Malloy decries budget gimmicks — but uses a few

House and Senate Minority Leaders: the governor's budget message is "a fantasy" and "election-year politics."

Jacqueline Rabe Thomas / The CT Mirror

House and Senate Minority Leaders: the governor's budget message is "a fantasy" and "election-year politics."

He may have decried the budget gimmicks of his Republican predecessors, but Gov. Dannel P. Malloy is employing some fiscal tricks himself, using $70 million in borrowing and other gimmicks to balance his latest spending plan.

This comes less than a year after Malloy and his fellow Democrats in the legislature’s majority used borrowing and other moves to delay paying hundreds of millions of dollars’ in operating costs until after the November elections.

“Putting off hard decisions left our state with a deficit that was among the worst in the nation just three years ago,” Malloy said Thursday in his budget address, referring to the $3.7 billion hole he inherited in 2011 from Gov. M. Jodi Rell.  “… I say this not to lay blame for past problems, but because those who forget their history are doomed to repeat it.”

But while Malloy added that “we’ve come a long way” since then, Republicans countered that the governor is following the playbook of his predecessors, even if he hasn’t used as many gimmicks as they did.

“It sounded to me like a ‘Happy Days are Here Again’ speech. But this is a phony budget,” said Greenwich businessman Tom Foley, who lost to Malloy in the 2010 gubernatorial contest and is running again this year. “I think he underestimates the intelligence and memory of Connecticut voters.”

Expanding use of bond premiums

The governor’s new plan matches the $19 billion bottom line in the preliminary budget for 2014-15 that lawmakers enacted last spring.

One of the cuts Malloy is using to hold that bottom line -- while allowing new spending on education, town aid, job development and other initiatives -- involves a $30 million reduction in payments on bonded debt.

But Malloy also is seeking $100 million more in bonding for capital projects next fiscal year.

So if the capital program grows, how can Malloy cut state funds for debt service?

The answer involves “bond premiums.” These are bonds sold for an extra sum above their base value, typically in exchange for the state's paying a higher interest rate.

These premiums can be used to replace the $30 million reduction Malloy has proposed in the debt service account. But Connecticut will have to pay higher interest rates on its bonds to get that money -- effectively putting $30 million in operating expenses on its credit card.

In the 2012 and 2013 fiscal years, the state took $118 million in premiums that had not been anticipated in the budget. Republican legislators have charged that this borrowing helped Malloy build up the current budget reserve.

Another $6 million in operating costs also moves onto the credit card in a more direct way.

The governor’s proposal recommends borrowing $5.4 million in operating expenses for the Department of Transportation’s highway and bridge repair account and $500,000 for various environmental protection programs.

Malloy also freed up $31 million in the general fund – which covers most of the state's operating costs – by shifting a $31 million immunization program into the insurance fund. The insurance fund is bankrolled through a special assessment placed on Connecticut’s insurance industry, unlike the general fund, which relies mainly on tax and fee receipts and federal assistance.

While the governor used Thursday’s budget address to tout the $500 million-plus surplus in the current budget, House Minority Leader Lawrence F. Cafero, R-Norwalk, said, “the story he told today of Connecticut is a bit of a fantasy.”

Senate Minority Leader John P. McKinney, R-Fairfield, who also is running for governor, contrasted that surplus with the $1 billion deficit built into the budget the legislature will receive one year from now. That shortfall also stems, in part, from borrowing and other fiscal gimmicks used to temporarily reduce operating budgets, he said.

“This is a lot of election-year politics,” he said. “We don’t have a budget surplus.”

But Malloy argued that Connecticut’s progress is undeniable, even though he avoided mentioning the post-election shortfall.

The deficit he inherited represented almost 20 percent of annual operating costs in 2011-12. The shortfall projected for 2015-16 is about 6 percent.

“We hear plenty of critics now,” he said. "Even as sunshine begins to break through the clouds, there are some intent on hoping for thunderstorms. … The question before us is, 'How should we define ourselves: by our setbacks or by our successes?' ”

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About Keith M. Phaneuf

Keith, with Jacqueline Rabe Thomas, won first prize in investigative reporting from the Education Writers Association in 2012 for a series of stories on the Board of Regents for Higher Education. The former State Capitol bureau chief for The Journal Inquirer of Manchester, Keith has spent most of 24 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut's transportation and social services networks. A former contributing writer to The New York Times, Keith is a graduate of and a former journalism instructor at the University of Connecticut. E-mail him at kphaneuf@ctmirror.org.

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