The legislature’s Republican minority argued Friday that Connecticut could avoid most of the painful tax hikes and social service cuts in Gov. Dannel P. Malloy’s budget — and offer modest tax relief — by dramatically scaling back labor costs over the next two fiscal years.
GOP leaders in the House and Senate unveiled a $39.49 billion biennial plan that would require almost $630 million in wage freezes and other concessions while also tightening overtime costs. The plan would impose a new hard cap on borrowing and require future state employees to receive a 401(k)-style, defined-contribution retirement benefit rather than a pension.
But given that state employee unions have indicated strongly they would not consider a third round of givebacks since 2009, the only way to achieve the savings Republicans want might be to lay off thousands of workers.
And given that Republicans hold minorities in both chambers, the package has virtually no chance of winning approval from the Democratic majority or the Democratic governor.
“Connecticut’s fiscal reality required that we prioritize and make difficult choices,” House Minority Leader Themis Klarides, R-Derby, said. “But we did not arrive at this point at the expense of those who depend on services to survive.”
“Governor Malloy’s proposed budget would cripple the core function of government: to protect those who cannot protect themselves,” added Senate Minority Leader Len Fasano, R-North Haven.
Seeking more concessions from labor
The Republican budget tries to juxtapose the deep cuts to social services and tax hikes proposed by Malloy against his refusal to ask workers to accept their third round of concessions since 2009.
This provoked a quick response from Council 4 of the American Federation of State, County and Municipal Employees, one of state government’s largest employee unions.
“We expect and hope that any budget proposal would recognize the billions of dollars in sacrifice and savings that state employees have made, and continue to make, to protect vital public services,” Salvatore Luciano, director of Council 4, wrote in a statement. “Without our most recent changes in wages, pension and health care, Connecticut’s budget deficit would be far worse. Connecticut’s working families need a commitment to job creation and an investment in schools, health care, roads, bridges and communities.
“Instead of blaming dedicated public servants, it’s time to ask Connecticut’s largest corporations and wealthiest citizens, like (2010 and 2014 Republican gubernatorial candidate) Tom Foley, to help prevent devastating cuts by making a fair contribution to the state budget,” Luciano said.
“Just yesterday our union leadership urged the legislature’s finance committee to protect our state’s most vulnerable residents by adopting common-sense revenue enhancements,” said Melodie Peters, president of AFT-Connecticut. “State lawmakers would be wise to ignore Republican leadership’s proposals and instead consider our recommendations to put the common good ahead of personal interest.”
“After months of asking for the Republicans to put their ideas on the table to begin the discussion, we have finally gotten them,” Malloy spokesman Mark Bergman said. “We appreciate their efforts. Unfortunately, instead of making the difficult decisions to put Connecticut on a strong and brighter path, the Republicans punted on the tough calls, putting forward a budget that is based on hundreds of millions of dollars in unrealistic assumptions.”
Bergman added that, “Republicans offer Connecticut a false choice. The only way that this budget could be implemented would be to either illegally break state contracts or lay off thousands of hard-working, middle class families, stopping our economic recovery dead in its tracks. It’s just not serious.”
Neither Klarides nor Fasano shied away from the prospect that the only way to achieve the labor savings in their budget would be for Malloy to impose layoffs if unions refused to consider concessions.
“It is always the bad Republicans who don’t like the unions, and the bad Republicans who don’t like women…, fill in the blank,” Klarides said. “And it is very offensive to me.”
But, she said, lawmakers cannot ignore growing lists of families waiting for residential services for the developmentally disabled, or financially strained private, nonprofit social services providers whose staff members earn significantly less than state employees in social service agencies.
Private-sector workers “just want to keep their jobs, let alone get overtime and wage increases,” Klarides said. “You have to set priorities when people are really needy.”
“I think the governor’s greatest tool is layoffs,” Fasano said. “…Let’s go back to a deal that was promised.”
Republicans centered their critique of Malloy on the 2011 concessions package he negotiated with state employee unions. That deal, which included a two-year wage freeze, new restrictions on retirement and health benefits and an employee wellness program, secured more savings than any other package in recent history.
