As Gov. Dannel P. Malloy and his fellow Democrats in the legislature struggled Tuesday to reach agreement on a new two-year state budget, Republican lawmakers offered one more plan they hope might entice some disgruntled Democrats.
Meanwhile time was running out to avert huge cuts in municipal aid that Malloy says he would be forced to impose on Sept. 30 and Oct. 1 if no new budget has been adopted. That’s because Senate leaders say Thursday is the last day that chamber could gather before Sept. 30 because of scheduling problems.
“I’m hopeful but there’s no white smoke, there’s nothing done,” Malloy told Capitol reporters after a mid-afternoon meeting with Democratic lawmakers in his office. “But we’ll see where this leads in the coming 48 hours.”
Malloy and Democratic legislative leaders have agreement on many segments of a new, two-year spending plan, sources say, largely following a a compromise template the governor offered last Friday.
But the two sides still have not settled on a precise spending level, and also continue to disagree on a few aspects of how new revenue should be raised.
The governor, who has said revenue increases should not be a primary solution for closing major projected deficits in the next budget, has agreed to a major increase in the state’s hospital tax to leverage more federal Medicaid dollars for Connecticut.
Malloy proposed raising cigarette and real estate conveyance tax rates and imposing a modest income tax hike on middle-income and working-poor households by reducing tax credits.
He also would raise the sales tax rate on restaurant transactions from 6.35 to 7 percent.
And retired teachers would not receive their third income tax break in three years as originally scheduled. Twenty-five percent of their pensions already are exempt from the state tax and the exemption was supposed to grow to 50 percent with returns filed next spring.
But the governor also wants to reduce Connecticut’s tax on wealthy estates, bringing it in line with the federal levy. Sources say Democratic legislators were reluctant to endorse that change.
Democratic leaders said they still hope the House and Senate can vote on a new budget on Thursday.
“That is our intention,” House Speaker Joe Aresimowicz, D-Berlin, said.
But he also confirmed no budget plan is ready for review.
“I think it’s still a fluid document,” he said. “There are ongoing discussions [aimed] at different sections of the budget.”
Sources also said there remain concerns that some moderate Democrats might not support the new plan because of the significant tax hikes involved.
But Senate President Pro Tem Martin M. Looney, D-New Haven, said, “So far we have had a generally positive response. The governor has obviously suggested some additional changes that we’re going to have to first look at.”
Looney added he probably would have to discuss the budget proposals with Senate Democrats in a closed-door caucus at least one more time.
GOP hopes its budget has broad appeal
Meanwhile, Republican leaders in the House and Senate said Tuesday that if and when Democrats bring their proposal to a vote, Republicans will offer their own plan in the form of an amendment.
And Senate Republican leader Len Fasano said he’s optimistic that some Democrats will be very attracted to the GOP alternative.
Democrats hold a slim 79-72 edge in the House. And while the Senate is split 18-18, Democrats control the tie-breaking 37th vote in Lt. Gov. Nancy Wyman, who also is Senate president.
“Connecticut is at a crossroads and we are facing one of the greatest financial challenges our state has ever seen,” Fasano wrote in a joint statement with House Minority Leader Themis Klarides, R-Derby. “In this time of hardship, it is imperative that we send a clear message to the people of Connecticut that we are moving our state in a new direction. We cannot do that with a budget that increases taxes by nearly $1 billion and continues the same policies that have failed our state in the past.”
Fasano and Klarides merged their caucuses earlier budget proposals into a joint plan on Tuesday, and also revised them to reflect savings they no longer can achieve because of limitations on layoffs and other restrictions established in this summer’s state employee concessions package.
Because of those restrictions, GOP leaders said they needed to find adjustments worth about $250 million this fiscal year and nearly $370 million in 2018-19.
Fasano and Klarides said these changes would enable them to close the projected deficit without any major tax hikes or cuts to overall municipal aid.
The largest budget adjustment Republicans proposed, though, is an earlier idea that has sparked considerable debate.
While the new concessions deal locks the state employees’ benefits package into place through 2027, Republicans said Connecticut can save money now by limiting the pension benefits offered after that date.
Those new limits would reduce required pension payments by $119 million this fiscal year and by $151 million in 2018-19.
But the state pledges in the concessions package that for the next 10 years it won’t make any changes to worker benefits except through collective bargaining. Fasano said he doesn’t believe that clause can prohibit the state from making the changes Republicans have proposed.
The GOP also is counting on hospitals agreeing to settle their lawsuit against the state over Connecticut’s hospital provider tax.
Hospitals would voluntarily make payments into a fund that the state would manage, returning some dollars to the industry — which in turn would leverage more federal aid to Connecticut.
The Republican plan counts on $70 million per year in revenue from this arrangement.
Starting in 2020, Republicans said, the hospital tax would be phased out over five years.
Another adjustment the Republicans offered hinges on the state’s authorizing the Millstone Nuclear Power Station in Waterford to sell electricity directly to utilities, such as Eversource and UI, which provides power in the New Haven and Bridgeport areas.
Dominion Resources, the owner and operator of the station, would pay a licensing fee worth $85 million over the coming bienniun.