Had state government slashed its way out of a budget deficit five years ago, Gov. Dannel P. Malloy often has said, Connecticut’s quality of life would be unrecognizable.
But the Democratic governor now is urging spending cuts over the next two years that key Democratic lawmakers argue could have an impact similar to cuts Republicans sought – and Malloy decried – in 2011.
And while Malloy attributes his current position to “the new economic reality,” his Republican critics counter this reality is hardly “new,” having been in place for five years. What’s changed, they say, is that Malloy is running out of maneuvers to mask the state’s fiscal woes.
“We could not cut 18 percent out of the budget and still recognize Connecticut,” Malloy said on Oct. 30, 2014, one week before he won re-election to a second term over Greenwich Republican Tom Foley.
The governor had taken heat throughout his first term by signing into law in the spring of 2011 a historic tax increase, worth more than $1.8 billion. Malloy inherited a record-setting projected deficit — approaching $3.7 billion — built into the first fiscal year of his first term.
Further complicating matters, Foley — Malloy’s opponent in 2010 as well — had asserted he could close that deficit without tax hikes.
Malloy criss-crossed the state in 2011, explaining to voters this was a false panacea.
It would decimate state services and shift huge costs onto cities and towns, destroying the quality of life that made Connecticut one of the most popular places to live in the world, the governor argued.
“This is the game Republicans play… If you had cut 18 percent of this budget out without raising taxes, the programs we hold dear for the middle class, the poor and the aspiring middle class would not exist,” Malloy told the state AFL-CIO in September 2011, five months after his tax hikes had been enacted. “Had that happened, you would not recognize Connecticut today.”
‘Discretionary’ spending on the chopping block
But the governor’s vision changed dramatically this week when he submitted his revised budget plan for the 2016-17 fiscal year.
“This budget is based not on how much we want to spend, but how much money we actually have to spend,” he said Wednesday in his State of the State Address to the legislature.
Simply put, Connecticut must first determine how much its existing tax system will yield, and then cut programs to meet that bottom line.
Using that approach, the state would spend 4 percent less than the level nonpartisan analysts say is necessary to maintain current services next fiscal year.
By 2017-18 the gap is 10 percent.
But it’s not that simple.
Debt costs, including pensions, other retirement benefits, and payments on bonded debt, are growing much faster — not only than revenue, but also than the rest of the budget.
And since those costs and Medicaid are largely fixed, Malloy budget director, Benjamin Barnes said, “discretionary programs” must bear the brunt of the cuts.
How much?
Barnes estimates that in 2017-18, two fiscal years from now, spending on discretionary programs needs to be 15 percent below the level needed to maintain current services.
What’s outside of “fixed” costs and therefore “discretionary?”
The list, which represents about 60 percent of the budget, includes many programs and services for the poor, disabled and mentally ill; assistance for hospitals; public colleges and universities; aid to cities and towns; public safety; environmental protection; government watchdog groups; and economic development.
Barnes added that the administration is developing a list of “core” programs within the discretionary category that it will attempt to shield the most vital. Though that hasn’t been completed, the budget chief said he expects education would top that list.
Why does Connecticut need to go in this new direction?
“Our national economy, while making progress from the Great Recession, was fundamentally changed,” Malloy told lawmakers. “A shifting workforce, the rapid rise of technology, and stagnant wage growth have made this recovery tougher for everyone, everywhere.”
The governor said 26 other states’ revenue streams haven’t recovered to pre-recession levels. And while Connecticut has made “year-after-year progress chipping away at our structural imbalance, it’s clear that our work is not done. It’s clear we have not gone far enough.”
But if legislators allow Malloy to cut 10 percent out of all spending – or 15 percent out of “discretionary” programs and services – will Connecticut be recognizable?
“I think we have to be very careful about this,” Rep. Toni Walker, D-New Haven, co-chair of the Appropriations Committee, said, adding that it wouldn’t take an overall cut as large as 18 percent to leave Connecticut unrecognizable.
“You could cut 3 percent in the right area and people would feel it,” she said.
Walker’s co-chair, Sen. Beth Bye, D-West Hartford, also is worried Connecticut’s quality of life is at risk. “We are consistently ranked in the top four states in Forbes’ business rankings for quality of life,” she said. “That’s one of the things that separates us from other states. … I think people care about that, and I think we will hear that from them.”
