Gov. Dannel P. Malloy continued to set expectations Tuesday for his upcoming state budget proposal, hinting at a lean plan that avoids major tax hikes and realigns municipal aid in favor of distressed cities.
But the governor, who has kept his budget cards close to the vest, also would not promise that overall aid to municipalities would stay constant or grow as it has throughout most of his tenure.
Malloy who must work with lawmakers to close projected deficits of $1.4 billion next fiscal year and $1.6 billion in 2018-19, also stressed that fixed retirement benefit costs — including payments on behalf of communities into a municipal teachers’ pension program — are spiking after decades of insufficient funding.
Required contributions to the teachers’ and state employees’ pension funds combined will grow $360 million next fiscal year, Malloy told a crowd of more than 100 gathered in the Capitol for the 16th annual budget forum sponsored by Connecticut Voices for Children, a progressive public policy and social services advocacy group.
And about 80 percent of those pension contributions aren’t tied to benefits for current workers, but rather are needed to compensate for contributions not made, or investment earnings not achieved, in the past.
It is owed “because other people didn’t do their job,” Malloy said, referring to governors and legislators who presided over these systems between 1939 and 2010. “That’s been a gigantic mistake and, quite frankly, a super-sized hangover.”
The governor and his budget director, Ben Barnes, both have said they believe major tax hikes to close the projected deficits would be particularly harmful to Connecticut’s economy.
They also have said it would be difficult to close the projected deficits — which represent gaps of about 8 percent in the General Fund — without reducing overall aid to cities and towns. How deep a reduction might be necessary could hinge on whether state employee unions are willing to grant wage and benefit givebacks, Barnes has said.
“All folks need to come to the table, and we need to address that issue,” Malloy told the Connecticut Voices’ forum.
Administration officials have said the media and general public may not realize that the state spends $1 billion annually to fund pensions for public school teachers — sparing cities and towns any cost. And that line item alone is projected to grow 29 percent next year, to $1.29 billion.
Further complicating matters, the governor said, are long-ignored inequities in the municipal aid system, mostly those involving education assistance. And that disparity is threatening the long-term health of urban centers, Malloy said, and not just that of Hartford, where Mayor Luke Bronin has warned the city is at risk of insolvency.
Hartford has a whopping property tax rate of almost 75 mills, and too many communities have rates in excess of 35 mills, the governor noted, adding this leaves them unable to make important investments in priorities like education and economic development.
“When communities are under that kind of pressure, they tend to make the wrong decisions,” he said.
“Bankruptcy in one or more of our communities needs to be avoided,” Malloy said. “I think that is an item we need to come to grips with.”
Ellen Shemitz, executive director of Connecticut Voices for Children, urged the governor to consider supporting a broader sales tax imposed on more goods and services, and higher tax rates on wealthy households and corporations.
Between 2010 and 2014, tax returns from Connecticut households with earnings in excess of $1 million increased by 18 percent, Shemitz said, adding that the federally adjusted gross income of those $1 million-plus earners grew, in the aggregate, by 21 percent over that period.
“It’s easy to talk about — and even promulgate the myth of millionaire migration,” she said. “But the facts tell a very different story.”
Adding 1 percentage point to the top marginal rate on the income tax alone would yield an additional $238 million in annual revenue, Connecticut Voices projected.
But Malloy said state tax policy — while not the only issue businesses weigh before deciding whether to expand or contract — nonetheless is an important one.
Sometimes taxes must be raised, but “I think it is very much a balancing act,” the governor said, adding that he believes the political consensus at the Capitol now is that tax hikes are a bad idea. “Everybody wants to spend more money, but there are relatively few people who want to raise it,” Malloy said.