reduce spending without forfeiting its power to the governor.
The concept of just cutting 5.75 percent from each agency's budget, and targeting only discretionary funding, is "reckless," Fasano said, predicting the poor and the disabled would be harmed. "Not every agency should be cut the same."
What Malloy's across-the-board cut really reflects, Fasano added, "is the governor saying the Democratic majority doesn't have the will to do the job."
Structural change needed
The governor appealed for bipartisan unity Wednesday, particularly when it comes to addressing some structural changes he argued were essential to reform state finances.
Attorney General George Jepsen issued an opinion in mid-November that the spending cap Connecticut has followed since 1991 carries no legal authority because of the legislature’s failure to formally implement the constitutional amendment.
Malloy also said the administration would craft a working group with Comptroller Kevin P. Lembo, Treasurer Denlse L. Nappier, state employee and teacher unions and other stakeholders to restructure the pension funds.
Connecticut has enough assets to cover less than 42 percent of the long-term obligations of its pension fund for state employees, and less than 60 percent of the obligations in the teachers’ fund. Analysts typically cite a ratio of 80 percent as a sign of sound fiscal health.