Cuts, borrowing proposed to close budget gap

Gov. Dannel P. Malloy and Democratic legislative leaders used a mix of programmatic cuts, borrowing and a raid on transportation and other special funds to preserve nearly three-fourths of the governor’s proposed education spending.

The tentative deal, which calls for a $20.54 billion budget for the next fiscal year, also maintains the first funding increase in four years for private, nonprofit social services who contract with state agencies, starting in January.

The new spending plan would add $143 million to the original 2012-13 budget adopted last spring. It also would boost spending nearly 2 percent over this year’s level. And though the revised 2012-13 plan remains under the constitutional spending cap, the $86.4 million cushion is considerably less than the $278 million margin under the original budget for next fiscal year.

The tentative agreement, which still must be considered by the House and Senate, also includes Malloy’s proposal to divert more than $220 million in debt service payments to help close a shortfall in the current budget.

Governor’s top advisers conferring Monday afternoon outside the House

Both the governor and his fellow Democrats in the legislature’s majority were forced to scramble two weeks ago after executive and legislative branch analysts downgraded revenue expectations both for the current fiscal year and the coming one.

The consensus report reduced revenue projections by $150 million for the current budget and by $234 million in the fiscal year that begins July 1.

Despite repeated pledges from Malloy on the 2010 campaign trail that he would not borrow to cover state operating expenses, the governor rankled Republican legislators last week when he announced he would use funds dedicated to pay down the state’s credit card to balance the current budget.

Malloy argued this wasn’t technically borrowing — an argument rejected by the Democratic governor’s Republican critics. But the administration doesn’t avoid that gray area in the tentative deal as it adds new borrowing to keep the 2012-13 plan in balance.

Specifically, that agreement calls for the state to borrow $30 million to cover the entire cost of next fiscal year’s Town Aid Road program, a grant system that helps municipalities pay for infrastructure improvements. Though that grant has been bonded in the past during tough fiscal times, it had been funded previously in Malloy’s administration through the regular operating budget.

As a gubernatorial candidate in 2010, Malloy wrote in his campaign platform that past governors and legislators “faced fiscal challenges by taking the easy way out. They’ve tried to take a car that won’t run and fix it with duct tape, when what it really needs is to have its engine rebuilt.”

Though Malloy also argued on the campaign trail that Connecticut often has raided transportation funding to support non-transportation programs, the tentative deal crosses this line.

It calls for the state to delay the issuance of bonds for transportation projects, in turn allowing $24 million slated for finance costs to help prop up non-transportation programs in the General Fund.

The deal also keeps another $8 million originally designated for the transportation system in the General Fund. This transfer could be offset by drawing upon the transportation fund’s reserve, which currently exceeds $100 million.

Preserving increases for education and nonprofit agencies

These and other changes enabled the governor and legislature to preserve nearly three-quarters of the education funding he recommended in February, primarily to assist the state’s lowest-performing schools.

These initiatives include a phased-in boost in funding for charter schools and additional pre-school program slots, the first increase in the education cost-sharing program — the state’s single-largest municipal grant — since 2007, and a new evaluation system for teachers.

Another key program the governor preserved involves an extra $8.5 million to be shared by dozens of community-based, nonprofit agencies that contract to provide the bulk of state-funded social services.

And though the $8.5 million represents a 1 percent increase, starting in January, the nonprofit community said it is essential given that there’s been no increase in four years and little overall growth in more than a decade.

According to both the Connecticut Association of Nonprofits and the Connecticut Community Providers Association, the state’s two largest parent groups for nonprofits, average social worker pay in the private sector is roughly half that of comparable state employees, and many community-based agencies struggle with annual turnover rates close to 25 percent.

“These issues are of critical importance to community providers, who have faced many years of significant underfunding,” Terry Edelstein, president and CEO of the Connecticut Community Providers Association, wrote last week in an appeal to legislative leaders. “We look forward to working with you now and in the future to strengthen the safety net for our state’s most vulnerable residents.”

Reduction in spending

Legislative leaders and administration officials also trimmed spending in several other areas besides transportation to preserve education and social service initiatives in the face of declining revenue projections.

The new plan forecasts saving $50 million by tightening eligibility and limiting nursing home coverage in a Medicaid program that serves poor adults who don’t have minor children. The changes include limiting enrollment to people with assets below $10,000, excluding a house and car, and counting family income in determining eligibility for applicants who are under 26.

Malloy in February proposed similar changes, with a $25,000 asset limit, and forecasted savings of $22.5 million. Critics of the proposal questioned the validity of the savings figures since it’s not clear how many people in the program would be excluded if an assets test were imposed. There is no asset limit now in the program, known as Medicaid for Low-Income Adults, or LIA, and the Department of Social Services doesn’t collect information on applicants’ assets.

Benjamin Barnes, Malloy’s budget director, last week acknowledged “some data weaknesses” in the administration’s savings projections. But he said he thinks the numbers were low estimates of potential savings.

The federal government reimburses the state for half its Medicaid costs, meaning that the net effect of the Medicaid LIA cut is $25 million.

Another of the changes would restore the on-again-off-again increase in Connecticut’s commuter rail fares in January 2013.

Malloy had ordered 4 percent increases in fares both for the current year and for next, but the legislature’s budget-writing panel had restored the $3.1 million in subsidies needed to cancel the 2013 increase. The tentative deal removes those funds, putting the rate hike back on pace for January.

Some school initiatives cut

Many of the cuts to education are targeted at Malloy’s new education initiative.

While municipalities will still get the additional $49.5 million in block grants for education, money proposed for the state’s 25 lowest-achieving schools has been drastically scaled back. Malloy had asked for $22.9 million to allow the commissioner to deploy new initiatives like longer school days and increased pay to attract the best teachers in these schools. The draft budget will give these schools $7.5 million.

Malloy also had proposed opening three new charter schools to provide hundreds of new seats in the state’s worst districts. The budget shaves his requested $2.5 million to $200,000. Existing charter schools will get a $1,100 per student boost in state funding, totaling $10,500 for each student.

Funding for 1,000 new preschools seats remains, though it will be phased in. The budget provides $6.8 million in new seats.

Many of the administration’s plans relied on rolling out a new evaluation system and linking it to tenure, certification and salary. The document shows this compromise bill will scale back the $12 million Malloy had asked for evaluation and professional development to $3.5 million.

The budget also will also delay $7.6 million in state contributions to the state’s retired teachers’ health insurance fund. Malloy had wanted to require retired teachers to pay more for their health insurance when they decide to get it from the state’s plan, a move that would save the state $7.6 million, but legislators balked at that proposal.

The plan also eliminates Malloy’s plans to have $4.5 million to award school districts that promise to make certain reforms. It also eliminates the $200,000 to plan to consolidate school districts.

The Black and Puerto Rican caucus’s proposal for reforming education got some funding. The caucus’s original bill would have implemented a statewide early literacy program and annual assessments. The budget provides $2.7 million to roll out a pilot program and money to begin developing the assessments.

Sharon Palmer, the president of AFT-Connecticut, said earlier in the evening that she had not seen the draft language, but she was encouraged by what she’d been told of the compromise.

“It seems like it’s sort of like a yard sale -– there’s something for everyone,” Palmer said.