Budget deficits and state elections have a turbulent history
Though there are some new aspects to the latest partisan battle over state government’s fiscal health, this isn’t the first fight of its kind.
In fact, Democratic and Republican governors have been accused frequently of hiding red ink over the past decade-and-a-half — particularly when legislative seats or control of the governor’s office is at stake.
“Someone’s always playing politics at this time of year,” state Comptroller Kevin P. Lembo told The Mirror in an interview last week, referring to the final weeks before Election Day as the “silly season.”
But Republican legislators, who again are struggling to reverse longstanding Democratic majorities in the House and Senate, say this year doesn’t involve the traditional version of fiscal Three Card Monty.
This time, the GOP argues, Gov. Dannel P. Malloy’s administration tipped its own hand, revealing a significant deficit in a public document — and then later trying to downplay it.
Malloy reported red ink after 2014 and 2012 elections
Malloy, who inherited a record-setting deficit when he took office in 2011 and who has battled red ink throughout much of his tenure, is not new to charges of massaging budget numbers during the campaign season.
The governor, who insisted repeatedly while running for re-election in 2014 that there would be no deficit, particularly rankled his Republican critics in his last pre-election budget forecast two years ago.
Malloy’s Oct. 20, 2014, budget report not only said the books were balanced, it also disclosed no “deficiencies” or potential cost overruns.
“Deficiencies” simply involve projected over-spending in an agency or departmental line item. Even in good fiscal times, the budget typically faces close to $100 million in deficiencies. Even though these may be offset by projected surpluses in other departments, or by higher-than-anticipated tax receipts, they are nonetheless reported.
In other words, Malloy — who also took a pledge not to raise taxes if re-elected — effectively was reporting budget perfection.
A review of monthly budget reports filed online and dating back to 2006, showed this was the only October report up to that point to claim there no potential cost-overruns in any agency one-third of the way into the fiscal year.
About one week after the 2014 election, the Malloy administration reported a $100 million deficit. And while that shortfall represented less than 1 percent of the General Fund, it would linger. Despite multiple emergency spending cuts, Connecticut would finish the 2014-15 fiscal year $113 million in the red — the first of two consecutive annual deficits.
Malloy also was accused of hiding red ink just two years into his first term.
The governor, who had signed tax hikes worth more than $1.8 billion per year into law in 2011 — after inheriting a record-setting deficit — disclosed a relatively small $60 million shortfall in late October 2012. The deficit in his last pre-election report that year represented less than one-third of 1 percent of the General Fund.
But just 26 days later, and after an election in which Malloy’s fellow Democrats maintained their control over the state House and Senate, the administration increased its deficit forecast sixfold, boosting it to $365 million.
But charges of hiding red ink aren’t limited to one particular administration or political party.
Rell didn’t recognize $2.7 billion problem
Malloy’s predecessor, Republican M. Jodi Rell, served her first five years in office — from 2004 through 2008 — in robust economic times, and generally had the luxury of being able to report budget surpluses during most state election years.
But Rell also was accused of sitting on the largest pile of red ink of any governor in recent history — just not during the fall campaign.
In early February 2009, with Connecticut sliding deeply into recession, Rell still hadn’t closed the door on possibly running again in 2010.
The Republican governor would unveil a plan to close $6 billion in projected deficits over the last two years of her first term, without raising taxes.
But according to nonpartisan analysts, Rell’s plan ignored a whopping $2.7 billion in projected revenue losses.
Majority Democrats in the legislature would battle Rell all winter and spring to reconcile her numbers. The administration eventually would concede most of the difference. By August the governor had agreed to support a major income tax increase on the wealthy. And in early September 2009, the longest-running budget battle in modern state history would end in bizarre fashion.
Rell, whose administration negotiated a final budget deal complete with tax hikes worth a collective $1 billion per year, would allow it to become law without her signature.
Rowland OK’d layoffs, income tax hike — after the election
Republican Gov. John G. Rowland had his own struggle with red ink as he campaigned for a third term in the summer and fall of 2002.
Having finished the previous budget more than $800 million in deficit — a shortfall that exhausted the budget reserve and forced over $200 million in deficit borrowing — Rowland still faced a Connecticut economy sliding into recession.
And while his administration reported a $331 million deficit — about 2.5 percent — about three weeks before the election, it would nearly double over the next few months.
