A week after suspending budget talks with the administration, the Democratic leaders of the General Assembly offered an olive branch and a new fiscal plan Thursday to Gov. Dannel P. Malloy.
House Speaker J. Brendan Sharkey of Hamden and Senate President Pro Tem Martin Looney of New Haven announced a plan that they say meets Malloy’s key principles by eschewing new taxes, borrowing or raiding the Rainy Day reserves.
But the plan also employs a controversial tax credit that critics say amounts to borrowing from Connecticut’s businesses. It also taps more than $110 million from fund sweeps and other one-time sources – including the sale of the University of Connecticut’s West Hartford branch property. And it adds $41 million to already aggressive savings targets to be achieved after the next fiscal year is underway.
A spokesman for Malloy said the governor was grateful for the new plan and invitation to discuss revisions, but Malloy could not sign the budget without significant changes.
“It relies on hundreds of millions of dollars in one-time revenues and unrealistic savings targets,” said Devon Puglia, the spokesman. “It is critical that we do things differently this year and find a better, more sustainable way of budgeting. This proposal is still too close to the status quo. It contains too much ‘business as usual.’ “
Sharkey and Looney said they have the votes for passage, but they were open to changes – and input from the Republican minority.
“With proposals on the table from the governor, Democrats, and Republicans, we are hopeful and optimistic that legislative leaders are now ready to begin negotiations in earnest,” Puglia said. “We should reconcile our budgets and work to achieve long-term, structural changes.”
The House and Senate Republican leaders, Themis Klarides of Derby and Len Fasano of North Haven said that, while they would negotiate if asked to do so, the Democratic plan was riddled with gimmicks and does too little to control state spending in the long term.
Democratic leaders said the latest adjustments were built upon an Appropriations Committee plan developed earlier this month. That plan was $340 million out of balance, but with these new adjustments, it closes the projected deficit in 2016-17 state finances.
Unfortunately, because of eroding income and corporation tax trends identified over the last week, all of the budget proposals that have been circulating at the Capitol — including this new one from the Democrats, two from the governor and one just last week from the Republican minority — are expected to be officially out of balance by the weekend.
Democratic leaders said their new, near-budget-deal at least conforms to the same revenue projections Malloy and the GOP used in their last plans. The challenge for all sides now is to find common ground — and adjust to the next drop in projected tax receipts, a problem which probably will exceed $180 million.
The Democrats’ latest plan imposes deep cuts in agency payrolls, reduces education aid to wealthier communities, preserves an initiative to share sales tax receipts with municipalities, and establishes a tax credit deferral plan that would allow businesses to voluntarily pay more taxes next year — in exchange for a larger return from the state two years down the road.
“It is a budget that reflects we are in a time of volatile revenues,” Looney said, adding it preserves “substantial property tax relief for municipalities.”
The fiscal blueprint also reflects Democratic legislators’ goal to reduce the cost of state government over the long-term, Sharkey said, adding “there are hundreds of millions of dollars in cuts that will continue for years.
Breaking down the Democrats’ latest plan
The Democrat-controlled Appropriations Committee drew criticism from Malloy and from GOP leaders on April 6 when it endorsed a $19.9 billion budget that was about $340 million out of balance.
Democratic leaders said Thursday they made several hard choices to close that gap while maintaining the Democratic caucus’s goal of avoiding tax hikes this spring. The plan also does not tap the state’s modest, $406 million emergency reserve, commonly known as the Rainy Day Fund.
Besides preserving all but $8 million in a $245 million sales-tax-sharing-plan with cities and towns, the new plan restores about 85 percent of the funding for hospitals that would be cut under a proposal form the governor.
Though there are no tax hikes in the Democratic legislators’ new plan, the voluntary tax credit deferral initiative, which lawmakers hope will raise $60 million next fiscal year, already is drawing criticism.
Republican leaders on the tax-writing Finance, Revenue and Bonding Committee said Wednesday — after The Mirror disclosed details of the proposal — that it merely was borrowing by another name and would weaken the state’s finances in the long run.
Democrats also hope to raise an extra $11 million next fiscal year by expanding Connecticut’s bottle deposit program to cover liquor and juice containers.
The new budget also employs a host of one-time solutions to balance their plan including:
- A $25 million sweep from an energy efficiency fund.
- $6 million sweep from a biomedical research fund.
- $12.6 million from the sale of UConn’s West Hartford branch property.
