House sends veto-proof, bipartisan budget to Malloy
With the flourish of a veto-proof margin, the House of Representatives voted Thursday to give final legislative passage to an overdue, bipartisan budget crafted without the direct involvement of Gov. Dannel P. Malloy.
After a concise and focused two-hour debate, the House voted 126 to 23 to send Malloy a $41.3 billion two-year spending plan and put Connecticut on the verge of ending a budget impasse that has stretched 118 days into the new fiscal year.
The Senate voted 33-3 just 10 hours earlier to approve the budget, also easily achieving the two-thirds majority that would be needed to override a veto. An override requires 24 votes in the Senate and 101 in the House.
Legislative leaders remained hopeful the Democratic governor, whose administration has been excluded from budget talks over the past three weeks, would sign the measure, which closes huge projected deficits with only modest cuts to municipal aid and no increases in income or sales tax rates.
Malloy would not speculate Wednesday on whether he would sign the bill. His staff gave no hint after final passage.
“Since January, Gov. Malloy has been calling on the legislature to take action to adopt a balanced and responsible budget,” said Kelly Donnelly, his spokeswoman. “We recognize that they believe that they have achieved this end and are now sending a budget to him for his consideration and we appreciate their work. At the same time, it is incumbent on the governor and his administration to carefully review this budget – a complete document of nearly 900 pages that was made available only a few minutes before it was called on the floor.”
Malloy’s administration said it already had found one serious flaw in the language of a complicated hospital-tax increase designed to leverage more federal Medicaid reimbursements. Legislative leaders say are they are reviewing the language and will make any necessary revisions in a supplementary bill.
An ideologically diverse mix of 10 Democrats and 13 Republicans voted against the budget, including the only member of the legislature running for governor, Rep. Prasad Srinivasan, R-Glastonbury.
Legislators said the compromise would stabilize the state’s finances and its municipalities, making defeat unthinkable.
“You have to weigh the scale,” said House Majority Leader Matt Ritter, D-Hartford. “We don’t have alternatives. Right now we have no budget. We have no revenue coming in.”
Ritter offered praise to the governor, but also deliver a warning of the consequences of continued impasse.
“Schools will close, libraries will close. I’m not saying this to scare people. It’s true,” Ritter said. “There’s a moral obligation here to not let that happen.”
“This budget is not perfect,” said House Minority Leader Themis Klarides, R-Derby. “Does it do everything we need it to do? No way. But this budget is a start.”
Klarides said spending and bonding caps, municipal mandate relief and other reforms will give Connecticut a long-term path out of its fiscal woes.
House Speaker Joe Aresimowicz, D-Berlin, said he cited a poll to his caucus early in the 2017 General Assembly session that showed 86 percent of Connecticut residents wanted the legislature to act more often in bipartisan fashion.
“We did compromise in areas, but overall I think it’s a good budget that will move Connecticut forward,” he said.
The budget would provide emergency assistance to keep Hartford out of bankruptcy, implement a stringent spending cap, as well as a new statutory limit on borrowing.
The budget relies on tax and fee hikes worth roughly $500 million per year for the biennium. It also would raid more than $175 million from energy conservation funds — which largely are supported by surcharges on consumers’ utility bills — and would offer Connecticut’s seventh amnesty program for tax delinquents since 1990.
The budget cuts deeply into operating funds for the University of Connecticut — but far less than a Republican-crafted budget would have one month ago.
It also does not shift a portion of skyrocketing teacher pension contributions onto cities and towns, as proposed by Malloy. But it does direct the governor to achieve unprecedented savings after the budget is in force — adding $114 million over two fiscal years combined to the already aggressive target Malloy proposed.
It also authorizes a $3.5 billion, two-year bond package. That program includes $80 million in borrowing across four years to assist homeowners dealing with crumbling concrete foundations and $40 million to renovate the XL Center in Hartford.
In the first year, the plan would boost General Fund spending by 4.9 percent over appropriations from the last fiscal year. But that growth is deceptive, because nearly $190 million of that involves extra payments to hospitals that would be more than offset by tax hikes on the industry and increased federal Medicaid payments. Ignoring the new hospital spending, growth is 3.8 percent, and much of that is driven by surging retirement benefit and other debt costs, which are largely fixed by contract.