But it also fell $253 million short of the $900 million-per-year in savings the administration touted it would reach upon full implementation in 2012-13.
Perhaps the most controversial aspect of the plan was an administration assertion that it and the unions would find $90 million per year in general savings through a host of efficiency ideas.
To complete this task, a labor-management panel was formed, which critics called “the suggestion box.” The panel met once, elected co-chairmen, and did not meet again. And while labor and administration officials insist the group did work informally to find savings, neither has produced any documentation showing specific ideas or related savings.
The Republican budget would require Malloy and the unions not only to find $253 million per year in savings — $506 million over the biennium — to fulfill the targets set in the 2011 concessions deal, it also would cancel $100 million in the governor’s proposed budget for employee raises.
The GOP also would freeze pay for managers for one year and revoke the raises Malloy awarded to commissioners and to other agency heads last December.
Democrats note irony of GOP support for social services
Democratic legislative leaders did not respond to the call for more labor givebacks, but subtly noted the irony of the GOP’s proposal to restore funding for social services. Democrats, particularly on the Appropriations Committee, have pressed for these restorations for the last two months, while Republicans spent more time criticizing Malloy’s tax increases than expressing outrage at social service cuts.
“We are pleased that the Republicans have endorsed so many Democratic proposals and look forward to their support as the budget process moves into its final phase,” said Senate President Pro Tem Martin M. Looney, D-New Haven. “Next week, our budget-writing committees will report out a budget that is complete, balanced and invests in Connecticut’s residents.”
“This is an extremely challenging budget year, and the Republicans deserve credit for sharing their ideas instead of simply sniping from the sidelines,” House Speaker J. Brendan Sharkey, D-Hamden said. “Some of the minority’s proposed adjustments will be incorporated in the full Appropriations Committee budget, so I would expect a bipartisan vote as well.”
Struggling with taxes
The Republican plan would deliver a modest net tax cut, rather than the small overall tax hike recommended by the governor.
But the GOP also ran into some of the same stumbling blocks that the governor did as it tried to close projected deficits of $1.3 billion next fiscal year, and $1.4 billion in 2016-17. The Republicans delayed or canceled — as the governor also did — some of the tax relief adopted last term and scheduled to start in the new budget.
Malloy proposed a net tax hike of $360 million over the biennium with new restrictions on corporation tax credits and a significant increase in the hospital provider tax.
Republicans proposed net tax cuts worth more than $270 million over the biennium.
Chief among them was restoration of the sales tax exemption on clothing costing less than $50, though it wouldn’t begin until June 2016.
The corporation tax surcharge, which is set to expire this year, would instead last one more year. Malloy has proposed making it permanent.
Republicans also begin in 2016 to exempt a portion of pension earnings from the state income tax.
Other GOP tax cut proposals include: eliminating the business entity tax, maintaining the new sales tax exemption on non-prescription drugs, ending a limit on credits on the insurance premiums tax, expanding an income tax credit for single filers and implementing the new income tax break for retired teachers.
Overhauling the hospital tax
This relief was offset partially by a Republican overhaul of the state’s hospital taxes.
In 2011, Connecticut lawmakers instituted a tax on hospitals as a way to gain federal money. By collecting a tax from hospitals and redistributing the money to the industry, the state was able to garner federal matching funds. That first year, hospitals paid almost $350 million but received back $400 million.
But since then, the state has reduced what it returns to hospitals. This fiscal year, hospitals pay $349.1 million, but will get back just $96 million. And Malloy has proposed increasing what hospitals pay by $165.3 million — the new tax money would be redistributed to the industry — and revising how the tax is calculated. Hospital officials say it could make it hard for some hospitals to survive.
Republicans instead call for revising the hospital tax to reduce the burden on the industry, particularly small hospitals. They would collect $272.4 million in provider taxes annually from hospitals and return it all to the industry to generate federal matching funds.
