Malloy offers tough medicine for deficit: taxes, spending cuts
Gov. Dannel P. Malloy released an array of options to rebalance the state budget Wednesday that include raising the sales tax rate as high as 6.9 percent, boosting other taxes, cutting municipal aid by $50 million and reducing health care, social services, and other programs.
These budget-balancing options, collectively, would boost revenue and reduce spending by more than $302 million this fiscal year — more than enough to counter the $208 million deficit projected for the current fiscal year.
They also could — depending on which ideas lawmakers might accept — position Connecticut to begin to rebuild its depleted emergency budget reserve starting next fiscal year.
But given that legislative leaders have expressed reluctance to make any adjustments to the new budget they crafted beyond reversing cuts to the Medicare Savings Program, it was unclear whether any of Malloy’s deficit-mitigation options had much of a future.
Under state law, the governor is compelled to craft a deficit-mitigation plan whenever the General Fund is projected to run more than 1 percent in the red. In the context of the current fiscal year, that means any shortfall greater than $187 million.
But the legislature is not required to act upon any plan.
“I understand that these options will be almost universally objectionable, and that there is little appetite among you or your members for making such adjustments to your budget,” Malloy wrote to legislators. “In fact, I agree these changes are difficult and that in better economic times, with a balanced budget, none of us would put them on the table for consideration. However, I have a clear statutory obligation to provide you with a plan to mitigate the deficit.”
The governor added, though, that, “I believe we do a disservice to the public when we defer necessary steps and fail to take decisive action, ultimately making the cost to taxpayers and damage to government services even more severe.”
Malloy’s budget options center on sales tax hike
For the first time in his administration, Malloy suggested tax hikes as a means to balance a state budget already in force.
The largest revenue-raising option Malloy put on the table involves the 6.35 percent base sales tax rate.
Bumping that up to 6.5 percent would bring in an extra $33.4 million this fiscal year and $98.2 million in 2018-19. Going as high as 6.9 percent would mean an extra $81.1 million by June 30 and an additional $237.2 million in 2018-19.
Removing the sales tax exemption for nonprescription medicines would raise $5.8 million this fiscal year and $17 million next fiscal year.
Malloy added one more sales-tax-related option, creating a 7 percent rate on restaurant transactions. That would collect an extra $9.9 million this fiscal year and $30.7 million in 2018-19.
All of the sales tax hike options the governor suggested would raise almost $290 million, collectively, by next fiscal year.
Other revenue-raising options offered
But the sales tax wasn’t the only option for raising revenue that the governor offered Wednesday.
The cigarette tax — which rose 45 cents to $4.35 per pack in the new, two-year state budget adopted in late October — could bring in an extra $6.6 million this fiscal year and $20 million in 2018-19 if another quarter were added, bumping it to $4.60, according to the governor.
Malloy also suggested raising the tax on cigars from from 50 cents to $1.50 and imposing a 75 percent excise tax on e-cigarettes.
Another major revenue-raising option the governor offered would raise real estate conveyance tax rates, yielding an extra $25.1 million this fiscal year and $77.3 million in 2018-19.
The governor’s plan also includes eliminating minimum bottle pricing on alcoholic beverages and allowing the sale of wine in grocery stores.
Lawmakers offer cautious responses
Senate President Pro Tem Martin M. Looney, D-New Haven, didn’t address any of the options Malloy laid out in his response to the governor’s plan.
“Democrats and Republicans have already proven that we can work together to find bipartisan solutions — including cuts and revenues — to address Connecticut’s budget,” Looney said, referring to the bipartisan support the new state budget received in October. “I appreciate the work of the administration in developing a plan to bring the budget back into balance. It is important that in the coming days leaders from both parties review the proposal and once again work together to find a responsible bipartisan solution.”
“With the governor’s plan in hand now, we can begin assessing the details of his proposal and bring forward ideas we have been hearing from individual legislators,” said House Speaker Joe Aresimowicz, D-Berlin. “Though there seems to be no off season, by continuing to work with all the caucuses on a bipartisan basis I’m confident we will keep the budget balanced going forward.”
Senate Republican leader Len Fasano noted that Malloy’s revenue proposals total roughly $200 million, calling that “a nonstarter for our state.”
“I have serious concerns about many aspects of the governor’s menu of options, but I will continue to review the full list of choices in detail and look forward to meeting with fellow legislators to outline an appropriate course of action,” Fasano added.
The Senate Republican leader did not identify any specific spending reductions as alternatives to the tax hikes Malloy suggested Wednesday.
House Minority Leader Themis Klarides, R-Derby, said she is disappointed that Malloy will not call legislators into special session on Dec. 19, as leaders requested, to restore funds for the Medicare Savings Program. The program uses Medicaid money to help more than 100,000 low-income people pay medical expenses that Medicare doesn’t cover, such as premiums, deductibles and co-pays.
“We all know we have to deal with the deficit as well, and will do it as soon as humanly possible,” Klarides said, adding she doesn’t expect that could be scheduled until early January, after the holidays.
The new state budget reduced eligibility limits for the Medicare program effective Jan. 1, but the administration agreed to delay any changes until late February.
But in the meantime, Klarides added, the low-income elderly and disabled residents served by the program “must live in fear and anxiety. That is not leadership.”
Town aid, social services on the chopping block
The largest spending reduction Malloy put on the table would remove $50 million in municipal aid, to be taken either from the Education Cost Sharing program or from the casino proceeds the state shares with cities and towns.
The governor also proposed cutting $5.1 million from a non-education, property tax relief grant for municipalities.
Proposed reductions to health and social service programs would total just over $16 million this fiscal year. Community health centers would lose funding entirely, as would a new grant to support a school-based health center in East Hartford.
Various grants tied to programs for the developmentally disabled and the mentally ill would be reduced, along with substance abuse prevention and treatment services.
Budget-balancing options also include reducing payments to medical providers who accept Medicaid patients and cuts to home care programs that help some elderly residents avoid nursing homes.
And General Assistance, the state’s welfare program for poor adults without children, would reduce monthly rental assistance from $219 to $175.
Suggested cuts to the legislature’s operating accounts totaling $200,000 this fiscal year and $500,000 in 2018-19 could be achieved by closing the Old State House in Hartford.
The governor reported a $203 million deficit on Nov. 20 and Comptroller Kevin P. Lembo officially triggered the deficit-mitigation plan requirement when he certified a $208 million gap on Dec. 1.
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