Gov. Dannel P. Malloy came out strong Tuesday in his defense of a tentative budget agreement, framing the deal struck Friday as balanced, constitutionally sound and free of new taxes.

The Democratic governor rebutted his GOP gubernatorial rivals in the legislature, saying those who accuse him of crafting a gimmick-laden budget are “trying to score cheap political points.”

“The bottom line is we will not increase taxes or create any new taxes. The budget  will be in balance and will be GAAP-compliant,” Malloy said, referring to Generally Accepted Accounting Principles.

The governor was referring to the tentative deal on a two-year, $43.8 billion plan struck late last week –- an agreement that would largely preserve aid to cities and towns while meeting surging demand for social service programs.

But it also would extend some controversial taxes on businesses and power plants that had been set to expire next year. It also implements one of the largest tax hikes on gasoline and other fuels in state history on July 1 — an increase approved in 2005 — while diverting all of the proceeds to non-transportation programs.

And it also employs a controversial new interpretation of Medicaid budgeting that effectively would remove more than $1 billion from under the constitutional spending cap over the next two fiscal years. The affected Medicaid programs are paid for up-front with state dollars, but all costs are reimbursed with federal aid.

The Medicaid change particularly has rankled Republican legislative leaders, who argue it is an illegal approach to finances taken because Democrats otherwise can’t pass a budget.

The budgets proposed by both Malloy and the Appropriations Committee for the next two fiscal years would exceed the spending cap under current rules.

And both proposed new rules to bring them into compliance with the cap. But the state constitution requires a three-fifth’s vote in both legislative chambers to do so. That means at least 91 of 151 possible votes in the House and 22 of 36 in the Senate.

Democrats, who hold 98 of 151 seats in the House and 22 of 36 seats in the Senate, have conceded they are struggling to hit the 22-vote mark in the Senate, where they have no margin for error.

But if the new interpretation of Medicaid spending is emplyed, both earlier budget proposals – as well as the tentative deal struck Friday – comply with current cap rules, and require only a simple majority for adoption.

Malloy told reporters Tuesday that legislators who first crafted the cap rules 22 years ago never intended to choose between receiving vital federal aid, or cutting other state programs to comply with overall spending limits.

“I made this challenge. I’ll make it again,” the governor said. “Find me one person from the 1991 debate that said if the federal government was to suddenly give us $500 million, that meant you had to cut education spending or aid to municipalities by an equal amount. This is a false argument. It makes no sense. It was not part of the deliberations.”

Those who argue otherwise, he added, are “a bunch of people trying to score cheap political points.”

Senate Minority Leader John P. McKinney, R-Fairfield, one of those who said the new interpretation may be unconstitutional, said Tuesday that political necessity is the only reason behind the new understanding of Medicaid spending.

“The reason why they are looking that way at all,” McKinney said, “is because there aren’t enough Democratic votes to pass it” under the current system.

House Minority Leader Lawrence F. Cafero Jr., R-Norwalk, said Malloy is simply trying to reframe an inconvenient set of facts.

“The Democrats are saying that the budget doesn’t raise taxes, when it does. The Democrat are saying the budget doesn’t [exceed] the spending gap, when it does,” Cafero said.

When asked why he proposed changing the constitutional cap in the first place if such a change wasn’t legally necessary, the governor said he thought that was the approach lawmakers wanted to meet the constitutional and legal mandates.

“I gave the legislature a way to lock in a more standard approach to the spending cap,” he said. “I offered them an opportunity to do it. They didn’t do it.”

McKinney also said Malloy’s claims of a tax-free budget are hollow.

According to sources close to the budget talks, the final deal would preserve an expiring tax on power plants, next year, albeit at a reduced rate.

It also would:

•               Preserve an expiring corporation tax surcharge and a cap on insurance premium tax credits for businesses;

•               Reduce the state’s Earned Income Tax Credit for working poor families from 30 percent to 25 percent of the federal EITC;

•               And implement the major increase in the wholesale tax on gasoline and other fuels July 1, following a schedule adopted in 2005.

“Don’t tell business owners, who were told they would have to sacrifice with that surcharge for the last two years, that there is no increase in the new budget,” McKinney said.

The Fairfield lawmaker added that the wholesale fuel tax hike  is one of the largest fuel tax increases in state history. Based on current wholesale prices, it is expected to add more than 3 cents to the price of gasoline when it hits on July 1.

And while it collects an extra $60 million next fiscal year from consumers, the tentative budget deal shifts $75 million in resources away from the transportation fund and into non-transportation programs.

But Malloy noted that minority Republicans in the House and Senate “didn’t have the guts to put out a budget themselves” this year. 

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