Republican state legislators unveiled a $19.7 billion budget for 2016-17 Monday that would set in motion dramatic cuts to spending and borrowing over the next five years — a blueprint leaders insisted would close massive future deficits without tax hikes.
To do that, though, the GOP minorities in the House and Senate would dilute the two big initiatives Gov. Dannel P. Malloy and the Democratic majority launched last June: a 30-year investment in transportation and a plan to share sales tax receipts with cities and towns.
The Republican proposal would cap general obligation bonding — the pool of financing the pays for municipal school construction, capital projects at colleges and universities, state building maintenance and numerous community-based projects — at $1.2 billion per year, or about 60 percent of the level of financing issued last fiscal year and expected to be issued this year.
The GOP has been increasingly at odds with the Democratic governor over his intensifying use of Connecticut’s credit card, arguing it too frequently is used to cover operating costs from the budget — and not for capital projects.
The Republican plan, which closes a $930 million shortfall in the fiscal year that begins July 1 — and gaps exceeding $2 billion in both 2017-18 and 2018-19 — also cuts significantly into operating funds for colleges and universities, imposes a 12 percent cut on many agency budgets and ends public financing for state elections.
It also relies on about $280 million in annual savings the Malloy administration hopes to achieve this spring through layoffs, retirements and other job reductions. And it challenges legislators to impose a three-year wage freeze on all state employees, whose wage contracts are now being negotiated, by exercising their authority to reject any arbitration award that grants workers a raise.
“This budgetary framework marks a different approach to dealing with our seemingly endless cycle of tax increases to cover deficits, followed shortly thereafter by more deficits and subsequent tax increases,” house Minority Leader Themis Klarides, R-Derby, said. “This offers a longer horizon for taxpayers and businesses. It is a sustainable, predictable future and we proved we can do this without raising more revenue.”
“Simply closing the projected deficit for one year is not enough,” Senate Minority Leader Len Fasano, R-North Haven, said. “If we want to resolve the problems facing our state we have to think long-term and think about the policies that will shape our future. Families and employers shouldn’t have to live in constant fear of future painful cuts and growing tax burdens. To restore sustainability and predictability, we must take on a holistic approach now.”
Clamping down hard on borrowing
GOP leaders acknowledged their plan to cap bonding would have a significant impact on many programs, though they added they would give top priority to municipal school construction.
“We were able to survive as a state on far less borrowing for a long time until recently,” Klarides said, “As I have said, this is an issue of setting priorities. The reality is we cannot afford to keep increasing our debt as we have.”
But it could be challenging to cut borrowing so deeply.
Connecticut plans annually to dedicate about $600 million in financing to help cities and towns renovate and build new schools. Another $350 million to $400 million per year goes for public colleges and universities.
That brings the financing total close to $1 billion without factoring in funds used for state building maintenance; economic development; open space and farmland preservation; and community-based projects.
The state also already is using more than $150 million in borrowed funds annually to make payments on other debt service — a controversial practice that gives the state more budget flexibility, but costs Connecticut more money in the long run.
Republicans have decried this practice, but their plan does not eliminate it.
Malloy’s transportation plan is scaled way back
The GOP also could run into trouble with Malloy and the Democratic majority over proposals that would dramatically shrink initiatives the governor and his fellow Democrats hailed last summer as “historic and transformative.”
At first glance, the Republican budget doesn’t appear to cut too deeply into Malloy’s 30-year, $100 billion investment in transportation.
That investment represents a combination of state transportation financing and federal grants that would be used to rebuild highways, bridges, railways and other infrastructure.
To cover the state’s debt costs on the transportation bonds, Malloy got approval to use a portion of Connecticut’s sales tax receipts.
Republicans would delay for 12 months about $52 million of the $96 million in new funds owed to transportation in the 2016-17 fiscal year.
But the sales tax money, at best, only would support the transportation program through 2020. Malloy and legislators haven’t even begun to debate gasoline tax hikes and restoration of tolls — two options recommended by a state study panel back in January.
Under the GOP initiative, though, neither tolls nor gasoline tax hikes would be needed, because the $100 billion investment would be scaled back to $70.8 billion over 30 years.
“We thank the Republicans for putting out a budget plan, which appears to tackle the entirety of the current deficit,” Malloy spokesman Devon Puglia said. “This budget shares key elements with the governor’s proposal. While there are many similarities, there are also clearly several areas where we have questions and concerns. We look forward to having our respective staffs meet in the coming days to answer those questions and move the conversation forward.”
Sales tax sharing also reduced
Malloy wasn’t the only one to have a big initiative undercut dramatically in the GOP budget
Democratic legislators enacted a plan last June to share a portion of state sales tax receipts with cities and towns. Communities are slated to get more than $240 million next fiscal year, and almost $300 million in 2017-18.