Spending growth in the second year of the new budget would be just under 1 percent.
About $500 million per year in tax hikes
The new plan does rely on revenue from tax and fee hikes worth $494 million this fiscal year and $535 million in 2018-19, or just over $1 billion for the biennium.
The largest increase, though, is the tax hike on hospitals, which the industry supports. That’s because Connecticut would return the extra $344 million per year it would collect back to hospitals — and more — to qualify for increased federal Medicaid reimbursements. The arrangement would leave the state $137 million ahead in each of the two fiscal years.
If the hospital tax hike is not counted, the overall tax and fee increase is $150 million in the first year and $201 million in the second.
The budget also raises income taxes on middle class and working poor households by reducing tax credits.
Other tax and fee increases in the plan include:
- A 45-cents per pack increase in the cigarette tax and a related increase on levies for snuff and other tobacco products.
- $10 million to be raised in 2018-19 by reducing tax credits to be identified later by the legislature.
- Restoration of an earlier proposal to tax fantasy sports betting, beginning in the 2018-19 fiscal year.
- A 25-cent fee hike on Ridesharing services.
- And a new $10 increase in motor vehicle registration fees to support state parks and other recreational sites in a program titled “Passport to Parks.”
The new budget also orders reductions to the estate tax and expands income tax exemptions for retirement earnings in the second year.
The new budget also cancels previously approved tax cuts for insurance companies, other businesses and retired teachers that are collectively worth $33 million per year.
Present-day teachers also take a hit in the new budget. Their annual contributions to their pension fund grow from 6 to 7 percent of their salaries starting in January – a $775 yearly increase for the the average teacher and school administrator.
The teacher’s increased contributions to their pension fund will quickly translate into a savings in the General Fund. The state will use those increased payments, $18 million this fiscal year and $38 million in 2018-19, to reduce the state’s contribution to the pension fund by matching amounts.
Raiding energy funds and other programs
Raising taxes and fees wasn’t the only way lawmakers tapped new resources.
The budget would draw $87.5 million per year from three energy conservation programs:
- $63.5 million from the Connecticut Energy Efficiency Fund.
- $14 million from the Green Bank
- $10 million from Connecticut’s part of the Regional Greenhouse Gas Initiative, a nine-state coalition.
The first two of those funds get the bulk of their resources from surcharges on monthly utility bills.
Malloy and clean energy advocates particularly have balked at the Green Bank raid because it leverages an estimated $8 to $10 in private investments from every $1 utility customers pay into the program.
Solar Connecticut, which represents the solar industry, and HPACT, a contractor specializing in energy efficiency, said they would pursue a lawsuit to stop even the scaled-back raids on the Green Bank and the Energy Efficiency Fund, arguing the money comes from those who pay utility bills and should be used in ways that benefit them.
Connecticut also would offer its seventh amnesty program to tax delinquents since 1990. This one is designed to raise $60 million in the current fiscal year and $25 million in 2018-19.
GOP: Spending reforms will make a difference
Republicans, who gained seats in the House and the Senate last November, insisted that any bipartisan deal incorporate many fiscal reforms at the state and local level.
The new budget sets stronger spending and bonding caps. Also, contracts affecting state employee unions no longer could be implemented without a vote of the legislature.
At the municipal level, the budget revises the prevailing wage and binding arbitration systems. Towns would have more flexibility to launch more publicly financed capital projects without having to pay union-level construction wages. And arbiters have more options when ruling on wage and other contract issues involving municipalities and their employees.
Rep. Chris Davis of Ellington, ranking GOP representative on the Finance, Revenue and Bonding Committee, said the tax hikes, while modest, were a necessary trade-off to get Democrats to accept the spending and borrowing policy reforms.
“These are fundamental changes, these are historic changes,” he said, adding they are an important first step toward controlling surging retirement benefit costs projected to plague state finances for the next 15 years or longer. “We’re trying to combat issues that our children are going to face.”
Rep. Rob Sampson, R-Wolcott, rejected the arguments of those who downplayed the tax hikes.
