Malloy shrinks deficit with cuts to social services, colleges

Connecticut’s social services safety net and its public colleges and universities took the brunt Wednesday of Gov. Dannel P. Malloy’s first effort to whittle down a $363 million state budget deficit.

The administration released $123 million worth of emergency cuts ordered by the governor, including nearly $70 million aimed at health care and social service agencies and $25 million more at public colleges and universities.

Technically, the governor used his emergency authority to slice $170 million off the books. But because about $47 million of the cuts announced Wednesday involved spending the administration had planned to cancel to meet miscellaneous savings targets built into the budget, the overall deficit shrank to about $240 million.

“Many of these cuts are very difficult to make, especially now when so many residents continue to struggle in a tough economy,” the governor’s budget director, Office of Policy and Management Secretary Benjamin Barnes, said Wednesday. “But as painful as they are, cuts are necessary to keep this year’s budget in balance. State government needs to live within its means.”

Safety net cuts

Malloy cut $68.6 million in total from five agencies serving the poor, disabled and aging.

The governor trimmed funds from programs including AIDS services, school-based health clinics, housing and homeless services, nutrition assistance, Alzheimer’s respite, teen pregnancy prevention, children’s health initiatives, and rape crisis centers.

The governor also removed $13.4 million in payments that would go to hospitals to treat uninsured and underinsured patients — 5 percent of the $268 million budgeted for those payments. Barnes said the number of uninsured people being treated by hospitals was likely smaller than in the past because more people are now covered by Medicaid, and he said hospitals should be able to accommodate the reduction.

Jennifer Jackson, the president and CEO of the Connecticut Hospital Association, said in a statement that the group is disappointed in the cut but understands “the difficult choices the governor faces as he attempts to balance the state budget in this prolonged difficult economy.”

The cuts also include $2.4 million from the Connecticut Home Care Program for Elders, which covers services for seniors who might otherwise go into nursing homes. Barnes said the money would likely not have been spent this fiscal year, and said it appears that the program’s enrollment is lower than anticipated.

Similarly, Malloy cut $5.3 million from temporary assistance to needy families, some or all of which Barnes said had been anticipated to be unspent. “We don’t believe it will have unduly adverse impact,” he said. The overall program is budgeted for $113 million.

Roy Occhiogrosso, the governor’s senior policy adviser, said Wednesday’s cuts represented “a careful rescinding of state spending.

“The governor did say during the campaign that he wouldn’t shred the safety net, and he’s held to that promise,” Occhiogrosso said. “Over the last two years many states have in fact shredded the safety net, at the same time they were shifting the tax burden onto local taxpayers and cutting funding for education. Connecticut’s done none of those things. Put in perspective, the decisions Governor Malloy has made have left those who are dependent on the safety net in much, much better shape in Connecticut than people in similar circumstances in other states.”

The governor largely avoided cuts to Medicaid, which the administration has cited as a major reason for the budget troubles. Because the federal government reimburses the state for half of its Medicaid costs, cuts to the program would also mean foregoing revenue for the state.

Higher education cuts, employee savings

The administration and the legislature has already cut 10 percent, or more than $68 million, from public colleges and universities since 2011 — a move that helped trigger tuition increases at the University of Connecticut by 6 percent and in the community college and state university networks this past winter by more than 3 percent.

On Wednesday, the governor rescinded another $24.7 million earmarked for those systems in the current budget. The state also will not be paying for at least $3 million more in benefits for University of Connecticut employees. In the last two years, state support for higher education has shrunk by $93.2 million, a 14 percent reduction.

Barnes said he hopes these cuts don’t translate to more tuition increases next year.

“I believe that all the units of higher education can find ways to adjust their operations to find these cuts,” he told reporters at the state Capitol Wednesday.

UConn had already planned to increase tuition by 6 percent in the 2013-14 school year to hire additional faculty, but that increase assumed the current level of state funding. The Board of Regents budget director also said recently that a 3 percent tuition and fee increase will be necessary next year just to cover the rising cost of providing existing services.

UConn President Susan Herbst emailed students and staff shortly after the cuts were announced.

“My approach in this instance will be to protect what is most vital to us: our core academic missions of teaching, learning, and research, including the much-needed faculty hiring initiative that is underway. We will not halt our faculty hiring plan, and will keep building our research infrastructure. Painful cuts will have to be made to many non-academic areas, but we will absolutely not allow them to endanger the work of our faculty or the academic success of our students, which are, after all, the reasons we exist,” she wrote, making no mention of tuition.