The overall 10 percent cut in the spending needed to maintain current services over the next two years is just over half the percentage reduction Republicans sought five years ago.
But the 15 percent reduction Malloy wants for the two-thirds of the budget he deems discretionary does approach the magnitude of the 2011 reductions, the Democratic legislators argued – at least for education, non-Medicaid health care and social services, municipal aid and many other government programs.
“I don’t think it’ possible” to make the cuts Malloy endorsed and not dramatically impact the state’s quality of life, Bye said.
Walker had high praise for Malloy’s Second Chance Society initiative, which is designed to curb recidivism and better re-integrate offenders into communities. But, as an example, Walker said modest cuts to certain employment and social service programs would severely undercut its effectiveness.
Does the governor believe the cuts he has proposed would leave Connecticut’s quality of life unrecognizable?
“As the governor said, we face a new economic reality in the state of Connecticut; we have to adapt to that,” Malloy spokesman Chris McClure said. “That is what the governor’s budget proposal does. Waiting for our economy to return to double digit revenue growth to fund every line item at ever-growing cost is no longer an option.”
McClure added that, “We look forward to seeing how both Democrats and Republicans propose meeting that new economic reality facing Connecticut and working with them to address that challenge facing Connecticut.”
‘In all candor, we are broke’
But Republicans counter that nothing Malloy is pointing to is new. These signs have been in place for much of the past five years. What has changed, they say, is the Democratic governor’s ability to mask the problem.
“I do believe the governor has now recognized that his approach of tax-and-spend was not the correct way to go,” said Senate Minority Leader Len Fasano, R-North Haven.
Fasano said Malloy’s new direction is caused by red ink, and not some new economic direction.
“In all candor, we are broke,” Fasano said.
Connecticut has more than $70 billion in long-term obligations to retirees and bond holders. Nonpartisan analysts project deficits totaling $3.6 billion – 8.7 percent of the budget – in the first two fiscal years combined after the November 2016 state elections.
Before the 2014 election, Malloy and the Democrat-controlled legislature shifted hundreds of millions of dollars in debt payments due in 2013 and 2014 into the next term — plus interest — when they hoped the economy would be better, Republicans said.
And this fiscal year, for the first time, the state is counting on borrowed funds — about $150 million — to make payments on bonded debt.
Ziobron: Malloy’s ‘new’ reality is years old
Rep. Melissa Ziobron of East Haddam, the ranking GOP representative on the Appropriations Committee, also was puzzled Thursday by the administration’s assertion that the “economic reality” is in any way “new.”
According to the official arbiter of recessions, the National Bureau of Economic Research, the Great Recession ended in June 2009. Connecticut traditionally both enters recession, and climbs out of it, later than the rest of the country.
But even those groups that take the harshest view of the damage that recession caused, such as the Connecticut Center for Economic Analysis at UConn, estimate that it ended here in 2011.
Ziobron said Republicans agree that Connecticut’s economy since the recession has been sluggish. But under-performing state revenues and deficit forecasts have been a frequent occurrence since 2011.
“We have been sitting in the chamber and pointing out these issues (since 2011) and instead have been accused of pointing out a negative reality that doesn’t exist,” she told Barnes during a committee hearing Thursday.
Malloy’s arguments now also are undermined by his comments in 2014 as he ran for re-election, Ziobron said.
The governor dismissed projections of a major post-election deficit during an August 2014 interview with The Mirror, and said revenue projections approved both by nonpartisan analysts and his office were “extremely conservative.”
“We really don’t have a deficit,” he said. “I know that’s hard to believe.”
Despite his insistence though, Malloy signed a new budget last June, which increased taxes by about $670 million per year and also delayed previously approved tax cuts worth more than $200 million annually.
It was unclear Wednesday whether Democratic legislators would accept Malloy’s new philosophy.
The battle between Malloy and his fellow Democrats in the legislature over spending cuts is not new. The governor wanted legislators to limit spending more than they did both last June, when the current budget was adopted, and during a special session to close a deficit last December.
Bye said she is very concerned about what Connecticut would look like if the proposed reductions are made.
“This will have generational impacts, so we have to be very careful,” she said. “What we’re looking to protect is Connecticut’s quality of life.”
Rep. Cathy Abercrombie, D-Meriden, said she fears the governor’s new budget plan doesn’t demonstrate the full impact of the cuts he is seeking, particularly on programs for the disabled.
“We’re working with human lives,” she said.