State leaders agree on size of the budget problem — almost

Senate Minority Leader Len Fasano and House Minority Leader Themis Klarides after budget talks Wednesday

Keith M. Phaneuf /

Senate Minority Leader Len Fasano and House Minority Leader Themis Klarides after budget talks Wednesday

After one week of bipartisan budget negotiations, Gov. Dannel P. Malloy and legislative leaders have agreed — almost — on the size of the task before then.

After an hour-long meeting Wednesday afternoon in Malloy’s Capitol office, officials announced they would try to reduce spending this fiscal year by $350 million to $370 million below previously approved levels.

Those cuts could serve up to three purposes:

  • Reduce or eliminate the current state budget deficit — of which there are three competing estimates.
  • Free up funding for legislators to bolster spending for hospitals and social services.
  • Or fund new business tax cuts.

“We’ve made very good progress,” House Minority Leader Themis Klarides, R-Derby, said afterward. “I’m very optimistic.”

“It was a very productive, good meeting,” added Senate Minority Leader Len Fasano, R-North Haven.

Why a range of cuts instead of a precise number? Officials from both parties confirmed that’s because they couldn’t agree exactly on the size of the deficit.

Malloy has projected a shortfall of $118 million, caused largely by weaker-than-anticipated income tax receipts.

The legislature’s nonpartisan Office of Fiscal Analysis pegs the deficit at $246 million, while GOP leaders say it’s closer to $330 million. Besides the revenue problem, they also point to potential cost overruns in debt service, and also question whether certain savings targets agencies must achieve in this budget are too aggressive.

Comptroller Kevin P. Lembo certified Malloy’s estimate this week, but also recognized other areas of concern that could quickly make the deficit worse.

Gov. Dannel P. Malloy and Lt. Gov. Nancy Wyman after Wednesday's budget talks with legislative leaders

Keith M. Phaneuf /

Gov. Dannel P. Malloy and Lt. Gov. Nancy Wyman after Wednesday’s budget talks with legislative leaders

All of these estimates, though, are relatively modest, all falling below 2 percent of this year’s general fund.

And officials said Wednesday that, regardless of these differences, they’ve all agreed to aim for a significant level of spending cuts.

The challenge now, though, is to find them.

Malloy, who took heat from Democratic and Republican legislators for emergency cuts to hospitals and social services in September to close a budget deficit, encouraged his critics to come forward soon with their own cost-cutting ideas.

“You know me — not known for my patience,” the Democratic governor said. “I would hope that real things would be put on the table. …I understand this is a process and everyone works at their own speed.”

Malloy also challenged legislators last week to use these talks to consider some business tax cuts.

Among the changes Malloy proposed include:

  • Rewriting the corporation tax rules regarding the controversial new unitary reporting system, including instituting a cap on maximum tax obligations. The unitary system is supposed to prevent companies with affiliates in other states from hiding earnings in those entities, thereby shielding them from Connecticut’s taxes. The unitary system, which has drawn intense criticism from business lobbyists, is worth about $24 million annually.
  • Raising the limit on research and development credits on the corporation tax back to 70 percent of tax obligations.

These tax cuts would cost the state about $5 million this fiscal year and about $20 million next fiscal year.

Democratic legislative leaders would not rule out any tax cuts, but emphasized their focus right now is on reversing earlier cuts to hospitals and to social services.

“For our caucus, (restoring some hospital funding) has to be back on the table,” House Speaker J. Brenda,n Sharkey, D-Hamden, said.

“I think it’s too early” to commit to business tax cuts, said Senate Minority Leader Martin M. Looney, D-New Haven.