“Without going any further, that is an automatic ‘no’ vote for me,” he said.
Rep. Sam Belsito, R-Tolland, said that, after enacting major tax hikes in 2011 and 2015, the legislature needs to focus harder on cutting expenditures.
“I’m here between a rock and a hard place,” he said, acknowledging that the alternative to the new budget, and its tax hikes, is having the governor manage state finances by executive order — which has forced major cuts in municipal aid.
“We are continuously overspending,” he said. “We do not know when or how to cut spending. … It’s time for us to change.”
Rep. Doug Dubitsky, R-Scotland, who also opposed the measure, said legislators were not given sufficient time to absorb a document that approaches 700 pages.
Town aid trimmed
The budget would cut the Education Cost Sharing Grant — the primary state grant that cities and towns receive to help run their schools — by $31.4 million this fiscal year, a 1.6 percent cut. However, next year, that money is almost entirely restored and distributed using an updated formula that more heavily favors the state’s lowest-performing school districts.
The state’s 30 lowest-performing districts and three other communities would be shielded from any cuts this year, and each of the remaining 136 towns are cut by 5 percent.
In the following fiscal year, however, $30.9 million in ECS funding would be restored and a new formula used to direct more of that money to towns that have higher concentrations of students from low-income families and less ability to raise enough local tax money to pay for their public schools.
The new budget also scales back non-education aid somewhat.
A 2015 plan to share sales tax receipts with cities and towns — as much as $300 million per year — is all but eliminated in this budget.
But lawmakers included a “municipal transition grant” worth $13 million this fiscal year and $15 million in 2018-19.
The budget also maintains a cap on motor vehicle property taxes for two more fiscal years, albeit at higher levels. The cap, which was at 37 mills last fiscal year, rises to 39 mills in 2017-18 and 45 mills in 2018-19.
Lawmakers also authorized $40 million in new annual aid for Hartford to help the capital city avert bankruptcy, and another $8 million per year to help other municipalities at risk of insolvency.
Hartford would be required to refinance a significant portion of its bonded debt. But Connecticut also would guarantee this refinancing, helping the city to obtain a more favorable interest rate.
Shielding the rich? Hurting the needy?
The new budget would reduce the eligibility cutoff for the Husky health care program for poor adults with minor children from 150 percent of the federal poverty level to 133 percent.
Advocates have projected this would end health insurance coverage for 9,500 poor adults, who would have to buy subsidized insurance on the state’s insurance exchange.
But Rep. Melissa Ziobron of East Haddam, ranking GOP representative on the Appropriations Committee, said leaders fought to avoid deep cuts to key priorities like Meals on Wheels and other programs for seniors, and subsidized child care for moderate-income families.
Republican leaders could have walked away, she added, after Malloy vetoed a GOP-crafted budget that narrowly passed the legislature in mid-September, but they did not.
“We didn’t give up on Connecticut,” she said. This side of the aisle, could have at that point, sat down, crossed our arms said, ‘We gave you our best ideas and now its your problem.’”
But Rep. Rep. Toni Walker, D-New Haven, House chairwoman of the Appropriations Committee said, “The budget before us is not something we should celebrate, but something we should monitor.”
Cuts aimed at municipalities and social services, as well as the potential for major projected deficits in future years, should be a cause for concern, she said.
While Walker voted for the budget, some Democrats said they couldn’t back it because it’s priorities are out of balance.
“I’m not feeling a whole lot of fairness and equality in this budget,” said Rep. Robyn Porter, D-New Haven, who voted no. “There has to be a better way.”
Rep. Josh Elliott, D-Hamden, said the plan shields the wealthy while hurting those in need. He particularly cited cuts to higher education, saying they could worsen a system that already leaves many Connecticut college graduates with debt that takes decades to pay off.
The University of Connecticut would lose $65 million per year in state assistance.
“I think this is a budget that ultimately asks of everybody but those who can afford it the most,” Elliott said. “It punishes the poor for being poor. It punishes the middle class for living in a society that doesn’t protect them.”
It will be debated again in February, when the 2018 session opens with the governor proposing revisions for the second year of the biennium.
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