More than 2,800 state employees, most of them unionized, would be issued layoff notices in late 2002 and early 2003.
(In a unanimous decision in May 2013, the U.S. Court of Appeals for the 2nd Circuit concluded that Rowland violated the union members’ civil rights.)
And by February 2003, Rowland would sign into law a $600 million deficit reduction bill featuring a $475 million state income tax increase — the first major hike in that tax since its enactment 12 years earlier.
Former state Comptroller William E. Curry Jr., a Democrat who lost the 1994 and 2002 gubernatorial contests to Rowland, said the Republican governor wasn’t the only one interested in hiding red ink.
“He had been in violation of the law for the better part of a year” by ignoring or understating deficits in official financial reports, Curry said. “And nobody lifted a finger or said a word.”
Democrats held majorities in the state House and Senate and were no more interested in acknowledging the likelihood of an income tax increase than Rowland was, Curry said.
Rowland would attack Curry on the campaign trail for proposing an income tax increase on households earning more than $1 million — a deficit-eliminating tool many Democratic legislators would support after the election.
Ironically, though, Rowland would insist upon a half-percentage-point increase imposed across most income groups and cuts to a middle-class property tax credit.
Curry recalled planning an event toward the campaign’s conclusion to highlight the impending budget crisis. “All of the Democratic officials invited to the press conference pulled out,” he said. “It reflected their disinterest in taking on Rowland in any way, and their disinterest in taking on the topic of fiscal responsibility. It was one of the most heartbreaking moments of the campaign.”
Are things different this year?
Republican leaders say this latest budget battle is different.
For one thing, charges of hiding fiscal problems began well before the autumn.
The latest debate started in May, more than a month before the current fiscal year even began on July 1.
Malloy and his fellow Democrats in the legislature’s majority loudly touted that they had just rebalanced 2016-17 finances — closing a nearly $1 billion projected shortfall without tax hikes — with the $19.7 billion budget they had passed.
Republicans countered they would expose on the campaign trail how this plan wasn’t truly balanced. It hinged on rosy assumptions about likely income and sales tax receipts, aggressive savings targets, and planned employee layoffs already running behind schedule.
The Mirror disclosed on Oct. 11 that the Malloy administration reported a $133 million revenue shortfall to dozens of agency heads on Sept. 6, but excluded that data in its official monthly report to Lembo on Sept. 20, claiming the current budget is in balance.
GOP leaders said this is another major distinction between past election-year disputes and the current one.
This time, they said, Malloy was trying to have his budget cake and eat it too: Citing shrinking revenues to scare agencies now into curbing spending, while still telling the public at large that all is fine.
“At this point it isn’t about who’s right and who’s wrong,” Senate Minority Leader Len Fasano, R-North Haven said. “It’s about figuring out the truth. That’s not what we are getting from the governor’s office. Did Gov. Malloy mislead his commissioners? Or did he mislead the public?
Malloy spokesman Chris McClure countered that Republican leaders displayed “an alarming ignorance of the state budget” and how it works.
Ben Barnes, the governor’s budget director, said, “We monitor revenues on a daily basis and regularly consider the impacts of economic and financial events and trends on our near- and long-term revenues. This analysis typically leads us to identify likely ranges of outcomes and the information in our letter to agencies asking for budget options was based on a scenario [of] extremely conservative revenues. It is essential that the governor have a variety of significant budget reduction options to consider as he develops a budget recommendation for the coming biennium.”
Republicans said they weren’t buying that explanation. Shortly after The Mirror’s Oct. 11 article, Republicans repeated their call for the legislature’s nonpartisan Office of Fiscal Analysis to weigh in, and nonpartisan analysts projected a $78 million deficit.
Malloy’s budget office, which was required to issue one more pre-election forecast on Oct. 20, technically conceded there was a deficit. But it only reported a shortfall of $5.7 million, an amount equal to 1/31st of 1 percent of the General Fund.
“These budget numbers from the governor’s office are at odds with what every other reasonable observer knows and what other independent analysts have stated: Connecticut’s finances are a mess,” House Minority Leader Themis Klarides, R-Derby said. “Just as he said during the 2014 campaign, ‘There is no deficit, there will be no deficit,’ the governor has no clothes.”
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