five things

Editor’s note: Once a month The Mirror answers five questions about a key element of the state budget process. Today’s story looks at the fiscal landscape in which Gov. Dannel P. Malloy made several rosy budget promises last year. While that fiscal landscape has not changed, the governor’s proposals have.

When Gov. Dannel P. Malloy sent the General Assembly home last May 7, he left the Capitol pledging not to raise taxes and to deliver almost $550 million in tax cuts over the next two years — after the 2014 state elections.

But just a few weeks ago, Malloy asked lawmakers to approve a two-year budget with a net tax increase of $180 million.

Even consumers, who would gain from a sales tax rate reduction, would forfeit even more sales tax relief over the next two years in the form of a clothing exemption that was approved pre-election – but would now be canceled.

The governor also promised another $80 million in tax cuts on the campaign trail for urban businesses and college students struggling with debt. His new two-year budget doesn’t mention that relief.

And while dismissing the deficit warnings of nonpartisan analysts, Malloy insisted last fall that any projected gaps would be closed with minimal pain. Surging economic growth would solve most of the problem, while agencies merely would forfeit the inflationary increases in their budgets.

Yet last month the governor proposed a budget that recommended hundreds of millions of dollars less than what’s needed to maintain current health care and social service programs. The plan removes 34,000 parents from Medicaid and cuts grants for mental health and substance abuse.

What changed? A better question might be, what hasn’t?

1) The Deficits

The legislature’s nonpartisan Office of Fiscal Analysis warned last May that major deficits were built into the next two fiscal years, shortfalls topping $1.3 billion and $1.5 billion, respectively.

After the election, legislative analysts confirmed the $1.3 billion deficit they foresaw for the 2015-16 fiscal year. And while they slightly changed their outlook for 2016-17, it only improved the deficit projection from $1.5 billion to $1.4 billion.

In other words, things hadn’t gotten any worse.

2) Expected Tax Revenues

There was a similar trend when it came to the tax receipts Malloy could expect to work with over the next two years.

In fact, his own budget office signed a joint report with nonpartisan legislative analysts back on April 30 that said Connecticut could expect $15.2 billion from its tax system in the first year after the election, including almost $9.8 billion from the income tax – its single-largest revenue engine.

And on Jan. 15 – just one month before Malloy would deliver his budget proposal – the two branches would issue another consensus report affirming those same estimates. Despite considerable economic growth already built into the deficit forecast, Malloy said last summer that he thought post-election tax receipts would surge even more. That additional growth has not materialized so far.

3) Transportation Funding Challenges

Another part of the governor’s new budget, his transportation initiative, does no more than estimate how much Connecticut must spend to have a “best-in-class” transportation system.

It also notes that the $1.3 billion operating fund that supports our existing transportation program is headed for a deficit by 2018 unless it receives more resources.

Nonpartisan analysts projected this same problem — a deficit just over $40 million by 2018 — in the fiscal note they issued last May to accompany the last state budget approved before the election.

4) A Hefty Credit Card Bill

While presenting the governor’s plan, Malloy budget chief Benjamin Barnes noted that the administration had to deal with a difficult financial burden that had returned after “a two-year holiday.”

This involves about $200 million per year in payments on the $1 billion Connecticut officials borrowed in 2010 to cover a budget deficit.

The reason Connecticut had enjoyed this “holiday,” though, was because Malloy and Democratic legislators had approved the two-year postponement – along with modest additional interest costs – to avoid having to raise taxes in the two years leading up to the 2014 elections.

Malloy already had signed more than $1.8 billion in tax hikes into law in his first year in office in 2011 to help close a massive, $3.7 billion shortfall he inherited.

 5) Rising Higher Education Costs

Students of the University of Connecticut, the state university system and the community colleges have faced tuition and fee hikes since 2011, when state aid to those institutions was slashed to help close the big budget deficit of that year.

On Sept. 9, when the Malloy campaign proposed a new income tax credit for individuals with student loan debt – worth $40 million over two years – the governor recognized this escalating tuition and fee trend.

“The dream of a higher education shouldn’t be out of reach for families across Connecticut,” Malloy said then. “We have already put in place plans to help families save for college for their children, but with the rising cost of a higher education, we need to do more to help students struggling with student-loan debt.”

Since 2012, UConn has been following a schedule of gradual tuition and fee hikes that will leave charges 30 percent higher next year than they were in 2011. After Malloy’s latest budget was released, UConn President Susan Herbst said the university would continue on that schedule.

The state university system’s charges this year are 14 percent above 2011 levels, while the community colleges are 13 percent higher. And officials from those systems, whose goal has been to limit annual tuition and fee hikes to 2 percent, have warned it will be difficult to stay within that target.

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Keith M. PhaneufState Budget Reporter

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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