House and Senate Republicans both called separately Tuesday for Gov. Dannel P. Malloy to get an extra $650 million in concessions from unionized state employees to solve the growing budget crisis.
The proposals would boost the ask from unions from the nearly $1.57 billion target Malloy announced in February to about $2.2 billion.
That wasn’t the only solution the two Republican caucuses offered Tuesday to counter eroding income tax receipts that have dramatically worsened already formidable deficits in the next two-year budget.
House Republicans recommended:
- Eliminating a sales tax revenue-sharing program with cities and towns;
- Dramatically reducing the Earned Income Tax Credit (EITC) for the working poor;
- Capping state borrowing.
Senate Republicans, who relented late Tuesday afternoon after initially declining to disclose their budget plan, also recommended:
- Sweeping $160 million annually in surcharges from consumer electric bills to support the General Fund. These payments normally support energy conservation and efficiency programs.
- Cutting about $20 million per year from magnet schools.
“This is probably the most challenging budget to put together because revenue projections collapsed in recent weeks,” House Minority Leader Themis Klarides, R-Derby, said. “Our goal was to come up with a plan that does not increase any taxes and mitigates the revenue losses to our cities and towns, and we did just that.”
Senate Republican leader Len Fasano of North Haven, who said earlier Tuesday that he would not disclose his budget plan before a meeting with legislative leaders and the governor on Wednesday, relented late in the day after all other leaders had disclosed their budget adjustment proposals.
Fasano said, “We are asking them (unionized employees) to step up a little stronger given that our budget is more in trouble.”
But are concessions of that size achievable?
Malloy has been in talks with unions since November and disclosed in February he is seeking givebacks worth $700 million next fiscal year and $869 million in 2018-19.
And the governor has acknowledged in recent weeks that, while he continues to talk with unions and remains hopeful he can secure savings close to his target, time is running out to reach a deal.
The governor already has notified unions that as many as 1,100 workers could face layoffs later this year. And Malloy told reporters that more than 4,200 layoffs may be needed if concessions are not granted.
The Malloy administration did not offer an analysis of the Republican budget. Malloy spokesman Chris McClure said, “We are grateful to legislative leaders for submitting revised budget proposals. We all have a shared responsibility to develop a balanced budget that can become law. A critical part of meeting that responsibility is to put forward specific plans to serve as the basis of negotiations, so this is an encouraging step. We look forward to a frank dialogue about the best way to meet our extraordinary fiscal challenges.”
But union leaders have said workers, who granted concessions in 2009 and in 2011, are disappointed that the governor and legislature are not seeking to raise taxes on Connecticut’s wealthiest households and major corporations.
Lori Pelletier, head of the Connecticut AFL-CIO, predicted the Republican plan, if implemented, only would harm the state’s economy.
“Any money that they get from public servants, or by eliminating the EITC, is money that’s coming directly out of the economy,” Pelletier said. “If they would rather protect people who make more than a quarter of a million dollars per year and continue to further burden the middle class, then that’s a sad day for the state of Connecticut.”
Ziobron: Workers must contribute more to pensions
But Rep. Melissa Ziobron of East Haddam, ranking House Republican on the Appropriations Committee, said her caucus’s argument that workers should give more doesn’t rest solely on the worsening fiscal conditions.
State analysts downgraded anticipated revenues for the next two fiscal years by $1.46 billion — nearly $600 million next fiscal year and $865 million in 2018-19 — largely because of eroding income tax receipts.
That erosion dramatically increased the projected shortfall in the next two-year budget.
State finances, unless adjusted, are projected to run as much as $2.3 billion, or 12 percent, in deficit next fiscal year, and $2.8 billion, or 14 percent, in 2018-19.
State employees enjoy minimal pension contribution rates and modest health care co-payments that simply are unfair in this economy, Ziobron said.
“I’m trying to get people to focus on the policy and not just on the bottom line” of the budget deficit, she added. “How can we continue to say state employees only have to contribute 2 percent (of their salary) toward their pension when in most other states it is 7 percent?”
More House Republican proposals
The House GOP joined Malloy and House and Senate Democrats in asking cities and towns also to bear additional burdens because of the eroding tax receipts.
The caucus plan would eliminate entirely a sales tax revenue-sharing plan that is supposed to send $340 million to $350 million in each of the next two fiscal years to cities and towns.
To cushion that blow, somewhat, House Republicans scrapped an earlier proposal to scale back the $200 property tax credit within the state income tax. This preserves a popular credit that sends $105 million annually to middle-income households based in part on the local taxes they pay.
But the House Republicans also would effectively eliminate most of the state Earned Income Tax Credit, which currently sends more than $130 million annually to working-poor households.
The state EITC has become increasingly controversial in recent years, as state budget deficits have grown, because it is a refundable tax credit. In other words, a household the qualifies for the credit can get a refund on their income tax even if they technically owe no taxes to the state.
The House GOP plan would maintain the state credit at a rate equal to 25 percent of the federal EITC. But if a household has no tax liability, it would not receive a credit.
The Republican budget estimates that about 93 percent of the $133 million paid out currently under the state program would be retained by the state.
“Some have argued this program goes well beyond any kind of tax credit program and instead is something that is closer to a cash payment to these individuals,” said Rep. Chris Davis of Ellington, ranking House Republican on the Finance, Revenue and Bonding Committee.
More Senate Republican proposals
One of the Senate GOP’s chief solutions, Fasano said, is a temporary one.
Sweeping revenues from electric bills would be a solution under his caucus plan only for the next two fiscal years.
The Senate Republican plan does not include any tax increases beyond the new limits on the property tax credit it recommended back in April. The $200 credit would remain available to middle-income households, but only to those with dependents.
Other elements of the Senate Republican plan include:
- Closing one prison;
- Reducing spending for magnet schools by about $20 million in each of the next two years below the level Malloy recommended back in February;
- Cutting $5.4 million annually from a grant for distressed municipalities.
Fasano said the magnet schools cut was difficult but, “When we get down to these big numbers, you’ve got to look at things that normally you would not look at. There’s a bunch of things on this list I wish we could do differently.”