Malloy calls for bipartisan talks as budget hole deepens

Declaring that weak income tax receipts opened the second major state budget deficit in two months, Gov. Dannel P. Malloy took a new approach Monday, calling for bipartisan negotiations to cut spending, stabilize state financing and address the deeper question of how much government Connecticut can afford.

“We must define government’s core services now and what government can fund year after year in the future,” Malloy said. “Despite suggestions or claims to the contrary, what we define as governmental services cannot be comprised as every single line item in the budget.”

Malloy said he will outline his priorities next week and call the General Assembly into special session when he and the legislative leaders reach a consensus.

The Democratic governor, who previously had referred to Republican calls for major labor concessions as “not serious” and “unrealistic,” also said that labor savings must be an element of the fiscal examination he envisions. He offered no details, saying he will not negotiate in the media.

The new shortfall he announced was estimated at nearly $120 million. That represents less than three-quarters of 1 percent of this fiscal year’s general fund, but the new projection comes barely a month after the administration reported a $103 million shortfall — and subsequently closed it with emergency cuts aimed largely at hospitals and social services.

Malloy ruled out tax hikes, something legislators from both sides of the aisle have been avoiding as well. The new two-year state budget enacted in late June boosts a wide array of taxes by about $1.3 billion over the biennium, while also canceling or postponing previously approved tax cuts worth close to $500 million.

“We’ve heard the calls and seen the press releases,” Malloy said. “Now, we’ll have an opportunity for all of us to talk about specific, concrete ideas to move Connecticut forward. We must use the economic reality of the moment to have a real discussion – not just in the Capitol, but across Connecticut – about how we balance our budget this year, while continuing to build and grow for the long-term. It’s time for all of us to make tough decisions – and make them together.”

Malloy’s call for bipartisanship came with a significant dig at the GOP leaders for objecting to his $103 million in previous cuts without agreeing on alternatives.

House Speaker J. Brendan Sharkey, D-Hamden, issued a statement that suggested the governor had stolen legislative thunder.

“We were prepared to offer today a more fair and equitable alternative to the current rescissions by the governor by starting with a 2.5 percent across-the-board spending reduction that would save about $125 million. This approach would have helped maintain the critical services that thousands of families rely on every day, and keeps much needed local property tax relief intact,” Sharkey said.

Senate President Pro Tem Martin M. Looney, D-New Haven, said he welcomed the prospect of bipartisan talks, but he, too, got in his digs at the legislature’s minority party.

“I’ve said all along that I am willing to work with the Republicans on the budget,” Looney said. “However, they need to show their commitment to participating in real negotiations. The people of Connecticut do not need Republican political posturing and schemes that include $600 million in unrealistic phantom cuts.”

Meanwhile, the top Republican in the Senate, Minority Leader Len Fasano of North Haven, welcomed the call for bipartisan talks. But Fasano said he also believes the deficit is significantly worse than Malloy disclosed, adding that the GOP wants to participate in a process that honestly addresses the problem and stabilizes state finances for the long term.

“We have to do what’s right for the state,” Fasano said, adding that Democrats finally have “realized they’ve stepped into a big mess, and they can’t get out.”

Those “phantom cuts” Looney cited involved House and Senate Republican calls for state worker concessions to mitigate service cuts in the new biennial budget.

Unions granted concessions in 2009 and 2011, and union leaders have said repeatedly in recent months that lawmakers should consider tax hikes on the wealthy and on corporations – and not concessions – to stabilize state finances.

But while Malloy and Democratic legislative leaders criticized the GOP push for concessions as recently as last month, Malloy made it clear Monday that talk of union givebacks no longer is taboo.

“I think everything’s on the table,” Malloy said. “Labor has to be at the table.”

But the governor also noted that the current budget already sets some aggressive goals to contain labor costs.

The administration is tasked with achieving a $10.5 million savings this fiscal year and next in overtime, and also must secure a $35 million annual savings through hiring restrictions.

“Our members have made, and continue to make, sacrifices to protect vital public services,” Larry Dorman, a spokesman for one of the largest state employee unions, Council 4 of the American Federation of State, County and Municipal Employees, said Monday. “Our members have shared, and continue to share, ideas for savings to improve state government efficiency. It’s time for Connecticut’s biggest corporations and ultra-wealthy residents to make some sacrifice to protect vital public services that are critical to our economic well-being.”

Malloy is the second Democrat in recent weeks to acknowledge the growing prospect of another call for state employee concessions.

Sen. Beth Bye, D-West Hartford, co-chair of the Appropriations Committee, said Democratic committee members searching for alternatives to the emergency cuts made to hospitals and social services have been exploring furloughs – unpaid days off – for union and non-union workers. Furloughs could not be imposed on unionized staff without negotiating with the bargaining units.

Like the earlier deficit disclosed in mid-September, the latest shortfall also stems from weaker-than-anticipated state income tax receipts.

But while the administration said the first problem chiefly was tied to capital gains, dividends and other investment earnings – which represent about 40 percent of the overall income tax stream – the latest revenue gap is tied to the income tax’s largest component: paycheck withholding.

 And while investment earnings are more volatile, paycheck withholding is seen as a stronger indicator of the state’s overall economic health.

 Despite a steady reduction in Connecticut’s unemployment rate in recent years — it fell Monday to 5.2 percent —  economists consistently note that much of this growth has come in retail and other lower paying jobs.

Fasano said his office pegs the shortfall in the current budget closer to $300 million. And if legislators want to replace the governor’s mid-September cuts of about $100 million to hospitals and social services with alternative spending reductions, then the overall challenge facing the bipartisan negotiations is roughly $400 million.

Though weaker-than-anticipated state income tax receipts are the largest component of that $400 million challenge, Fasano said, Senate Republicans have identified several other issues including:

• Overly aggressive savings targets built into the new budget.
• More than $80 million in debt payments in the new budget are supposed to be made using bond premiums — additional funds the state borrows when it finances capital projects at premium rates. Treasurer Denise L. Nappier, a Democrat, warned Malloy and the legislature of this problem when they adopted the budgeted back in June.
• And anticipated shortfalls in revenues from keno gaming and from federal grants.

Fasano added in a joint written statement with House Minority Leader Themis Klarides, R-Derby, that ““We cannot forget that we are where we are because Democrats and the governor refused to see the warning signs and repeatedly denied the truth about the severity of Connecticut’s budget issues. There could have been an easier fix if the Democrats simply had conversations with Republicans a year ago.”