After watching his fellow Democrats in the legislature unveil a budget that undermined — or even rejected — some of his biggest objectives, including the need to avoid tax hikes, Gov. Dannel P. Malloy will take an unconventional step next week to refocus his party.
The governor, who traditionally begins the annual fiscal debate in early February with his own spending and revenue plan, will submit a second budget next week.
And while Malloy did not offer many hints Wednesday about what his second take might entail, his office didn’t hide its displeasure with the $19.9 billion proposal the Democrat-controlled Appropriations Committee adopted Wednesday for the fiscal year that begins July 1.
“We recognize that a lot of work went into this document, and that it contributes to the conversation by including real cuts,” Malloy spokesman Devon Puglia said. “At the same time, this budget only addresses part of the challenge before us – it is incomplete.”
Several of Malloy’s highest priorities, and a few of his questionable fiscal maneuvers ran into trouble with the Appropriations Committee on Wednesday, including:
- Closing a $930 million deficit in 2016-17 finances without tax increases.
- Making a major investment in transportation.
- Establishing greater Executive Branch control over line items within departmental budgets.
- Increasing reliance on borrowed dollars to make debt payments.
- And maintaining consolidation of the state’s watchdog agencies.
Are tax increases really off the table?
Malloy, who won re-election in 2014 on a pledge not to raise taxes, signed a new two-year budget eight months later that raises taxes $1.3 billion over the biennium while also canceling more than $400 million in previously approved tax cuts.
This reversal triggered a wave of public criticism by Connecticut’s business community and General Electric in particular.
State officials became more wary of tax hikes in January when GE announced it was moving its corporate headquarters to Boston. The governor declared Connecticut had entered a “new economic reality” and challenged lawmakers to balance the next two fiscal years without tax increases.
Unfortunately, nonpartisan analysts now say the preliminary budget for 2016-17 — which was adopted last June — is $930 million out of balance, and a deficit topping $2 billion is built into 2017-18, the first new fiscal year after the November elections.
The Malloy administration repeatedly has challenged the legislature to solve both problems without tax increases.
But can that be done when:
- Much of the state’s costs are fixed by contract?
- Neither the governor nor legislators from either party have proposed major cuts to municipal aid — a move many argue would trigger property tax increases at the local level?
- State tax receipts are shrinking?
The governor’s Feb. 3 plan for the fiscal year that starts July 1 didn’t employ tax hikes. But within three weeks it was about $340 million out of balance because of eroding revenues.
The Appropriations Committee matched Malloy’s bottom line, but Sen. Beth Bye, D-West Hartford, co-chair of the panel, noted it fixes spending almost $1.5 billion below the level needed to maintain current services. That’s even more painful than the spending plan Malloy and legislators approved in May 2011, when the state faced a $3.7 billion deficit or about 18 percent of annual operating costs.
“All we have been doing is cutting programs that effect our most vulnerable citizens,” said Sen. Dante Bartolomeo, D-Meriden.
And while she didn’t actually say “tax increase,” she said, “I don’t think (this process) stops with appropriations. There are other things we need to look at,” adding that some officials won’t face that reality for reasons “personal and political.”
“We have a revenue challenge that is facing us,” Bye added, noting that the legislature’s tax-writing panel, the Finance, Revenue and Bonding Committee, won’t finish its work until the end of business Thursday. “We’re not at the end of the game. We still have to hear from the Finance Committee.”
Sen. Robert Kane of Watertown, ranking GOP senator on the Appropriations Committee, was very direct in his response to Bye. Kane, who opposes raising taxes, said those who advocate increases won’t find much support at the Capitol this year.
“We’ve heard from the governor that he wont accept any more taxes,” Kane said. “We’ve heard from our leaders that they don’t want any more taxes.”
Transportation funds not locked away
Malloy has been equally adamant about wanting Connecticut to make a major investment in transportation, though he hasn’t always been as quick to suggest how to pay for it.
The governor proposed a 30-year plan of increasing investment in February 2015 but suggested no funding plan.
Only in closed-door talks with lawmakers three months later would administration officials ask to divert a portion of sales tax receipts from the General Fund into transportation — a move that was supposed to be enough to cover the first five years.
Malloy set up a panel of experts to decide how to finance the transportation investment over the long haul. They recommended a combination of tolls and fuel tax hikes last January, yet Malloy included none of these in his budget two months ago, saying he wouldn’t do so until lawmakers adopted a constitutional amendment to safeguard transportation funding.
The Appropriations Committee sent a clear response Wednesday: If state spending faces deep cuts, transportation cannot be immune.
The committee budget reduced the transportation fund increase Malloy sought by $89 million. Members also decided that if the Special Transportation Fund would get some of the General Fund’s sales tax receipts, it also could pay some of the General Fund’s expenses. They shifted about $38 million in costs related to municipal aid and public safety into the transportation program.
“I have no problem paying for infrastructure,” Rep. Cathy Abercrombie, D-Meriden said. “The problem I have is taking money from General Fund that we need to pay our bills, … and then saying to families out there that they have to get by with less.”
Panel dislikes block grants, borrowing to pay off borrowing
The committee also pushed back on some of the fiscal maneuvers Malloy has pitched in recent years to avert or mitigate tax hikes.
The governor convinced legislators last year to use about $160 million in borrowed funds to make payments on other borrowed money — an approach state Treasurer Denise L. Nappier warned could harm Connecticut’s reputation among Wall Street investors.
Malloy proposed in February increasing the state’s use of borrowed funds to make debt payments — even though this approach helped push the current fiscal year’s budget into deficit last December.
But the Appropriations Committee recommended reducing the use of these borrowed funds by about $25 million in 2016-17, and Sen. Mae Flexer, D-Killingly, said she wants to wean the state off this practice even more quickly.
Committee members also balked at a new proposal the governor offered in February that would give his budget office greater discretion to decide how departments and agencies spend their money.
The governor’s budget assigned most funding in each department and agency to an omnibus block grant, rather than to specific line items for each program.
Committee members said this approach makes it too difficult for legislators, and for the general public, to understand how their tax dollars are spent and which programs might be affected by budget cuts.
“Time and time again, especially in human service areas, we couldn’t get specifics from agencies,” Flexer said. “That can’t be left unsaid. Everything they say publicly before this committee has to be approved by the governor’s office.”
Malloy’s approach “inhibited transparency,” Bartolomeo added.
“The governor proposed in February a new way of budgeting — a plan with fewer line items, a plan that reflects the true cost of agency expenditures, a plan that doesn’t spend more than we have, and a plan premised on accountability instead of spending on autopilot,” Puglia said. “Unlike the governor’s budget, the Appropriations document contains even more line items than the underlying FY17 budget. It actually adds new earmarks. In short, it tries to do things the same way they’ve always been done, at a time when we must change how government budgets and operates in order to be sustainable.”
Restoring independence to watchdog agencies
The committee also tried to undo a Malloy consolidation Democratic legislators approved five years ago when they merged nine state watchdog agencies into the Office of Governmental Accountability.
These watchdogs — including the Freedom of Information Commission, the Office of State Ethics and the State Elections Enforcement Commission — shared a support staff.
Sen. Gayle Slossberg, D-Milford, said this merger has created “challenges” over the years, but not the savings legislators hoped for.
A better alternative is “restoring the independence of these agencies,” she said, adding that the Department of Administrative Services still could assist the watchdogs with business functions to avoid increasing operating expenses.