Lewis J. Robinson Jr., the chairman of the Board of Regents for Higher Education, said these cuts are going to be difficult on the 100,000-student system.

“It’s going to be very challenging,” he said in an interview about the $14.4 million mid-year cut to his system. “Numbers like that are going to present serious challenges… The idea of raising tuition is never a happy exercise. Tuition is not somehting we quickly go to.”

In 2011, Malloy asked the colleges to cope with the cuts without raising tuition above inflation rates, something neither higher education system was able to accomplish this school year.

State employees

Malloy also found $28.4 million in savings by trimming the account that pays for state employee health care.

That account, as well as funding to cover health services for retired workers, has produced surpluses in several of the past few years as officials try to cut health care costs through wellness programs and by renegotiating other costs.

State Comptroller Kevin P. Lembo called the cut “reasonable and achievable.”

“As a result of innovative changes to the state health plan over the past two years, including the Health Enhancement Program and other changes under the administration’s agreement with the SEBAC, state health care costs are trending lower than budgeted,” he said.

Occhiogrosso said asking state employees for more giveback was not likely.

“I would imagine that would not be the case,” he told reporters Wednesday.

However, he did note that with the governor’s stated intention not to raise taxes, everything is being considered for cuts.

“There’s very little that’s not on the table other than tax increases,” he said.

Education and child welfare cuts

Malloy also cut $8.4 million from the Department of Education, with those funds coming largely from the vocational-technical high schools, magnet schools and grants to serve poor urban districts. There also were several smaller cuts to various education reform initiatives the governor won legislative approval for this past spring.

Occhiogrosso said the cuts will not jeopardize those reform efforts.

Several early childcare programs also took a hit. The program that provides day care subsidies for low-income families so they can work was cut by $2.2 million. One million was also cut for preschool programs in poor urban districts. Barnes said this should not impact any current enrollees, but rather was funding approriated that had not yet been used.

The Department of Children and Families budget was cut by $18.3 million, a reduction that will be blunted by initiatives by the agency to keep more children with their families and out of costly institutional settings.

“I have every reason to believe she will be able to continue her reforms without delay even with these reductions,” Barnes said of the DCF commissioner, Joette Katz.

Limited authority

State law gives the governor limited authority to reduce spending in most agencies by up to 5 percent without obtaining legislative approval. Though the statute exempts municipal aid from the governor’s rescissionary authority, other segments of the budget effectively are exempt as well.

The state is obligated to pay the salaries set out by contract for most of its unionized workers, effectively taking most money in salary accounts off the table.

Similarly, social service and health care programs run under federal entitlement rules must serve all patients who meet the guidelines, regardless of how much funding the state has budgeted for these programs — so it makes little fiscal sense to cut resources below the projected need.

Debt service represents about 1/10th of all state spending, and though this cost sometimes can be reduced through refinancing, the state cannot escape its obligations to its bond holders simply by reducing debt repayment accounts.

More cuts to come

A combination of declining revenue projections and surging demand for state-sponsored health care for the poor were the major factors behind the $363 million shortfall, which represents about 2 percent of the state’s current operating budget, according to fiscal analysts for both the executive and legislative branches.

Analysts also say that a much larger gap, approaching $1.2 billion, is projected for the fiscal year that begins July 1. Malloy must propose his next budget to the General Assembly in early February.

But because the rescissions ordered Wednesday only eliminate a little less than half of the current, $363 million deficit, Malloy also must submit a plan to close out the rest to legislators.

Barnes said that plan likely would be delivered early next month, and legislative leaders have said a special session tentatively has been planned for the week of Dec. 17.

“We should all remember that as difficult as some of these reductions are to make now, there are more, even tougher choices ahead,” Barnes said.

“We are working on a deficit-mitigation plan that will completely erase the projected deficit,” he added. “We hope to work with legislative leaders of both parties on a package that responsibly manages our state’s financial challenges.”

The governor has said he will not consider tax hikes to close this year’s deficit. And while he also has said he doesn’t intend to raise taxes to close the larger gap, he also has refused to rule out that option.

Senate Majority Leader Martin M. Looney, D-New Haven, said Wednesday that “making cuts like these is never easy; however, given the current shortfall, they were unfortunately necessary in order to bring our budget into balance.  “Just as we did two years ago when we worked to erase a $3.65 billion structural deficit, we are committed to working with Governor Malloy to reduce spending and make the difficult but essential choices necessary to balance the state’s budget before the New Year.”