Gov. Dannel P. Malloy’s first budget relies on an undefined, $1 billion labor savings and $1.5 billion in new taxes to help balance more than $19.7 billion in spending next fiscal year while sparing municipal aid from any major reductions.

The plan also relies on $750 million in cuts to social services, higher education and other programs, an agency consolidation effort, and new health care provider fees to leverage more federal aid. In all, it aims to close a projected $3.2 billion deficit in the fiscal year that begins July 1.

Office of Policy and Management Secretary Benjamin Barnes outlined this morning the $39.94 billion biennial budget Mallow will present to legislators this afternoon. That budget, which includes a $19.74 billion spending plan for 2011-12 and and $20.21 billion in 2012-13, boost spending 2.4 percent annually and falls $406 million below the constitutional spending cap in the first year.

Nearly one-third of Malloy’s solution to next year’s deficit hinges on a labor savings target more than five times the employee wage and health benefits concessions secured just two years ago.

The administration wrote in its budget summary that “the alternate route to a balanced budget — deeper spending cuts — will leave the (social service) safety net in tatters and core services decimated.”

Malloy, who pledged not to “shred” the state’s social service safety net, proposed a $4.5 billion Medicaid budget that falls $176 million short of the level needed to maintain current services next fiscal year. Medicaid is by far the state’s largest social services expense

The governor recommended eliminating a long-overdue rate adjustment for nursing homes, payments to hospitals to cover uninsured patients and cost-of-living adjustments for welfare recipients.

The administration also called for the phase out of prescription drug subsidies for the elderly, continued restrictions on former Gov. M. Jodi Rell’s Charter Oak Health Plan, reduced dental and vision services for the poor and new costs for both Medicaid and Medicare patients.

But Malloy also kept his pledge attract major new federal dollars to Connecticut, offering plans to leverage about $162 million in new aid from Washington through provider taxes on nursing homes, hospitals and care facilities for the developmentally disabled.

Though most cost-of-living increases were left out of governor’s budget, the plan also avoids any across-the-board reductions to most major care providers.

The budget not only maintains overall town aid levels, but sets communities up to gain $129 million in new annual revenue by 2013 through increased taxing powers and new shares of the state’s revenue streams.

Malloy’s budget would create two new property tax categories, double the real estate conveyance levy in most communities, and give communities new shares of revenue tied to retail sales, hotel stays, music performances and car rentals. Municipalities would gain access to $85.2 million in new revenue in 2011-12 and $129.3 by 2012-13.

Cities and towns looking to build schools in the next few years would face a hit under the governor’s proposal, though, which also called for reducing the state’s share of municipal construction costs.

Malloy’s budget also includes $120 million across two fiscal years to begin the process of  converting state finances to generally accepted accounting principles.

Other fiscal reforms proposed in Malloy’s budget include:

  • Ending the legislature’s ability to approve state employee contracts without voting to adopt them.
  • And expanding the governor’s authority to impose emergency budget cuts.

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.