Gov. Dannel P. Malloy spent much of the past fall discussing his visions for improvements in education, health care, economic development, transportation and other key public policy issues.

And while both Malloy and his budget chief said Tuesday that the new administration’s first budget proposal due in three weeks will take crucial first steps toward those goals, they will be baby steps.

Malloy budget forum

Malloy addresses a budget forum.

Addressing nearly 100 social service advocates, state legislators and others during a Capitol budget forum, Malloy and Office of Policy and Management Secretary Benjamin Barnes said they–and the rest of Connecticut–must temper their expectations in the face of a $3.67 billion budget deficit.

Barnes also warned the crowd at the Connecticut Voices for Children’s 10th Annual Budget Forum that the administration believes it’s best to get long-delayed, tough fiscal choices over with now. That means a combination of tax hikes and spending cuts–but no borrowing–will be proposed to close a deficit equal to roughly one-fifth of all current spending.

“Bitter medicine is best taken all at once,” Barnes said. “The sooner you do that, the sooner you can begin the process of rebuilding and readjusting to the world order you face.”

Over the last two annual budgets, former Gov. M. Jodi Rell, a Republican, and the Democrat-controlled General Assembly, have approved nearly $2 billion in borrowing in lieu of further tax increases or spending reductions.

“We have a problem of such magnitude that I don’t personally believe–and my boss doesn’t believe–we can address it without a forthright and transparent and realistic approach,” Barnes said.

That “realistic approach” includes dismissing any hope of immediately achieving many of the budget goals frequently cited both by special interest groups and legislators in recent years, Barnes said.

That means the share of state funding for both municipal education and property tax relief–which have dwindled for more than two decades–won’t be increased in the plan due out in three weeks. “I stand before you and say: I will not begin to fund 50 percent of education costs; I won’t fully fund PILOT (Payment in Lieu of Taxes grants,” he said. “But I want to do those things and I want to get busy as soon as we can.”

Malloy told the group he remains committed to children’s issues, especially his goal of eventually establishing universal pre-kindergarten programs throughout the state, as he did in Stamford while mayor. But he warned his audience they must be realistic.

“I think we’re going to have to take a more measured approach on that issue, particularly while we recover our footing,” Malloy said. “But I want to have everyone here understand that is not backing away from a commitment. It’s only being realistic what our financial difficulties look like.”

“Budget austerity shouldn’t be an excuse to foresake your goals and abandon your aspirations,” Barnes quickly added, criticizing leaders in other states that have raised the prospect of effectively declaring bankruptcy and defaulting on their obligations. “We can’t just, in a knee-jerk way, walk away from the serious and profoundly important obligations of the state just because we haver a budget hole… We need to live to fight another day.”

Rather than abandon its goals, the Malloy administration will temper them, and challenge legislators and others to do the same.

Barnes said the new budget will lay the groundwork for new directions in education, health care, government service delivery, and economic development.

Though he was admittedly vague on the details, Barnes said that “groundwork” could be as simple, for example, as getting state and local governments on sound fiscal footing so that pre-kindergarten programs can be expanded in a few years.

State government may not be able to dramatically change health care services right now, but it can change its delivery models to begin attracting greater federal reimbursement, particularly through the Medicaid program, he said. “I think that we’ve been a bit adrift on how we finance health care in the state,” he said, adding that federal health care reform will present major new funding opportunities for states by 2014. “That’s not far away,” he said. “The clock is ticking.”

The new budget director was more cryptic when asked whether the new administration would seek to redesign the state income tax with new, higher rates on wealthier households.

“We are acutely aware and are evaluating the distributional impacts,” Barnes said, adding that Malloy once said, in reference to Barnes, that” “He’s even more liberal than I am.”

Malloy said during the past campaign that he believes the state income tax overburdens the middle class, though he also repeatedly has said Connecticut must “benchmark” itself against neighboring states to ensure tax rates here don’t exceed those imposed by Massachusetts, New York and New Jersey.

Malloy repeated his mantra: The deficit cannot be closed only by spending cuts or tax increases, but by a combination.

Malloy said his administration was “thoroughly researching where revenue might otherwise come from, including closing some, probably not all, but some of the tax expenditures that this organization has written about for many years.”

Keith has spent most of his 31 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. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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