New spending, tax breaks at risk as CT lawmakers try to close new budget gap

CT Mirror file photo

“You can’t continue with the way we’ve been funding local government” -- Bridgeport Mayor Bill Finch, president of the Connecticut Conference of Municipalities

Gov. Dannel P. Malloy and his fellow Democrats in the legislature’s majority have some options to re-balance the next state budget – but none of them are nice.

With officials from both parties saying tax increases are off the table, though, the alternatives are limited.

They could:

• Postpone tax relief for teachers and consumers;
• Scrap new spending for education, health care, seniors, transportation and children;
• Deplete the emergency budget reserve or turn to other gimmicks that helped create a looming post-election shortfall nearing $1.4 billion;
• Turn to a controversial gambling expansion that most voters oppose;
• Or, employ some combination of all of the above.

“This is a governor that understands where we are,” Mark Ojakian, Malloy’s chief of staff, told reporters late Wednesday. “I think everything is on the table right now.”

But if history is any guide, new initiatives – either to cut taxes or add spending – often are the first to go when state finances get tighter than planned.

With that in mind, here are some programs that might be in Democrats’ cross hairs as they try to re-balance the 2014-15 state budget in light of new estimates that declining tax receipts could mean a deficit of about $300 million.

New tax relief

Both Malloy and the Finance, Revenue and Bonding Committee recommended about $51 million in tax cuts for the new budget, topped by a new income tax exemption covering a portion of retired teachers’ salaries. Others included restoring the sales tax exemption on nonprescription drugs and sparing towns from paying the insurance premium tax.

Sources close to the negotiations said late Wednesday that the teachers’ tax relief likely would be delayed for one year, and that other proposals might be delayed as well, or canceled.

Sen. John Fonfara, D-Hartford, co-chairman of the finance committee, declined to discuss specifics of the negotiations. But he said, “the governor’s desire to recognize the sacrifice of the taxpayers was strong,” referring to the $1.5 billion tax hike Malloy signed in 2011. “For us to be in this situation, to say we might not be able to do this or that, it’s hard for him and it’s hard for us.”

Democrats could save another $11 million by delaying a sales tax break on clothing – already scheduled to take effect in June 2015, the last month of the new budget year – for another 30 days.

New spending initiatives

Both Malloy administration officials and Democratic legislative leaders have said their top priorities in the new budget are education, health care and economic development.

That also means most of the new proposed spending focuses on these areas, including:

• $60 million to $65 million for the Transform CSCU 2020 program, an infusion of funding to expand enrollment and shore up the operating budget for the state university and community college system;
• $50 million for Education Cost Sharing grants to school districts and another $13.5 million to expand pre-kindergarten and Birth-to-Three programs.

“Connecticut has the ability to close this deficit without harming our children and families,” said Ellen Schmitz, executive director of Connecticut Voices for Children, a New Haven-based social services advocacy group.

• Nearly $10 million for new mental health initiatives and to increase rates for mental health treatment providers;
• $4.4 million for residential placements for adults with developmental disabilities.

The governor wants $3.3 million to add 103 new positions at the Department of Transportation, where a lack of staffing has contributed to a growing backlog of highway projects.

Malloy also has tried to shield municipal aid from state budget problems throughout his tenure. But sources said Wednesday it was uncertain whether an extra $8 million in aid to offset lost local revenue tied to tax-exempt colleges and hospitals would survive.

“You can’t continue with the way we’ve been funding local government,” Bridgeport Mayor Bill Finch, president of the Connecticut Conference of Municipalities, said.

Though communities have been spared from deep cuts in recent years, local leaders say grants haven’t grown enough to keep pace with rising costs.

And Finch said any aid stripped out of the next state budget will translate into pain at the municipal level. “It either means we reduce public services or we pass those costs through as increases on local taxes,” he said.

Keno

Meanwhile, keno, an electronic, lottery-like game that has seemingly slipped in and out of state officials’ budget plans every few months, appeared very much alive late Wednesday.

Worth about $20 million per year, the game – which would be offered at hundreds of restaurants and bars – first was included in a preliminary budget for 2014-15 that was adopted last spring.

Malloy’s budget chief, Benjamin Barnes, said late Wednesday, “I don’t know where that stands.” But sources said the controversial game remains under consideration.

Tapping the Rainy Day Fund

On paper, there is enough funding available to re-balance the 2014-15 budget very easily.

The emergency budget reserve, commonly called the Rainy Day Fund, has $271 million. Coupled with the $43 million surplus projected for this year, that makes $314 million available for use.

Malloy said this week he wants all of that money to remain in the reserve, but he made similar statements last year – then allowed legislators to tap some of the Rainy Day Fund.

The danger of doing so again, though, is that this reserve is the only buffer Malloy can hold up on the campaign trail this fall to shield him from a post-election deficit that – based on the latest revenue forecast – approaches $1.4 billion.