Gov. Dannel P. Malloy gave legislators a clear message Thursday: Don’t force him to run Connecticut after July 1 under the very tight restrictions the law mandates when a new budget is not in place.
And one of the top Democrats in the House of Representatives issued a similar warning to both parties, with the new fiscal year now just one month away.
“I think that they (legislators) might consider it a worst-case scenario,” Malloy said of the prospect that he might have to administer state government starting July 1 under the prior year’s budget — if the General Assembly fails to enact a new one by then. “I consider it a worst-case scenario.”
The governor quickly added that, “I’m not inviting that to happen. What I’m inviting is for people to do the job and get a budget.”
Legislative leaders acknowledged after a mid-morning meeting Thursday with the governor that they would not adopt a new two-year budget before the regular legislative session ends at midnight June 7.
Malloy has been pressing legislators since he delivered his first budget in February to get started early on a plan for the next two fiscal years.
Democrats and Republicans are split 18-18 in the Senate, while Democrats hold a narrow 79-72 edge in the House. Given that partisan split, and huge deficit forecasts for the upcoming biennium, officials from both parties have been predicting a protracted and contentious budget adoption process.
But the Democratic governor reminded legislators Thursday that there’s something worse than a heated budget battle awaiting Connecticut a little over four weeks from now.
Why is it problematic to run the state in July under the previous fiscal year’s spending and revenue guidelines?
It’s because those budget components are going in the wrong direction.
Contractual obligations are going to force Connecticut to spend hundreds of millions of dollars more next fiscal year on pension contributions, other retirement benefits and debt service.
So if the overall bottom line can’t change, but the debt-related segments of the budget — roughly one-third of the General Fund — are surging because of inadequate savings habits over prior decades, the rest of the budget must make do with significantly less.
Further complicating matters, revenues in the outgoing fiscal year never reached the levels anticipated when this year’s budget was adopted last May.
The administration says Connecticut can expect $17.5 billion in General Fund revenues this fiscal year, $403 million less than anticipated. Most of that shortfall is tied to eroding state income tax receipts.
And analysts say those revenues likely will plunge another $400 million next fiscal year — or $800 million below the level assumed when the current budget was adopted last May.
Malloy also would have to adjust spending dramatically to compensate for that revenue shortfall.
The governor said his administration already has begun preparing for that scenario.
We are studying how the state has been run in the past,” he said. “What are the legal confines of how that happens? What are the options that people might have?”
Connecticut has been in this situation twice in the past two decades.
In 2003, the Democrat-controlled House and Senate and Republican Gov. John G. Rowland debated until July 31 — one month into the new fiscal year — over how to adjust spending as Connecticut slowly emerged from recession.
And in 2009, Republican Gov. M. Jodi Rell and a Democratic legislature battled for more than two months over a new two-year budget as Connecticut was slipping deeply into The Great Recession.
The Rell administration eventually agreed to $1 billion tax increase that included a major income tax hike on wealthy households. But she refused to sign the deal, taking advantage of a provision in state law that allowed it to take effect without her signature after a week-long waiting period.
That budget became law on Sept. 8.
In both instances, governors quickly used their authority to limit payments to private, nonprofit social service providers, who deliver the bulk of state-funded social services in Connecticut.
Initial funding to those agencies typically is transmitted shortly after the fiscal year begins in July.
House Majority Leader Matt Ritter, D-Hartford, warned legislators from both parties Thursday not to miss the new deadline of June 30 for budget adoption.
“A lot of people in this chamber have not enjoyed some of the governor’s ideas, whether its municipal cuts or (reductions to) hospitals,” Ritter said. “And I’m not criticizing him.”
Ritter noted that the governor, if without a new budget on July 1 “is “so limited in what he can do.”
The majority leader added that both parties should be equally motivated to resolve the budget, since payments to municipalities, hospitals and nonprofit social service agencies are a priority in every community.
Ritter’s counterpart, House Minority Leader Themis Klarides, R-Derby, said Democratic legislators would be best served by seeking ways to reduce spending rather than discussing adding tolls or legalizing marijuana to prop up the next budget.
When you are using tolls and marijuana to balance a budget, these are revenue grabs,” she said. “If nothing changes, if this continues, this downward spiral will never stop.”
“We’re confident we can get there by” June 30, Senate President Pro Tem Martin M. Looney, D-New Haven, said.
Senate Republican Leader Len Fasano, R-North Haven, pointed to the challenge of reaching a deal when the budget proposals are only “25 percent in agreement” on the numbers, according to an assessment by the legislature’s nonpartisan fiscal analysts.
House Speaker Joe Aresimowicz, D-Berlin, was optimistic, saying that while the caucuses’ various budget proposals differ on the numbers, he stands by his statement earlier in the session that the parties are 85 percent in agreement on what concepts must be changed.