Gov. Dannel P. Malloy (file photo)
Gov. Dannel P. Malloy (file photo)

Gov. Dannel P. Malloy wants legislators to cancel $12.7 million owed cities and towns and withhold another $24 million earmarked for biomedical research, open space and historic preservation activities to reduce this year’s budget deficit.

The governor’s budget office also projected a $61.2 million shortfall Friday in its monthly report to Comptroller Kevin P. Lembo. That projection is down from last month, due in part to a recent legal settlement.

Malloy, who shielded municipal aid from cuts during his first term, when he inherited a mammoth $3.7 billion deficit, wants to keep $12.7 million in sales tax receipts owed cities and towns this year.

When the governor and lawmakers increased the sales tax in 2011 from 6 to 6.35 percent, they designated about $50 million per year of the resulting revenue growth to local governments.

And though the revenue-sharing program ended in 2014, municipalities argued – and the administration and legislature agreed – that about $12.7 million had accidentally been withheld because of a calculation error.

And while the funds were supposed to be paid out this year, the administration has struggled with state budget deficits since mid-November.

“It’s disappointing that this (cut) has been proposed and CCM will fight this proposed legislation,” Connecticut Conference of Municipalities spokesman Kevin Maloney said Friday. “Most towns have budgeted for that money, which would make this cut extremely difficult for this fiscal year.”

CCM has warned that the state’s big cities would get hit the hardest if the grant is withheld.

The administration proposed a bill this week that not only would cancel the $12.7 million grant, but also would withhold several other pots of money to help balance the books, including:

  • $10 million from open space preservation grants.
  • $9.4 million from the Biomedical Research Trust Fund.
  • $5.1 million from historic preservation activities.
  • And $100,000 from the Connecticut Food Policy Council.

If approved by the legislature later this year, these cuts would chop another $37.3 million off the $61.2 million deficit, which represents about a third of 1 percent of this year’s general fund budget.

But it’s not entirely clear that the shortfall is $61.2 million right now.

That projection is roughly half of the $121 million shortfall Malloy reported one month ago.

Shortly after the January projection, the administration whittled away about one-quarter of that deficit with its second round of emergency budget cuts this year.

The budget got another boost in early February when Connecticut, 18 other states, the District of Columbia and the U. S. Department of Justice reached a settlement with Standard & Poor’s Financial Services.

Connecticut, which was the lead state in the lawsuit, argued that the Wall Street credit ratings agency had misled investors with certain securities ratings leading up to the 2008 financial crisis.

According to Attorney General George C. Jepsen, Connecticut will receive $36 million as its share of the $1.38 billion settlement.

But the legislature’s nonpartisan Office of Fiscal Analysis, which last reported on Jan. 25, projected a much larger deficit at $182.3 million.

The OFA report takes into account the governor’s emergency cuts, but pre-dated the settlement.

Even so, legislative analysts had identified about $60 million more in potential cost overruns not listed by the administration, including health care and magnet school expenses.

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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