- And $41.3 million in new savings targets to be achieved during the upcoming year, including $17.3 million from agency personnel accounts.
Malloy warned Democrats earlier this month that the $239 million personnel savings built into the original Appropriations Committee plan was too aggressive, and probably would not be achieved simply by the 2,500 jobs the governor is working to eliminate now through layoffs, retirements and hiring restrictions.
Sharkey said there are clear distinctions between this proposal and plans Malloy and the Republican minorities have proposed.
Besides providing more funding for municipalities and hospitals than Malloy has proposed, the Democrats’ budget also rejects the governor’s push to give departments block-grant appropriations that would leave the executive branch with more control over specific line items in the budget.
“We believe there is more transparency to the taxpayers of the state,” the speaker said.
He added that the Democratic plan avoids the “huge cuts” to higher education proposed by Republicans. The GOP plan also caps annual bond issuances at $1.2 bllion — about 60 percent of the current level. This restriction on borrowing would eliminate crucial financing for manufacturing and other business assistance, House Majority Leader Joe Aresimowicz, D-Berlin, said.
Other components of the Democrats’ plan include:
- Combining the six legislative commissions that advocate for the elderly, children, women and racial and ethnic minorities into just two agencies.
- Capping pensions for non-union state personnel at $125,000 per year,
- Increasing health care premiums and prescription co-payments for legislators and for non-union employees.
Rift between the governor and House speaker
If budget talks are to resume — at least between the Democratic majority and Democratic governor — then a rift between Malloy and Sharkey must be closed.
After Malloy criticized the appropriations panel for releasing an unbalanced budget, Sharkey said the spending plan the governor issued earlier this month amounted to a “personal hit list.”
The speaker and other Democrats objected strongly to Malloy proposals to cut not only the sales-tax-sharing plan, but also funds for hospitals and social services.
“The governor has made it clear he has very different priorities than the legislative branch,” the speaker said on April 21, when he said the best course would be for the Democratic majority to craft a budget without negotiating with Malloy.
The governor’s office said Wednesday that Malloy would sign no budget into law that he had played no role in negotiating.
Democratic leaders said that, while they believe they can pass a budget without votes from the Republicans in the House and Senate, they are open to bipartisan budget talks.
“Now it is really up to us and the Republicans to really work together,” Senate Majority Leader Bob Duff, D-Norwalk, said.
Looney added there is an incentive for all sides to return to the negotiating table.
GOP blasts plan, business lobby raises concerns
Republican legislative leaders did not hide their frustrations with the Democratic plan.
According to nonpartisan analysts, much larger deficits loom in the near future. State finances, unless adjusted, are on pace to run $2.1 billion in the red in 2017-18 and $2.3 billion in deficit in 2018-19 — the first two new fiscal years after the next state election. Each represents a budget gap of about 11 percent.
The Democrats’ latest plan relies too heavily on one-time revenues and other gimmicks that might save money next fiscal year, but won’t help reduce the much larger deficits to come, Fasano and Klarides said.
“This budget fails in every regard, in every way,” Fasano said.
“There is no plan. There is no vision,”Klarides said. “It’s the same excuse to get out of here. … I’ve never seen such irresponsibility.”
The state’s chief business lobbying group, the Connecticut Business and Industry Association, also urged lawmakers from both parties and the governor to pursue greater reductions in spending.
Avoiding tax hikes is important, but officials also must reduce the projected shortfalls that could destabilize state finances in the near future, the association argued.
“While we’re encouraged that proposals put forward by the governor, Democrats, and Republicans all avoid tax hikes, the final budget plan should also avoid one-time savings and one-shot revenues,” CBIA President and CEO Joseph F. Brennan said. “All year, we have consistently called for long-term spending reforms – reforms that will stabilize the state’s finances and generate the confidence needed to attract and retain businesses and create jobs. It’s now time to take the best ideas from all three proposals and pass a state budget that embraces those reforms.”
Everyone’s budget proposal is out of balance
All of the competing budget proposals for 2016-17, including the latest one, have one thing in common: They no longer are in balance.
The $19.77 billion plan Malloy offered on April 12 and the $19.7 billion budget GOP leaders unveiled on April 25 both were designed to close a roughly $930 million hole in the preliminary 2016-17 budget enacted last June.
But last week Malloy’s budget office reported that corporation tax receipts this fiscal year are coming in $85 million below anticipated levels. And the legislature’s nonpartisan Office of Fiscal Analysis reported Thursday that this year’s income tax receipts are $97.3 million below expectations.
