With final legislative passage of the $40.1 billion biennial budget by the House late Tuesday night, the administration of Gov. Dannel P. Malloy now turns its attention to a significant missing piece of the fiscal puzzle — $1 billion in concessions and labor savings.

The House Democratic leadership of Speaker Christopher G. Donovan and Majority Leader J. Brendan Sharkey produced a solid win for Malloy moments before midnight as the House approved a series of politically risky tax increases that the new governor assures will restore the state’s fiscal health.

Donovan, Cafero

Speaker Chris Donovan, Minority Leader Lawrence Cafero.

The roll call vote for the governor’s first budget was 83 to 67, with 15 Democrats joining all 52 Republicans in opposition. Others had been on the fence, troubled that Malloy relied more on tax increases than neighboring governors have to erase his inherited deficit.

“Now it’s up to my administration to reach an agreement with our fellow state employees and to present it to the legislature for ratification. I remain hopeful that we’ll get there. If we don’t, I remain committed to presenting an alternative budget to the General Assembly in the next couple of weeks,” Malloy said in a statement issued early today.

Without the labor deal, the budget is out of balance, forcing another round of spending cuts and another debate by the House and Senate. The Republican minority had tried to stop the vote, questioning the propriety of the legislature adopting a budget with a $1 billion IOU in each year of the biennium.

“Make no mistake: come July 1, Connecticut will have an honest, balanced budget in place,” Malloy said. “No smoke, no mirrors. A solid foundation for the future.”

Negotiators for the adminisration and state employee unions exchanged updated offers and counter-offers throughout the day Tuesday as the House endorsed a budget that depends on the most significant labor savings ever sought by a Connecticut governor.

With the recent receipt of improving revenue estimates, the administration could afford to lower its demand for labor savings to around $700 million, although the administration’s official position still calls for the full $1 billion, at least for the moment.

The administration is fast approaching a May 6 deadline to begin issuing layoff notices if Malloy intends to cut the workforce by the July 1 start of the new fiscal year. Malloy told a business group this week he would lay off 5,000 employees if the labor talks fail.

Failure could be disastrous for Malloy and labor. The unions are trying to protect their members while delivering sufficient savings to hand a political victory to the first Democratic governor in 20 years, a governor they helped elect by the thinnest of margins.

At the outset of the 10-hour debate in the House, Sharkey, the new majority leader from Hamden, declined to say how many of the 99 Democrats were flinching at voting for a record tax increase, but an administration official said the leaders promised at least 80 votes.

Republicans tried to portray an unpublicized visit by Malloy to the House Democratic caucus before the debate as a sign the governor needed to shore up support for the House to give final approval to a tax-and-spending plan passed by the Senate earlier Tuesday on a 19 to 17 vote.

“The support for this budget is slipping significantly,” said Rep. Lawrence F. Cafero Jr., R-Norwalk, the leader of the 52-member GOP minority. “The reason is the representatives are listening to the people who sent them here.”

Democrats said there was no slippage, and the best evidence of that was the absence of Democrats being invited to one-on-one chats in the governor’s office a few dozens paces from the House chamber.

“He trusts us that we knew what we were doing here and in the Senate,” Sharkey said.

But later in the day, a half-dozen legislators did meet individually with the governor.

“Some legislators asked. Some he asked to see,” said Roy Occhiogrosso, the governor’s senior adviser.

Sharkey said Malloy, who was out of state at an education conference while the Senate debated the budget, asked to address the House caucus. He arrived with Lt. Gov. Nancy Wyman, a former House member, to cheers and applause.

Debate began shortly after 2:05 p.m. It wasn’t until 9:20 p.m. that legislators cast their first vote on the bill, rejecting a Republican no-tax alternative budget on a party-line vote of 97 to 52, with two Democrats absent. The final vote came at 11:58 p.m., delivering on leadership’s promise to approve the budget by the end of the day Tuesday.

Support and opposition to the budget revolve around the same belief: That the tax increases proposed by Malloy not only are sufficient to erase an estimated deficit of at least $3.2 billion, but they potentially can produce a surplus.

“If the economy improves, we can afford to roll some of this back. I look forward to that,” said Rep. Mary M. Mushinsky, D-Wallingford, the longest-serving House member.

Rep. Linda Schofield, D-Simsbury, one of the Democrats who voted against the budget, had guessed she would be joined by at least a dozen dissenters.

Like Mushinsky, Schofield sees better times and surpluses around the corner. Unlike Mushinsky, Schofield said she is concerned that the surpluses will lead to more spending, not tax cuts.

“I don’t have faith that’s how the money will be used,” Schofield said.

