Rell’s last budget points Malloy down the road not taken

Gov. M. Jodi Rell suggested Monday that Gov.-elect Dan Malloy go down several controversial paths she largely avoided –  including tax hikes, deep cuts in town aid, and huge state employee givebacks – to close the $3.4 billion deficit he must tackle in just three months.

Rather than propose specific cuts, the lame duck governor used her transition budget to recommend a series of savings targets to be achieved by broad–and in many cases minimally defined–spending cuts. These include $825 million in new employee concessions, $600 million in social service and other program cuts, and $500 million slashed from municipal aid.

Rell did take considerable heat from her fellow Republicans for proposing an income tax hike in 2007 and for allowing about $900 million in various tax and fee increases to become law without her signature in 2009, but otherwise she has avoided any talk of raising taxes during her six years in office.

In her budget submission to Malloy, Rell continued to steer clear of specific increases to any levies. Instead, the outgoing governor suggested canceling many of the existing tax breaks on the books to raise $1.5 billion over two years.

Though many of the spending reductions called for Monday would conflict with promises Malloy made during this fall’s gubernatorial campaign, his chief of staff said Rell’s preliminary budget for 2011-12 still provided valuable–if daunting–fiscal insight.

“We have given the new administration a framework of recommendations for cuts, consolidations and concessions,” said Rell, who also took aim at the legislature’s Democratic majority. “Many of the recommendations I have proposed have been offered before, only to have them rejected by the majority party. The majority party can no longer avoid or afford to delay making the difficult, painful choices.”

Rather than propose a specific bottom line, the Rell administration began by calculating that a $21.3 billion budget – including a $19.76 billion General Fund, a $1.3 billion Transportation Fund, and eight smaller funds totaling $240 million – would be needed to maintain current services. The General Fund alone represents a 10.4 percent increase above current spending, driven largely by surging demand for social services.

The administration also projected a $22.1 billion budget would be needed in 2012-13.

“Any budget process begins with a current services budget and that is what this document provides,” Rell said. “It reflects a significant amount of work by my Administration to give Governor-elect Malloy an accurate starting point.”

The administration then offered a series of suggestions to drive down the bottom line by nearly $3.4 billion next year.

The governor recommended $600 million annually in undefined program reductions or eliminations. She offered one hint in her plan, though, when she suggested that “areas of focus should include services and benefits offered by Connecticut that exceed those offered in other states.” Rell budget officials have routinely referred to health and social service benefits as more generous than those offered in other states.

Rell’s budget also appears to contradict her own Department of Social Services, which warned in its budget request in early October that Medicaid costs alone were projected to jump nearly $1 billion next fiscal year.

Malloy campaigned on the pledge that he would not “shred the safety net,” arguing the state’s social and health care services can’t absorb steep cuts in a sluggish economy. Democratic lawmakers also have strongly resisted Rell proposals for deep cuts into the social services.

Malloy was cautious in his statement about the preliminary budget, saying it held no surprises for him or for his running mate, Lt. Gov.-elect Nancy Wyman.

“We will take a close look at the material provided by Governor Rell as we put together our own budget for submission to the General Assembly in February 2011,” he wrote. “That budget will be honest, clear, fair and balanced. It will be a tough budget, to be sure.”

Rep. John Geragosian, D-New Britain, co-chairman of the Appropriations Committee, said the health and social service cuts Rell proposed in the past, like eliminating non-emergency dental coverage for adults in Medicaid, would hurt people and can ultimately produce more costs.

“What appears to be savings in one place drives money in other places in the budget,” he said. “People don’t get mental health treatment, they end up in hospitals or they end up in prisons or other high-cost settings. The same is true for health care.”

Geragosian said other savings could come from opening the state employee health insurance pool to municipalities, nonprofits and small businesses, a concept Rell vetoed. “There are ways to save money that don’t hurt people,” he said.

The governor, who balked at proposing any cuts to town grants when she presented her annual budget in February 2010, suggested cutting $500 million annually, or almost 18 percent, from municipal aid in each of the next two years.

When Rell unveiled a union concession package in April 2009 that saved a total of $900 million spread across three fiscal years, she drew criticism from some legislators who argued it was too modest.

Only about half of that $900 million actually came out of workers’ pockets in the form of a pay freeze, furlough days and higher health care costs. The rest involved deferring payments into an already under-funded pension program and offering extra incentives to encourage more senior workers to retire.

Rell, who forfeited her ability to impose layoffs for two years as part of that deal, defended it as the best anyone could do.

But her transition budget called for Malloy to find $1.75 billion in concessions across two fiscal years.

“Rell’s proposed transition budget would decimate our cities and towns, continue short changing education, deprive the public of critical public services, break contracts with public service workers and deepen our economic recession,” State Employees Bargaining Agent Coalition spokesman Larry Dorman said Monday. “It represents precisely the form of regressive and counter-productive thinking Connecticut’s voters rejected just two weeks ago. We look forward to working with a new administration that puts rebuilding the livelihoods and communities of Connecticut’s working and middle class families ahead of protecting the status quo for Connecticut’s privileged and wealthy few.”

Though Malloy has not ruled out seeking state employee concessions, his GOP opponent during the just-completed campaign, Tom Foley, repeatedly charged Malloy had struck a deal with state unions to spare them from givebacks in exchange for their support.

“There are numerous options included in this transition budget for consideration as the new administration considers the daunting decisions ahead,” Rell said. “It is important to note, however, that these recommendations do not reflect my priorities or those of my budget office. They are offered to simply provide standard budget information for the next administration’s review and decision-making.”

And while the Rell administration has argued in the past that closing many of the $5.3 billion in credits, exemptions and other tax breaks on the books would amount to little more than tax hikes, the governor didn’t shy away from that area in her transition budget.

Rell proposed that Malloy review the tax code “to close loopholes and eliminate ineffective or under-utilized tax credits or exemptions” to raise $750 million both next year in the 2012-13.

“I very much appreciated Governor Rell’s effort,” Bannon said following a closed-door briefing with Office of Policy and Management Secretary Brenda L. Sisco, Rell’s budget director. “I was expecting … exactly what we got, and that was very helpful.”

Bannon added that it’s no secret that the projected deficit, which nearly equals one-fifth of the current, $19.01 billion budget, is going to require painful decisions. “This budget gap has been foreseeable for some time,” he said.