Legislators pass bipartisan bill to erase budget shortfall

The General Assembly moved quickly Wednesday night to wipe most of the remaining red ink out of the current state budget, relying largely on cuts to social services, but also reducing a wide array of education and tourism initiatives.

The Senate voted 31-3 to give final approval just before 10:15 p.m. Two hours earlier, the package cleared the House, also with strong bipartisan support, with a vote of 140-3.

Gov. Dannel P. Malloy, whose administration negotiated the plan with top lawmakers from both parties, is expected to sign the measure.

The package relied chiefly on budget cuts, but it also raised more than $46 million for operating programs. Legislators restricted business tax credits and launched a new crackdown on insurance tax fraud. They also agreed to borrow for some expenses, while raiding one-time sources of funding to support other ongoing programs.

According to the legislature’s nonpartisan Office of Fiscal Analysis, the measures adopted Wednesday cut $252.3 million in red ink. Cuts Malloy ordered unilaterally last month using his emergency budget authority saved another $108.5 million, according to OFA. Combined, the two steps would cover nearly all of the $365 million deficit the Malloy administration is projecting.

It does fall short, though, of covering the larger, $415 million deficit projection issued Dec. 1 by state Comptroller Kevin P. Lembo. Both deficit projections represented about 2 percent of the general fund, which covers the bulk of operating costs within this year’s $20.54 billion overall state budget.

Still, officials on both sides of the aisle said the bipartisan effort to close this year’s deficit left them optimistic about meeting future fiscal challenges.

“The level of trust that was forged between the parties … was extraordinary,” said House Majority Leader J. Brendan Sharkey, D-Hamden, who predicted that the bipartisan unity used to solve the current deficit would help resolve a much larger deficit projected for the next fiscal year.

“I am pleased to vote for it because I think it’s the best we can give given the situation we’re in as a state,” said Sen. Toni Harp, D-New Haven, co-chairwoman of the Appropriations Committee.

“Our job was to meet our constitutional responsibility and balance the budget,” Senate Minority Leader John McKinney, R-Fairfield, said. And while both parties still have philosophical differences over how to close larger projected deficits in future years, this year’s budget-balancing effort “is a process we can be proud of,” he said.

Fiscal analysts for both the executive and legislative branches say a gap of between $1.1 billion and $1.2 billion exists in the fiscal year that begins next July 1, a shortfall equal to nearly 6 percent of the operating budget. The mitigation efforts ordered by Malloy in November and approved Wednesday should reduce the projected gap for 2013-14 to between $800 million and $900 million, though a detailed, revised analysis of that shortfall isn’t due until next month.

Hospitals face the biggest cut

Connecticut’s hospitals took the single-largest hit in the package adopted Wednesday, losing nearly $90 million. Coupled with cuts Malloy ordered for hospitals last month, the industry is down $103 million this year, with the state paying less to help treat both uninsured and Medicaid patients.

Two of the three House members who opposed the plan said they were concerned with the impact of hospitals in their districts.

Rep. Penny Bacchiochi, R-Somers, said financially troubled Johnson Memorial Hospital in Stafford would lose $608,000.

“I met with the CEO and the board of directors,” she said. “They have convinced me this cut could be the one that closes the doors.”

Rep. Roberta Willis, D-Salisbury, said Sharon Hospital would lose $411,000 after previously seeing a funding loss of $500,000.

The chief lobbying agency for the state’s 29 acute care hospitals, the Connecticut Hospital Association, warned Tuesday that the reductions would eliminate hospital jobs and “critical community programs” and services.

The third legislator to vote no was Rep. Robert C. Sampson, R-Wolcott.

“We still have a lot of waste in state government,” he said, objecting to the state’s spending on the Hartford-New Britain bus way and the salary paid to a new communications vice president.

Sen. Len Suzio, R-Meriden, who also opposed the plan, said officials were relying too heavily on cuts to social services in part because Malloy secured too little in concessions from state employee unions when the last biennial state budget was adopted in 2011.

“I believe we had an unrealistic budget to begin with,” said Suzio. Other senators to vote against the deficit-mitigation package were Republicans Tony Guglielmo of Stafford and Joseph Markley of Southington.

Finding new revenue without raising tax rates

Malloy insisted legislators would have to make tough choices to cut spending because he would not use tax increases to eliminate this year’s deficit. And minority Republicans in the House and Senate said repeatedly they would not support any package that raised major new revenue, given that a record-setting $1.5 billion in tax increases were ordered in 2011.

Still, the bill adopted Wednesday would raise an extra $8.3 million by restricting how businesses can use credits related to the film industry to lower their state tax obligations.

Connecticut currently allows film production and related companies that earn tax credits through their work to sell those credits to businesses outside of the industry. The measure adopted Wednesday reduces from 55 percent to 30 percent the amount by which an insurer can reduce its annual insurance premium tax liability by using film tax credits it has acquired.

Lawmakers scrapped two more controversial tax changes that Malloy had proposed to raise an extra $22 million this fiscal year:

• Scaling back the total value of credits businesses can use to reduce their corporation tax liability;
• Closing what the administration calls a “loophole” in the new tax on electricity generation.

The proposed corporation tax change raised objections from some Republican leaders as well as from the state’s chief business lobby, which argued it could discourage companies from growing jobs in a struggling economy.

Some Republican legislators also had been critical privately before Wednesday’s vote, charging that the plan relies on some fiscal gimmicks.

Just over $11.1 million was taken from unused funds in other accounts. Most of these dollars can help plug budget holes this year, but the money won’t be available to help again in 2013-14.

The plan also retains $10 million for a popular stem cell research program while eliminating the money to pay for it in the budget. Instead the state will finance this year’s $10 million allocation by selling bonds, triggering interest charges in the future.

The legislature also hopes to collect an extra $9.5 million over the next six months by intensifying efforts to identify and prevent state income tax fraud.

“This is not a perfect document,” said Rep. Craig Miner of Litchfield, the ranking GOP representative on the budget-writing Appropriations Committee, who added he also was pleased by the bipartisan commitment to reduce spending. “But I think this is a real recognition of where we are at this time in this state.”

Phasing out longevity pay and other cuts

Republicans also scored a big win Wednesday, securing Democratic support to eliminate controversial bonuses for senior state workers — although not until July 2013.

Longevity pay has been an increasing source of controversy at the Capitol since the last recession.

Unionized employees, under a concession agreement ratified in August 2011, forfeited their fall 2011 longevity payment and accepted new limits on longevity pay in the future. That agreement also makes all workers hired after October 2011 ineligible for longevity pay, regardless of their collective bargaining status.

But non-union personnel have continued to receive the payments. According to Lembo’s office, just over $6.1 million in total longevity payments were distributed this fall among 3,200 non-union workers.

The measure adopted Wednesday allows non-union workers to receive their longevity payments one final time, next spring. Those payments will be incorporated into the workers’ base salaries going forward.

Education programs also absorbed significant cuts. More than $11.4 million was removed from accounts for Mastery Test development, racial diversity initiatives, magnet schools, afterschool programs and other projects.

And the University of Connecticut Health Center’s operating grant was cut by $4 million.

The state’s tourism industry absorbed a small cut in terms of numbers, about $2.1 million, but both the statewide marketing program and two dozen different destinations, arts or cultural groups, or tourism grant programs took a hit.

Sharkey added that while most of the reductions were painful, “I’m particularly proud, in some cases, of the things we held onto.”

The state provides the bulk of its community-based social services by contracting with small private, nonprofit agencies. Those contracts, which cost more than $1.5 billion annually, still are slated to receive a 0.5 percent rate hike this fiscal year — the first the nonprofits have received in five years.