Gov. Dannel P. Malloy signaled an intention Tuesday to lay off state employees in the current fiscal year, saying the workforce must shrink substantially, and that the process must begin before the fiscal year ends on June 30.
Malloy, who spoke to reporters after a meeting with legislative leaders, chose his words carefully when pressed about the scope of coming layoffs, referring to the damages the state had to pay over former Gov. John G. Rowland’s mishandling of layoffs a dozen years ago.
“I don’t want to give to some future governor the Rowland problem, right? So those numbers are being worked out, and we have to dot every ‘i’ and cross every ‘t,’ but they’re substantial,” he said.
The governor was referring to about 2,800 pink slips the Rowland administration issued in late 2002 to help close a major state budget deficit. Unions sued in federal court, and the settlement reached 11 years later will cost the state an estimated $100 million to $125 million. It was structured to minimize the fiscal impact on the state by compensating a majority of the plaintiffs with extra vacation and personal days, not cash.
Malloy’s budget director, Benjamin Barnes, said last February that the governor’s plan to balance next fiscal year’s budget hinges in part on reducing the workforce by “several thousand” employees.
Malloy and his staff have avoided the term “layoffs” but continued to hint that these might be forthcoming, even before the new fiscal year begins on July 1.
And when the governor wrote to legislative leaders Tuesday to solicit ideas to reduce a growing state budget deficit, Malloy warned that an “expedited reduction of the state workforce” might be needed before the fiscal year ends on June 30.
When asked Tuesday whether that “expedited reduction” translates into “layoffs,” the governor responded: “That’s not news, is it?”
When asked again, the governor noted that he talked last October about the need to reduce the workforce by 500 to 600 employees and that since then “clearly that number has gotten larger.”
Lori Pelletier, the head of the Connecticut AFL-CIO, said the administration has said nothing to her about workforce reductions since the governor’s budget address in February.
“I passed him in the hall today, both him and Brian,” Pelletier said, referring to Malloy and his chief of staff, Brian Durand. There was no suggestion they needed to talk, she said.
One of state government’s largest unions, Council 4 of the American Federation of State, County and Municipal Employees, also has received no warning or briefing, spokesman Larry Dorman said.
“Layoffs will only expedite Connecticut’s race to the bottom by cutting good middle-class jobs that support our communities,” Dorman added. “There are better choices to conserve Connecticut’s quality of life than painful (service) cuts and mass layoffs.”
Malloy also challenged legislative leaders Tuesday — for the second time in five months — to offer alternative spending cuts rather than complain about his decision to suspend payments to hospitals to mitigate the state budget deficit.
Malloy took heat from legislators from both parties last week after he suspended about $140 million in payments earmarked for hospitals in connection with the state’s health care provider tax. The governor also is withholding $3.89 million in payments for community health centers.
State Comptroller Kevin P. Lembo certified a nearly $220 million general fund deficit last week for the fiscal year that ends June 30. And the legislature’s nonpartisan Office of Fiscal Analysis places the shortfall at slightly more, $266 million.
Most of the this deficit is caused by eroding state income tax receipts, identified in projections issued in late February.
In a letter sent to Democratic and Republican leaders from both the House and Senate, the governor made it clear that if government is to erase the deficit without borrowing, tapping its emergency reserve or raising taxes, time is running out.
And if lawmakers don’t want to use the $140 million earmarked for hospitals to mitigate the deficit, what is their solution?
“These are difficult decisions,” Malloy wrote. “They are made more complicated by the fact that we are more than three-quarters of the way through the fiscal year. In other words, because most expenditures have already been made, we are more limited in what we can cut.”
The governor, who also butted heads with legislators last fall over hospital funding, asked the caucuses to offer alternative cost-cutting ideas by March 14 — and offered a few of his own.
- The “expedited” reduction of the state workforce, estimated to save $6 million.
- Eliminating a planned $16 million revenue transfer from this fiscal year to the next. Unfortunately for state officials, there is a $900 million hole built into the 2016-17 budget which begins July 1.
- And reducing about $20 million in non-education municipal aid.