Republicans have argued this promise was irresponsible, and that — given the projected deficits — Connecticut could not provide all of these funds without raising state taxes to pay for the program.
The GOP plan scraps about 55 percent of the sales tax receipts promised to cities and towns next fiscal year, but does maintain about $100 million. This would be used to cap municipal property taxes on motor vehicles.
House Speaker J. Brendan Sharkey of Hamden was the only Democratic leader to immediately respond to the Republican proposal.
“I’m glad the minority finally came through with their budget proposal, which contains some helpful ideas, many similar to what is contained in the Democrats’ plan,” Sharkey said. “Time is of the essence; if the Republicans are serious about leading, let’s sit down today, work it out, and get this done together.”
The Senate Democratic Caucus did not immediately respond.
Higher education takes a significant hit
The Republican budget would spend $90.6 million less for student financial aid and for public colleges and universities in 2016-17 compared with the current fiscal year.
“I don’t believe these cuts will lead to tuition increases,” said Klarides.
Here’s a breakdown of the proposed cuts to higher education:
- $34.3 million from the Board of Regents for Higher Education, which represents a 10 percent reduction from the preliminary 2016-17 budget. The system, which includes 12 community colleges, four regional Connecticut state universities and an online college, was slated to receive a $4.5 million increase. While most of the cuts would be left to the college system’s discretion to implement, $3.3 million would be saved by laying off half of the administrators at the system’s central office.
- $27.8 million from the University of Connecticut, which had been slated to receive a $5.8 million increase next fiscal year. The Republican plan also calls for UConn employees to pay 50 percent of the tuition that normally is waived when they have children attending the university. This is estimated to save $3.3 million.
- $22.8 million from the UConn Health Center, which was slated to receive a $700,000 increase. The bulk of the cut would be left to school officials to determine, but $8.6 million would come from eliminating state funding for the fire and police department at the health center and instead paying Farmington $1 million annually to provide police and fire protection. UConn also would give Farmington its fire equipment.
The Republican proposal largely shields cuts to municipal aid for public schools by restoring the cuts to wealthy communities that Malloy and the Appropriations Committee targeted. The GOP plan, however, does propose cutting Education Cost Sharing grant “earmarks” to four communities; $1 million for West Hartford, $450,000 to West Haven, $750,000 to New Haven and $200,000 for Norwalk.
Another $2.6 million would be cut to the state’s 15 lowest-performing districts, known as the Priority School Districts.
School choice programs also were reduced, with magnet schools down $8 million and charter schools down $3.5 million.
Mental health is cut, hospitals spared
The Republican proposal does call for reductions to mental health funding compared to what was originally budgeted, but they are far smaller than Malloy’s proposed cut and would not affect grants paid to providers for mental health and substance abuse treatment.
The Department of Mental Health and Addiction Services was originally budgeted to receive $680.8 million in the upcoming fiscal year. Under the proposal by the Democrat-led Appropriations Committee, its funding would drop to $632.1 million, while the Republican plan would give the department $638 million. Malloy’s proposal would reduce funding for the department to $608.1 million, although his budget documents show the department receiving $693.7 million; the difference is that it counts $85 million in fringe benefit costs currently budgeted under the state comptroller’s office toward DMHAS funding.
Unlike the other two proposals, the Republican plan does not call for cuts in supplemental payments made to hospitals, which are intended to repay a portion of the $556.1 million in taxes they pay the state. By taxing hospitals and redistributing the money to hospitals, the state can generate federal matching funds.
But in recent years, the state has increased the tax hospitals pay while reducing what hospitals receive back, leading to a higher net tax on hospitals and fewer federal matching dollars. While Malloy’s plan calls for cutting nearly $80 million in state funding to hospitals – all the tax repayment scheduled for the upcoming fiscal year – the Appropriations Committee called for a smaller cut, $30 million, which would carry forward a reduction made in December to address a deficit in the current year’s budget. (Both cuts represent a larger total hit to hospitals, since the money is matched by federal dollars.)
The Republican proposal would not carry forward the $30 million cut made in December.
In addition, like the Appropriations Committee, the Republicans proposed creating separate line items for supplemental payments to hospitals and community health centers – a move that would limit the governor’s ability to unilaterally cut funding to those facilities in the future. Currently, supplemental payments, which are funded through the Medicaid program, are part of the $2.5 billion Medicaid line item. State law allows the governor to unilaterally cut up to 5 percent of many line items; as a result, Malloy can cut up to $127 million in Medicaid funds without legislative approval. Putting the hospital and community health center payments in separate line items would mean Malloy could cut each by only 5 percent.
Republicans also called for spending $1.9 million to raise payment rates to radiologists, which the Malloy administration cut last year. Radiologists have warned that the cut could lead some to stop accepting Medicaid patients and make it harder for poor state residents to get mammograms and other imaging services.