Democrats divided on closing budget deficits

After battling Gov. M. Jodi Rell over spending and taxes for most of last year, majority Democrats in the General Assembly are developing their own fiscal rift, a divide that could widen during the session’s final month.

While House Democrats were finding common ground against deep spending cuts in a closed-door caucus, their Senate counterparts reached across party lines to test support for a plan from the governor that would reduce funding for social services, health care and town aid.

And sources close to the Senate Democratic caucus said that if the House remains resistant to deeper cuts once the session enters its final full month in April, the upper chamber would craft and adopt its own plan to wipe more than $1.2 billion in red ink off the books.

“I don’t think we can wait once we get into April,” one Senate Democrat said privately, adding that failure to pass a budget-balancing measure now opens the door for the lame duck governor to call lawmakers back into special session during the fall campaign. “That is a disastrous strategy. It’s a train wreck.”

Senate President Pro Tem Donald E. Williams Jr., D-Brooklyn, refused to discuss internal caucus timetables for closing budget deficits, but said he doesn’t want to risk an all-or-nothing bill at the last minute.

“I don’t want to get to the end of the session not having voted on these things,” he said late last week. “We are focused on closing the deficit gap for 2010 and for 2011.”

Williams conceded his caucus’ focus on the fiscal shortfalls differs from that of his fellow Democrats in the House.

“Our caucus believes strongly that cuts have to be a significant part of the solution,” Williams said.

Democrats hold two-thirds majorities in both chambers. But while they control 114 out of 151 seats in the House, 13 more than the level needed to override a gubernatorial veto, Democrats have no margin for error in the Senate, holding 24 out of 36 seats.

Fiscal moderates also are generally recognized to comprise a larger share of the Senate majority than they do in the House. And sources said a recent letter calling for Democratic leaders to revisit the governor’s last deficit-mitigation plan had the support of seven Democratic senators, not just the four who signed it.

“I don’t think we should be divisive here, but I certainly can say there’s a high frustration that we have not done a deficit-mitigation plan that has cut spending,” said Sen. Edward Meyer, D-Guilford, who added that while he hadn’t signed the letter, it sent an important message. “At first I was unhappy at the thought that we might be doing a one-house bill, and at making cuts that are going to hurt people. But we’re in a position now where we have to take a leadership position and do it.”

The task before the legislature is to fill in a $518.4 million deficit before this fiscal year ends on June 30, as well as the $725.7 million shortfall projected for the $18.93 billion budget adopted last fall for 2010-11.

Given the $1.24 billion combined gap and the bipartisan opposition to deep tax hikes this year, Williams took an unusual step last week to solve the fiscal crisis. Specifically, he approached the Senate’s top Republican, John McKinney of Fairfield, to see if the GOP would back Rell’s cut-heavy plan for reducing the deficit. A bipartisan vote of approval for more spending cuts could put pressure on House Democrats to do so as well, Senate Democrats said privately.

The plan stalled, though, when McKinney said his caucus wouldn’t back the Republican governor’s plan, citing objections that include a proposed tax hike on hospitals and a $45 million cut in municipal aid.

Williams downplayed the meeting, called it little more than a “temperature-taking” exercise. “I was simply interested in what kind of support existed for the governor’s plan.”

House Speaker Christopher G. Donovan, D-Meriden, was equally casual in brushing the meeting aside. “I think it was information gathering more than anything,” he said. “We’re all trying to figure out how to solve the budget.”

Others in the House were not so dismissive.

“Let them make that proposal,” Rep. David McCluskey, D-West Hartford, a 12-year House veteran said. “The House Democratic caucus is united. I would encourage their caucus to be as united as we are.”

Democrats in both chambers already are eyeing a few common options to offset just under half of that $1.24 billion problem.

Rell built just over $365 million in proposed-but-not-approved increases in emergency federal stimulus grants into the revised, 2010-11 budget she offered in February – a move Democrats have called risky in private, but also have conceded they might take advantage of as well.

The concession package approved by state employee unions allows state government to reduce its contribution to the employee pension fund by $100 million both this fiscal year and next.

And sources from both Democratic caucuses have said they are considering legislation to cancel one longevity pay bonus due non-union employees in April and two more due in 2010-11, for a total savings of just over $40 million.

These solutions close nearly half of the $1.2 billion gap. After that, Democrats concede, it gets tricky.

“Cost savings are OK, but I don’t want to cut anything that would cause layoffs or hardships for people who rely on state services,” said McCluskey, who later expanded his budget-cut protection list for this year to include municipal aid.

“We’re trying to avoid those things that would lower the standard of living, things that would hurt our state,” Donovan said.

Democrats built tax and fee hikes worth a combined $952 million this year and $674 million in 2010-11 into the budget adopted last September. Rell criticized the package, particularly the tax hikes, but allowed it to become law without her signature.

Given those significant increases, and the prospect that far larger tax hikes likely will be adopted next year to close the mammoth $3.9 billion deficit projected for 2011-12, Democrats in both chambers said this week that, with a few exceptions, any new revenue in the state budget has to come from Washington, and not from higher state taxes.

The House and Senate agreed back in December to try to reverse a Jan. 1 reduction in the levy on large estates. Rell vetoed that bill, which would have raised just under $80 million over this fiscal year and next combined.

Rell suggested reinstating a 10-year-old tax on hospital revenues in her deficit-mitigation plan as part of a scheme to leverage more federal Medicaid funds and ultimately add $65 million to the state’s coffers next year. Democrats might take advantage of the political cover provided by the governor and back that tax hike as well.

But even with estate and hospital tax increases, labor savings and optimistic assumptions about federal stimulus grants, nearly $500 million still would be needed to purge the last of the red ink this year’s budget and the next one.

Both Democratic caucuses know that can’t be done without major tax increases, or deep cuts in politically sensitive areas, said Sen. Robert Duff of Norwalk, one of the moderate Democrats who did sign the March 9 letter to legislative leaders urging more cuts.

“I don’t even use the term deficit-reduction bill” because deficits could be reduced with tax increases, he said. “I say we need a budget reduction bill. We have to cut spending. That is the mood of the electorate and I believe that should be the mood of legislators.”

The problem, Duff added, is that while House Democrats know what spending they don’t want to cut, they can’t say how they plan to pay for it.

Donovan conceded his caucus hasn’t crafted a plan to plug the entire gap. When asked whether it would be resolved before the session ends in just less than seven weeks, he added. “We’re meeting on a regular basis. But there’s nothing new in terms of one way or another.”

Further complicating matters, the Rell administration isn’t talking about any new taxes beyond the hospital levy included in her deficit-mitigation plan, and minority Republicans in both chambers, who were very vocal in releasing alternative budget proposals the past three years, talk now primarily about what they won’t support – not what they will.

“It’s incumbent on Democratic leadership to act,” McKinney said. “They are the super-majority. They are in control of this place. My fear is we won’t have a Democratic deficit-mitigation package before us.”

McKinney added he wasn’t sure if Republicans would offer their own budget vision this year, and while House Minority Leader Lawrence F. Cafero, R-Norwalk, initially ensured his caucus would release one, he added it likely wouldn’t come until Democrats reach their own consensus on one.

“I’m not trying to be coy, but what we do is going to be dependent on what the majority party does,” Cafero said. “And the rhetoric from the Democrats is not hopeful.”