Anticipating improving revenues, Malloy preaches caution

Gov. Dannel P. Malloy warned legislative leaders today that an expected bump in projected tax revenues should be used exclusively for retiring debts, not to restore spending cuts, reduce tax hikes or give up on his demand for $1 billion in labor savings in the proposed budget for 2011-2012.

With rosier revenue estimates expected by the end of the week, Malloy is trying to preemptively dissuade legislators from rushing to him with ideas on how to spend the additional income. The Senate may cooperate by voting on the budget Thursday or Friday.

“I want to be the guy who keeps sounding the alarm about falling back on the behaviors that got us here,” Malloy told The Mirror. “We should be ready to do the responsible thing, and that is stabilizing the state’s finances.”

Malloy said he believes that message was well-received by the top leaders of the House and Senate Democratic majorities during an afternoon meeting in his office.

Senate President Pro Tempore Donald E. Williams Jr., D-Brooklyn, said that the new revenue estimates should be irrelevant to the budget debate: Any extra money is committed to retiring debts and replenishing the reserve fund, and the Democratic legislature and governor shook on a budget deal last week.

The House Democrats are expected to caucus Wednesday on the budget, while the Senate Democrats are ready to vote as early as Thursday or Friday, Williams said.

“The danger in delaying a vote on the budget and letting days and weeks go by, it gives more time for the special interests and the lobbyists to start picking off legislators, to start advocating on this particular line item or that tax break,” Williams said.

At a press conference earlier in the day, Malloy said he wants to see a vote as soon as possible.

“The sooner we get a budget, the better it is for the people of the state of Connecticut,” Malloy said.

But the leaders of the Republican minority, Sen. John. P. McKinney of Fairfield and Rep. Lawrence F. Cafero Jr. of Norwalk, said those improving revenue estimates should prompt Malloy to re-examine his plan and shrink his proposed tax increase.

“To me, it’s simple, you don’t raise taxes as much,” McKinney said.

“You have an obligation to do that,” Cafero said.

The Republicans said they expect the revised estimates will show the state can anticipate about $200 million more in revenue in the fiscal year beginning July 1 than Malloy assumed when he proposed his budget Feb. 16. Malloy declined to say what he expected in the new revenue estimates.

Malloy inherited a estimated deficit of at least $3.2 billion in the next fiscal year. To avoid that deficit, Malloy proposed $1.5 billion in tax increases, about $750 million in spending cuts and $1 billion in labor savings.

His proposal also included a built-in surplus: nearly $200 million next year that would go to replenish the reserve or “rainy day” fund that was depleted to balance the current budget.

With the new revenue estimates, the Republicans said, Malloy will have a $400 million cushion next year that could be used to shrink the proposed tax increases. If the economy improves, the state could see a string of surpluses in later years, they said.

“The governor should lower his tax increase package, and the [legislative] Democrats should agree if you have a huge surplus, you’ve taxed too much. That’s a simple way of saying it,” McKinney said.

Williams said no one should count on future surpluses, given the rising cost of gasoline and oil, unrest in the Middle East and the dislocation in Japan.

“I think it’s too early to say the state has decisively turned the corner economically and all arrows point upward,” he said. “That’s premature at best, and irresponsible at worst.”

Malloy also said tightening the tax structure this year–when the state’s finances remain rocky–to avoid future surpluses is premature.

Technically, the state is likely to end this fiscal year with a surplus, but only because of borrowing, the depletion of the reserve fund and other poor fiscal practices, Malloy said.

Malloy said replenishing the reserve fund is responsible fiscal policy necessary to maintain the state’s bond rating, not padding the budget.

The state also faces some longterm costs in transitioning to GAAP, or Generally Accepted Accounting Practices, which forces the state to begin paying down liabilities on pensions and retiree health costs.

“Everyone supports GAAP, except when it comes time to implement it,” Malloy said. “I’m just trying to be the cautionary voice who brings everyone back to the reality of the situation.”