Negative revenue trends in the final months of the current fiscal year — which in this case total $182.3 million — traditionally lead analysts to reduce projected revenues by a similar amount in the upcoming year.
Legislative and executive branch fiscal analysts will submit a final revenue forecast at the end of business on Friday.
The challenge for everyone, Looney said, is to close this last revenue problem before the regular 2016 legislative session ends at midnight Wednesday.
“Right now,” he added, “we are either all in balance, or we all are not.”
Starkey took a similar position. If revenues officially erode once more, then all budget proposals need adjustment. “That makes it incumbent on everyone to come together to plan the future of our state,” he said.
Health care and social services cuts
While Democrats have objected multiple times in recent years to Malloy’s proposals to cut hospital funding, their budget proposal calls for reducing the money hospitals receive – though by less than the governor’s.
The Democrats’ proposal calls for a 15 percent cut in the approximately $53 million in supplemental Medicaid funding hospitals receive from the state, while Malloy proposed cutting $49.6 million. Both cuts would translate to a larger impact on hospitals because the state money generates federal matching funds.
The money is meant to repay hospitals for a portion of the $556.1 million in taxes they pay the state and to provide funding for small, independent hospitals.
Other health care and social service cuts in the Democrats’ plan include:
- Delaying a 1 percent cost-of-living increase for private nonprofit social service providers by three months. The $8.5 million increase is scheduled to take effect Jan. 1, but Democrats called for delaying it, saving $4 million. The Republican proposal also called for this delay. Malloy called for eliminating the increase.
- Reducing rates paid to nursing homes by $5.25 million.
- Reducing by $5.25 million the rates paid to home health agencies for administering medication to patients.
- Counting on a $26 million savings from the Medicaid program, which is budgeted to cost the state nearly $2.5 billion in the upcoming fiscal year. Sen. Beth Bye, D-West Hartford, the Appropriations Committee’s co-chair, said $26 million represents two days’ worth of spending in Medicaid, and said that level of savings could reflect natural fluctuation in spending. She added that the figure would be a starting point for conversations with the governor’s office.
- Saving $2.7 million from a 5 percent cut to rates paid to dentists who treat children covered by Medicaid. Malloy previously proposed a 10 percent cut. Advocates and researchers who have tracked Medicaid dental care have warned cutting rates paid to dentists could set back progress the state has made in recent years in dramatically increasing the number of children with Medicaid who get dental care and improving the oral health of low-income children.
- Cutting funding for the Connecticut Home Care for Elders program by 1 percent. The program serves seniors who are or could be at risk of going into a nursing home if they don’t receive care at home.
But the plan also calls for partially reversing two cuts made in the Appropriations Committee’s previous budget by adding $3 million in grant funding for mental health treatment and $3 million for employment services and day programs for people with intellectual or developmental disabilities.
Cuts to education
The legislators’ budget modifies the governor’s plans to eliminate state education aid to the state’s wealthiest communities. The legislative plan would significantly lower the amount those towns receive, but it would not eliminate any town’s entire Education Cost Sharing (ECS) grant.
The ECS formula that directs state funding to communities is designed to provide more money to municipalities with more high-need students and those least capable of raising money locally. The state has not cut funding to any town over the years, however, as student enrollments have declined and property values have risen. Forty-three towns — including Darien, Easton, Greenwich, New Canaan and Westport — last school year collectively received $20.8 million more than dictated by the formula.
While the appropriations committee’s budget cut $41 million from the ECS grant, the new proposal restores $11.5 million. The towns funded above what the formula dictates would be limited to 140 percent of the formula amount. There also would be a lower floor on what wealthy towns could receive.
Republicans had been riled by the proposals to cut aid to wealthy towns, many of which they represent.
As proposed by the Appropriations Committee earlier this year, this plan also would still cut ECS funding to the state’s cities and other towns. Bridgeport would lose $905,000, Hartford $1 million and New Haven $770,000.
The state’s public colleges and universities were largely spared from further proposed cuts. UConn would be cut by another $500,000, and the state would get to keep the $12 million in revenue from the sale of the West Hartford campus.
Loss of the sale proceeds is not expected to exacerbate the public university’s projected $40 million budget shortfall for next fiscal year since the university would have been allowed to use that revenue only for capital spending and not to cover operating expenses.