Others struggled with a similar concern. Rep. Charlie L. Stallworth, D-Bridgeport, who won his seat in a special election the week after Malloy proposed his budget in February, sat outside the House on a bench with Rep. Bruce Morris, D-Norwalk.

“I’m still in discussion, trying to decide,” Stallworth said.

“This is a tough vote,” said Tony Guerrera, D-Rocky Hill, the co-chairman of the Transportation Committee.

Stallworth and Guerrera each ultimately voted for the budget, but others defected, including several who represent more conservative districts, such as Paul Davis of Orange, Kim Fawcett of Fairfield, and a freshman, Jonathan Steinberg of Westport.

The other Democrats voting no were Mary G. Fritz of Wallingford, Claire Janowski of Vernon, Ed Jutila of East Lyme, Steve Mikutel of Griswold, Frank Nicastro of Bristol, Jason Rojas of East Hartford, Kim Rose of Milford, Daniel Rovero of Killingly, Richard Roy of Milford, Schofield, Kathy Tallarita of Enfield and Chris Wright of Bristol.

The budget proposed by Malloy and revised by Democratic legislators raises taxes by more than $1.4 billion in the next fiscal year and $2.6 billion over the biennium.

“Today Connecticut has a clear view of how Democrats deal with our fiscal crisis: raise massive amounts of taxes, on income, property, sales and businesses, and continue to spend to support bigger government. Republicans showed we can close our deficit without raising a nickel in new taxes on anyone,” Cafero said.

Rep. T. R. Rowe, R-Trumbull, likened the proposed budget to the passage of the income tax in 1991 as part of a larger package of tax reforms sought by Gov. Lowell P. Weicker Jr., an independent. Malloy is offering his plan as the way to stablize the state’s finances and correct a structural imbalance in the budget.

“The magic elixir of tax reform,” Rowe said, noting that the adoption of the first broad-based tax on income in Connecticut was touted as keeping the sales tax low and property taxes in check. “That was the solution back in ’91. That was a historical solution and had historic and profound consequence. I fear that by passing this budget today we will have similar, unfortunate consequences.”

The income tax did allow the sales tax to be cut by 25 percent, from 8 percent to 6 percent. It has remained unchanged for 20 years. But it also allowed the growth of spending and government in the good times under a Democratic legislature and Weicker’s two  Republican successors, John G. Rowland and M. Jodi Rell.

In a speech delivered in June 2010 to the Connecticut Conference of Municipalities, Weicker said the legislature needs to “cut spending, and I mean big time.”

Democrats defended their budget.

“We have made significant spending reductions, consolidated 30 percent of our state agencies and maintained important investments that will help grow businesses and protect families,” Donovan said. “After 3 years of economic hardship, our state’s finances are stabilized and Connecticut is moving forward on the road to economic recovery.”

Under the Democratic budget, the sales tax jumps from 6 percent to 6.35 percent, and it will be applied to previously exempt items like non-prescription drugs, smoking-cessation products, dog grooming, cosmetic surgery, yoga classes, pedicures and manicures, and inexpensive clothing and shoes. One-tenth of one percent of the increase will go to municipalities.

Nearly $725 million of the increased revenues in the first year come from income tax increases, while raising the sales-tax rate will produce $138.4 million and eliminating the sales-tax exemption on clothing costing less than $50 raises another $128.1 million.

The bill also increases the sales tax to 7 percent on luxury items, defined as clothing costing more than $1,000, jewelry above $5,000, cars above $50,000 and boats above $100,000. It is projected to raise $3.6 million next year.

The excise tax on alcohol goes up by 20 percent, diesel fuel taxes jump from 26 cents to 29 cents per gallon, the levy on a pack of cigarettes rises by 40 cents to $3.40, and a new cabaret tax of 3 percent will be charged on admission, food and drink at any bar or club with live music. Under pressure from legislators, Malloy dropped his demand for a 3-cent-a-gallon increase on gasoline.

Cafero said the tax increases reach into too many corners of the state.

“Close your eyes and think of the people you represent,” Cafero said. He added that the legislature’s message to the public seemed to be, “I realize we’re going to increase everything you buy, but suck it up.”

Spending increases about 2 percent in each year of the biennium.

“We are turning a corner, putting our fiscal deficits behind us and moving forward with the business of creating jobs and growing our state’s economy,” Sharkey said. “There is no borrowing, no one-time revenues, and no gimmicks.”

Mark is the Capitol Bureau Chief and a co-founder of CT Mirror. He is a frequent contributor to WNPR, a former state politics writer for The Hartford Courant and Journal Inquirer, and contributor for The New York Times.

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