Separately, the GOP would institute a second tax — on outpatient revenue — that would raise $206 million per year. The rates would be based on each hospital’s net outpatient revenue. Nine hospitals — Bristol, Day Kimball, Griffin, Charlotte Hungerford, Johnson Memorial, Milford, Rockville General, Sharon and Windham — would pay no tax on outpatient revenue, while one — Yale-New Haven — would pay the top rate, 7 percent.
Bristol Hospital President and CEO Kurt Barwis, who has said that cuts in the governor’s budget proposal could push his hospital toward closing in a few years, praised the Republican proposal for taking into account each hospital’s ability to pay and using a clear, transparent methodology. Although Barwis said he’d prefer no tax on hospitals, he said he hopes both parties can come together to reach a provision that reflects those things.
Putting money back into social services
The Republican proposal reverses or reduces a wide range of health care and social service cuts Malloy proposed for people with disabilities, mental health needs, seniors, nursing home residents and pregnant women on Medicaid.
Legislators in both parties have expressed particular concern about the governor’s proposals for the Department of Developmental Services, and Republicans reversed many of those cuts.
Those include providing funding for day programs to serve more than 600 people with intellectual or developmental disabilities who graduate from high school during the next two years. Under the governor’s proposal, there would be no money for employment or day programs for them, leaving many parents to worry they would have to stop working to stay home with their young adult children or hire someone to do so.
The GOP also reversed most, but not all, of Malloy’s cuts to the department’s voluntary services program, which helps families with children and young adults who have autism or an intellectual disability and a mental health diagnosis and challenging behaviors.
The Republican proposal also provides $15 million in the 2017 fiscal year to provide residential services to 185 people with intellectual or developmental disabilities. Currently, nearly 2,000 people are waiting for services.
As a tradeoff, the Republicans require the department to find savings at Southbury Training School, an institution that now serves 305 people. Parents of young adults on the waiting list for residential services identified millions of dollars in potential savings at Southbury, arguing that the department is wasting money by failing to address inefficiencies and worker overtime costs. Department officials have said they don’t think those savings can be achieved.
The Republican proposal scales back Malloy’s proposals to cut Medicaid eligibility for parents and pregnant women and reduce payment rates for health care providers, both of which have drawn significant opposition from advocates and physician groups.
Under the Republican plan, income eligibility would not change for pregnant women. The income limit for parents of minor children would drop, but would remain at a higher level than under Malloy’s plan. The governor’s proposal is expected to cause about 34,200 pregnant women and parents to lose coverage, while the Republicans say their plan would reduce that number to 22,100.
Malloy’s proposal calls for a 5.6 percent Medicaid rate cut to hospitals, dentists, laboratories and many other health care providers. Republicans would reduce that cut by half, to 2.8 percent in the next fiscal year, then restore the rates to current levels the following year. Similarly, Republicans would reverse several Medicaid rate cuts the Malloy administration made this year, including one to ob-gyns that has led doctors and some advocates to worry that poor pregnant women could have a harder time getting care.
Privatizing social services
The Republican proposal also provides for a 2 percent cost-of-living-adjustment for private, nonprofit health and social service providers, including nursing homes, facilities that serve people with developmental disabilities, and social service agencies.
Republicans have long advocated that the state expand its use of private, nonprofit agencies to provide social services, rather than the state. They noted in their budget documents that, while state workers providing social services have received multiple raises in recent years, those doing similar work in the nonprofit sector have not. Many nonprofit leaders have complained that the sector is at a breaking point, forced to continually tighten budgets as state funding has remained largely flat while costs rise. As a result, many pay low wages, offer little or no benefits and deal with frequent worker turnover.
In addition to the rate increase, the Republican plan calls for creating a committee to look at ways to turn more work over to private providers.
Republicans would also reverse several cuts Malloy proposed for seniors receiving home care and people in nursing homes. Their budget documents note that Connecticut’s senior population is expected to increase by nearly 70 percent in the next two decades, and that programs that allow people to age in their homes and communities, rather than in nursing homes, will save the state money in the long run.