The governor has limited authority to unilaterally reduce certain areas of the budget without legislative approval. And Malloy identified about $80 million in rescissions he might make in the fourth quarter of this fiscal year. More than $50 million of that would fall upon community-based social service programs, but cuts also could be imposed on the court system, higher education, the legislature and various executive branch departments.
The administration and the Judicial Branch already saved a combined $4.6 million recently by canceling planned raises for managers.
“Clearly we need to go further, but my hope is to provide a context for our discussions, and also to make clear just how stark our choices are — especially if the full hospital payments are made,” the governor added in his letter.
The Malloy administration’s decision last week to suspend about $140 million in payments to hospitals potentially reverses legislative actions in December to bolster hospital funding.
The industry originally was budgeted to pay $556 million in taxes and receive $256 million in reimbursements, either through a limited pool for small hospitals or a broader program for all facilities.
In mid-September, responding to a weak stock market, the administration cut payments to hospitals and withheld others. At that point, the industry expected to receive just $64 million back against $556 million paid to the state.
When lawmakers objected, Malloy challenged them in October to bipartisan talks to find alternative cuts.
In a December special session, the Democratic majorities reversed some of the September cut and reached an understanding with Malloy to release withheld payments — all of which elevated this fiscal year’s payments to the industry to $164 million.
Republican legislators opposed the December plan, saying that, while they favored restoring funds for hospitals, the plan didn’t cut overall spending enough to stabilize the budget in the long run.
The latest action by the administration suspending about $140 million in payments now leaves hospitals slated to receive $22 million in tax reimbursement payments this fiscal year — or just 4 percent of what they will pay.
Leaders from both parties also balked last week when Malloy suspended payments to hospitals.
Sharkey said that the administration did not consult with him before freezing the payments to hospitals and community health centers and that this contradicts the budget deal that was brokered this winter to close a previous mid-year deficit.
“I am not OK. … It was not what we negotiated,” House Speaker J. Brendan Sharkey, D-Hamden, said, referring to the agreement in December. “This was something we fought very hard for as legislators, to ensure that these funds would be available to our hospitals. Withholding them is unacceptable, and we are all calling on [the administration] to release those funds as soon as possible.”
“Hospitals are struggling to meet their core functions and serve the neediest in their host communities and surrounding towns,” House Minority Leader Themis Klarides, R-Derby said last week. “Typically they are the largest employers anywhere, and this added bad news will only make things worse.”
“This ill-advised decision is skirting a core responsibility of government to care for those most in need,” said Senate Minority Leader Len Fasano, R-North Haven.
Senate President Pro Tem Martin M. Looney of New Haven, the highest-ranking member of the majority caucus, repeated his call Tuesday for Malloy to release the payments to hospitals now.
“Democrats in the General Assembly already successfully fought to preserve this critical funding – it was a key part of our agreement with the governor in December,” Looney said. “Connecticut’s hospitals are centers of innovation and jobs and are the linchpins of local economies. Thousands of jobs in our communities depend on our hospitals, and further cutting them is shortsighted and is inconsistent with an agenda for economic growth.”
While Looney added that, “The Senate Democrats are prepared to do what is necessary to balance the budget,” he didn’t offer any details.
Do legislative leaders believe a $220 million to $266 million deficit can be eliminated by June 30 using only spending cuts – while not touching the $140 million owed hospitals?
“I think it will be difficult, there’s no question about it,” Sharkey said, but he added that any cuts found this year still would be useful, helping also to balance the 2016-17 state budget.
But Republican leaders said any hope of closing this year’s deficit – and balancing the next fiscal year’s budget – rests with restructuring labor costs. This would require concessions from state employee labor unions.
“That’s a Herculean task, no question about it, but I think that it is doable,” Klarides said. “It’s just difficult to do. But if you don’t look at it, you run the risk of continuing this hamster-in-a-cage, going through the whole (deficit) problem we’ve had time after time.”
“Until the state is willing – until the leaders are willing – to do structural changes to our state budget, we are going to be here every four months,” said Fasano.