A handshake, then a vote on Connecticut’s next budget

Updated at 11:10 p.m.

The Senate adopted a $19.76 billion budget Thursday that would eliminate a nearly $1 billion deficit and significantly reduce larger shortfalls after the November state elections.

The plan, which the Democrat-controlled chamber approved 21-15 in a vote along party lines, following a 3-hour-and-15 minute debate. It now heads to the House of Representatives for consideration on Friday.

The budget avoids tax hikes and scales back promised increases in municipal aid and transportation by $125 million and $50 million, respectively, while cutting funds for employees’ salaries beyond the savings expected from the current round of worker layoffs.

Hospitals, nursing homes and community-based social services all face cuts, though the reductions aren’t as deep as those proposed earlier. The plan also relies on more than $200 million in cuts that haven’t yet been specified, but limits Gov. Dannel P. Malloy’s authority to singlehandedly take the money from hospitals, local education funding, or colleges and universities.

Appropriations Committee Co-Chair Sen. Beth Bye, D-West Hartford, described the budget as a plan that avoided tax hikes, borrowing or tapping into the state’s rainy day fund, while managing to provide property tax relief and continue to fund social services, education and economic investments.

“We reduce the state spending back to 2011 levels. It’s a 2017 budget. That is a big structural change,” Bye said. “It’s filled with difficult cuts to all branches of government, but it also reflects priorities that we thought were important to support.”

“It is a stringent budget for stringent times,” Senate President Pro Tem Martin M. Looney, D-New Haven, said. “… This is the necessary budget for these times and puts on on the track for a strong future.”

“We know we have to make some difficult decisions,” said Senate Majority Leader Bob Duff, D-Norwalk, adding that it “sends a positive message” to businesses that the state is working to stabilize its finances.

But Republicans have said the budget doesn’t make the kind of structural changes needed to address the state’s fiscal woes – nonpartisan analysts say the state will face a $1.27 billion deficit in the 2018 fiscal year, even after the cuts made in the new budget.

“All we’re doing is fixing the problem for another day and hoping that maybe next year it’ll be better,” said Sen. Rob Kane, R-Watertown, the top GOP senator on the Appropriations Committee.

And Kane said the level of unspecified cuts built into the budget represented a decision by legislators to put off their responsibility to make necessary cuts. Bye responded that it gave the governor flexibility, but noted the safeguards limiting Malloy’s ability to allocate those cuts.

The Senate also adopted a separate bill Thursday, known as an “implementer,” that contains language needed to implement the provisions of the spending plan, as well as a host of other changes. It passed 20-16 in a vote largely along party lines.

Implementer bills are notorious for containing a wide range of changes – including, in some years, highly controversial ones or provisions that haven’t been widely debated. Senate Republicans heavily criticized the legislature’s majority Democrats this week for not making this year’s 291-page implementer public until Thursday morning, just hours before the Senate was scheduled to begin meeting in special session.

Car tax cap scaled back – twice

One change made in the implementer that deviates from the budget bill itself applies to a motor vehicle tax cap for residents of some cities and towns, which was passed last year.

The budget bill calls for scaling back the property tax relief measure. Last year’s version would have capped car taxes in cities and towns with tax rates above 29.6 mills – that is, $29.60 for every $1,000 of assessed property value – and used a portion of the state’s sales tax receipts to help municipalities offset the lost revenue.

But the budget calls for reducing the amount of sales tax money that goes to cities and towns, and raises the threshold for capping taxes to 32 mills. Senate Republicans said that would cause 29 towns to no longer be eligible for the cap.

The implementer further raises the threshold for towns to qualify for the motor vehicle tax cap to 37 mills, which would allow even fewer state residents to qualify. Communities that already have adopted their 2016-17 municipal budget would have the option of reopening that plan and boosting their tax rate to 37 mills to participate in the capping program.

Why make a cut in the budget bill, then a larger cut in the separate implementation bill?

Bye said legislators were negotiating until the last minute with cities and towns on where to set the cap, given the funding available.

What’s in the budget?