GOP proposals also include reversing Malloy’s plan to freeze intake to a portion of the state’s home care program for elders — which is projected to lead to 38 fewer enrollees each month — and the governor’s proposal to raise the amount seniors must pay toward their care in the program.
And the Republican proposal would eliminate Malloy’s plan to reduce the amount of income nursing home residents covered by Medicaid can keep from $60 per month to $50.
A focus on DCF
The GOP proposal also targets what it calls “an alarming number of problems” with the Department of Children and Families.
Their proposal would make the Judicial Branch entirely responsible for dealing with children who break the law and for operating the Connecticut Juvenile Training School, a maximum security jail for minors whose offenses are not serious enough to land them in the adult correction system. Both the Republicans’ budget and the governor’s cut funding for juvenile justice programs.
The state’s child advocate last summer raised concerns that DCF was inappropriately using physical restraints on incarcerated children. Republicans are calling for an independent ombudsman to oversee DCF and a new inspector general’s office whose authority would encompass juvenile justice and the entire Judicial Branch.
The Republicans say these changes are necessary to correct the “serious deficiencies that continue to leave children at risk and without proper services.”
Their budget would bar DCF — which is responsible for the care of about 4,000 foster children on any given day — from closing any group homes without legislative approval. The agency has closed numerous group homes over the last few years, and the number of placements has dropped from a daily average of 1,216 in 2011 to 626 this month. The governor’s budget projects savings from closing more group homes.
Some child advocates have worried that the state does not have the proper therapeutic programs or respite care in place for children kept in the community. They point to another finding by the state’s child advocate that the number of children with a history of DCF involvement who have died has increased in recent years.
“Our plan recommends against closing more homes and, therefore, against relying on any related savings,” the GOP blueprint states.
However, the GOP budget would cut funding for group homes by $21.2 million in the upcoming fiscal year. The governor’s budget recommends the state spend $109 million next year on group homes, which assumes closing three facilities. The Republican budget recommends $104.1 million, with the savings coming from a reduction in spending on group homes for children that break the law. It’s unclear how those savings would be achieved.
Colleges harder hit
The GOP would cut the state’s public colleges even more deeply than the governor proposed. Funding for the Connecticut State Colleges and Universities system — which includes the state’s community colleges and four regional state universities — would be cut by $22.4 million, compared to the governor’s $20.5 million recommendation. The University of Connecticut would lose $11.8 million compared to the $9.7 million Malloy recommended.
The GOP proposal would eliminate the Board of Regents, which oversees the CSCU system, and its president and two vice presidents. The Republicans would instead give autonomy to each of the 17 colleges and universities and create a central board to provide only administrative support for functions such as information technology and human resources. The new board “would not be tied to the decision-making of the inefficient board in its current form and role,” the GOP said.
Higher Education leaders have said the governor’s cuts would probably cause them to eliminate programs and seek givebacks from unionized staff.
Sen. Toni Boucher said the colleges should be able to cut costs without impacting students by getting concessions from the faculty unions.
“I see two things happening: wages are going up while enrollment is declining. There are a lot of questions to be asked,” the Republican from Wilton said. “They need to get concessions. We are in a financial crisis.”
The president of the Board of Regents has asked the unions for givebacks, but the leaders of the two largest unions have rejected those requests. The president of UConn has also said she may need to seek furloughs from staff if the governor’s cuts are approved by the legislature.
Small changes in local education
The state’s primary education grant for municipalities would be flat-funded, as the governor recommended. However, Republicans recommend not opening two new charter schools in Bridgeport and Stamford that the governor proposes. The GOP budget also would not increase the number of seats in magnet schools as much as the governor would.
“Not cutting them is a huge victory for them when we are facing a $3 billion deficit” over the next two years, said Klarides.
The GOP budget maintains several of the cuts the governor recommends to smaller education grants, including those to the state’s lowest-performing schools and districts to pay for extended school hours, summer programs and healthy school meals. However, it does restore funding to the Boys and Girls Clubs, and Youth Service Bureaus, and kept funding to implement the controversial Common Core State Standards.