Overall state spending would increase by a modest 0.4 percent compared with the current fiscal year. But spending would be almost $675 million, or 3.3 percent, less than called for in the original 2016-17 budget enacted last June.

Though it doesn’t boost taxes, the budget does rely on some temporary revenues and other one-time sources. About $53 million in total would be swept from 14 smaller funds or off-budget accounts. Another $10.5 million hinges on enhanced tax collections and payoffs from lottery marketing.

Earlier proposals to expand the bottle deposit program and to offer a controversial two-year deferral of business tax credits — promising participating companies a bigger payoff if they waited to take their credits — were not included in this package.

The legislature’s nonpartisan Office of Fiscal Analysis estimated the budget would do more than simply close the $960 million hole in state finances in the fiscal year that begins July 1.

The spending cuts in the plan would reduce projected shortfalls in 2017-18 and 2018-19 from more than $2 billion each to $1.3 billion and $1.4 billion, respectively.

State employee unions say they fear the plan will eliminate more jobs than the 2,500 to 2,600 positions Malloy wants to eliminate this spring through layoffs and retirements.

The budget cuts departmental salary accounts by more than $250 million in total next fiscal year, while also directing the administration to find another $69 million in “general employee” savings. Nonpartisan analysts have estimated it would take more than 2,900 job cuts to save just $200 million per year – significantly less in savings than the budget counts on.

The Judicial Branch would receive $35 million less than originally planned for its salary account. Branch officials have already announced 239 layoffs, warned that an undetermined additional number would be needed, and said they are planning to close multiple courthouses.

During the Senate’s debate Thursday, Kane asked for details on how many layoffs would occur. Bye said she didn’t have an estimate, and that it’s not up to legislators to decide how personnel savings are assigned. She added that some will depend on ongoing negotiations between the Malloy administration and state employee unions.

The budget also consolidates six legislative panels that advocate for various constituency groups down to two, and cuts deeply into support operations for the legislature’s Program Review and Investigations Committee.

The budget also moves approximately $3.9 million in public health programs currently funded through the state’s General Fund, the main source of operating money, to the Biomedical Research Trust Fund. The programs being shifted include those addressing children’s lead poisoning, children with health care needs, children’s health initiatives and a genetic diseases program. Under the budget deal reached between the Malloy administration and Democrats in the legislature last week, they would have been funded through the state’s insurance fund, which is paid for by insurance companies that generally pass the costs on to customers.

Bye said the change was made in response to concerns about important businesses in the state.

Kane questioned the move, saying it seemed like the state was just shifting money around to divert expenses from the General Fund.

Republicans attacked the budget on several grounds.

Besides questioning whether it really would reduce state spending over the long haul, the GOP also charged it needlessly pulls back funding on municipal aid, hospitals and social services.

The higher paying jobs have left this state and are leaving this state,” Senate Minority Leader Len Fasano, R-North Haven said, adding that states are increasingly successful at coaxing businesses to leave Connecticut. “And then you have to stop and say ‘Why is that happening?’”

“This budget is nothing more than a panicked reaction” to deficit projections, Sen. Art Linares, R-Westbrook, said.

But the Republicans’ chief alternative is to reduce employee benefits and other labor costs that would require concessions from state worker unions to secure big savings.

Union leaders have said they won’t consider givebacks this year, noting the workers granted concessions in 2009 and 2011. The better alternative, they said, would be to increase taxes on wealthy households and on corporations.

Education cut some now, possibly more later

State funding for primary and secondary education is cut by $108.6 million, a 3.5 percent reduction. The Connecticut State Department of Education would receive $83.7 million less than the current fiscal year for grants and programs that support local public schools.

While most of the cuts would reduce the amount of education aid the state sends municipalities to help operate their schools, the bill that implements the budget would allow communities to reduce local education spending by an amount matching any reduction to the Education Cost Sharing grant, the state’s primary education grant. This means Bridgeport, Hartford, Greenwich, Ridgefield and Westport could each cut education spending by at least $1 million.

The budget does not allow communities to reduce education spending to offset the other reductions in state aid, however. For example, while New Haven will be able to cut its education budget by $770,000 to reflect the ECS cut, the city is losing at least $2.4 million in other grants that pay for school crossing guards, transportation of school children and adult education programs.

The allowed reduction in local spending “does not provide enough relief so that it is on par with the amount of education aid being lost,” said Kevin Maloney, a spokesman for the Connecticut Conference of Municipalities.

“This is going to raise local property taxes,” said Sen. Art Linares, R-Westbrook. An amendment proposed by Linares that would eliminate the minimum spending requirement entirely was rejected by the Senate.

While the state’s wealthiest communities are impacted the most by cuts to the ECS grants, the state’s largest cities are the biggest losers in dollar terms of education aid. (See how your city or town fares here.)

Connecticut’s public colleges and universities would lose 7.4 percent of the funding they were promised in the original 2016-17 budget, a reduction of $59 million. But they could end up losing more than that.

Higher education routinely has been targeted for emergency cuts in recent years when deficits arise. The new budget does not bar the governor from unilaterally ordering more emergency cuts in 2016-17, but it does limit how deeply he can cut. The community colleges could not be cut by more than $1.6 million, the Connecticut State Universities by $3.1 million and the University of Connecticut by $2.3 million.

Bipartisan support for new venture capital program

Republicans and Democrats did find common ground in at least one area in the budget: The budget implementer also creates a new quasi-public economic development agency.

CTNext would be established as a subsidiary of Connecticut Innovations Inc., providing venture capital to start-up companies and firms that have been incorporated for no more than 10 years and have seen at least a 20 percent jump in their annual gross revenues for three successive years.

The legislature assigned $25 million in state financing previously authorized for manufacturing assistance and for Connecticut Innovations to be available to CTNext.

Connecticut’s colleges and universities have made great strides in research with potential business applications, said Sen. John Fonfara, D-Hartford, co-chair of the Finance, Revenue and Bonding Committee. But the state could do more to help that research translate into new business ventures, he said.

“I think it will make a difference going forward,” said Sen. L. Scott Frantz of Greenwich, ranking GOP senator on the finance committee.

Smaller budget notes

Reductions to the community colleges could not exceed $1.6 million in total. Limits of $3.1 million for the state university system and $2.3 million for the University of Connecticut also were set.

The budget implementation bill established several other new policies:

• Starting July 1, pensions for newly hired non-union state employees would be capped at $125,000.
• Non-union state employees would see an increase in their health insurance premiums, saving about $5.5 million.
• The appeals process for hospitals to contest Medicaid rates would change, which the Office of Fiscal Analysis said could limit future costs the state might have incurred if hospitals successfully appealed payment rates. Hospitals have filed dozens of appeals of Medicaid payment rates in recent years.
• State judges were scheduled to receive a raise on July 1, but the implementer would delay it by a year, saving $1.4 million in the upcoming fiscal year.
• Diapers and feminine hygiene products are exempted from the state’s sales tax – but not until July 1, 2018, after the fiscal year covered by this budget.
• Dunkin’ Donuts Park in Hartford – where the Yard Goats minor league baseball team is slated to play – would be exempted from the tax on admissions, which would lead the state to forgo $400,000 per year. Also exempt from the tax would be games played by the New Britain Bees at New Britain Stadium, beginning in the 2018 fiscal year. That would deal the state a $100,000 revenue loss each year.

The bill makes changes demanded by the governor as a condition of signing into law a measure creating the Retirement Security Authority, a quasi-public agency that will oversee a new retirement savings program for private-sector workers whose employers offer no retirement benefits. Unless they opt out, workers will see 3 percent of their wages deducted and invested in a Roth IRA. No employer contribution is required.

One of the key changes opens the program to multiple vendors. The original bill envisioned a single vendor. The revisions also expand the authority’s board from nine to 15 members, adding six executive branch representatives: the heads of the Office of Policy and Management and the Banking and Labor departments, plus three other gubernatorial appointees.