Competing CT budget plans rely on April tax bonanza
Democratic and Republican legislators offered competing visions for the next state budget Friday, but both effectively dipped into this spring’s unexpectedly high income-tax revenues to salvage key programs for towns and social services, drawing a sharp rebuke from Gov. Dannel P. Malloy.
Malloy said intercepting money now bound for the state’s reserve, the Rainy Day Fund, was unconscionable, given the state’s slow recovery from the Great Recession of 2008 and the prospects for another economic downturn.
The governor was especially critical of a GOP proposal that he sees as sidestepping a new budgetary provision designed to bar the state from relying on volatile, potentially non-recurring revenue. Malloy said legislators of both parties were too willing spend a one-time tax windfall that may top $1 billion, rather than bank it.
“Right now, what they are trying to do is steal money,” Malloy said. “This is like, ‘Spend as much money as you can when you have it.’ It’s like dealing with teenagers.”
Given the tight partisan margins both on the Appropriations Committee and in the legislature in general, the prospects for any proposal — other than one developed in bipartisan talks — to advance before the legislature adjourns on May 9 appeared slim.
House Democrats on the committee approved their own plan late Friday afternoon. The vote came after the joint committee split, a technical move that gave Democrats the ability to send the measure to the House floor.
Republicans raised their budget proposal before the full Appropriations Committee, including both House and Senate members. The full panel rejected it 27-25 in another vote along party lines.
Democrats on the Appropriations Committee offered a $20.87 billion spending plan for the 2018-19 fiscal year that would appropriate $216 million more than the preliminary budget for 2018-19 that the legislature adopted last October.
More importantly, General Fund spending in the Democratic plan exceeds projected revenues for the next fiscal year by about $375 million — based on the last official revenue forecast developed on Jan. 15.
Tapping into surging income tax receipts
Democratic committee leaders noted, though, that income-tax receipts for the current fiscal year are running $1 billion above expectations. And this plan might need to tap some of those resources.
Meanwhile the Republicans unveiled a $20.44 billion budget with a leaner General Fund that would spend about $425 million less than the Democrats proposed. It would be balanced even under the January revenue forecast.
But to manage that, Republicans also would rely, in part, on the April income tax bonanza and the disputed tactic of cutting labor costs a decade down the road but claiming the savings now.
GOP leaders specifically pledged to utilize the $1 billion surge in this spring’s income tax receipts as follows:
- One-third, or about $333 million, to support the state employees’ pension.
- One-third to support the teachers’ pension.
- And one-third to be deposited into the emergency budget reserve.
But the Republican plan also reduces the base contributions to the state employees’ and teachers’ pensions by $40 million in total.
In other words, about $40 million of the income tax money dedicated to the pensions wouldn’t really increase the systems’ assets, but rather would take the place of previously authorized contributions to the pension funds — effectively making that amount available to support non-pension programs throughout the budget.
“While other budget proposals offered would break the state’s current promises and cut from core services in favor of starting new programs, this budget is about creating stability,” said Senate Republican leader Len Fasano of North Haven. “It is about being realistic about what revenue we can count on year after year, paying down on state debt, and preserving core programs.”
House Minority Leader Themis Klarides, R-Derby, said, “We welcome any and all budget ideas” and added both parties’ goal should be “an updated fiscal year 2019 budget that is balanced, that protects funding for core services, that creates stability and predictability for our state and that avoids the devastating cuts and tax increases proposed by the governor.”
The proposal to cut labor costs now by reducing benefits in 2027 is not a new one. A similar plan from the GOP drew strong Democratic opposition last year. Specifically, Republicans proposed restricting state employee pension benefits starting in mid-2027 — after the current contract expires — but reaping $61 million in savings now. Democratic legislators, Malloy and union leaders all have called this strategy illegal.
“This sets us up for another lawsuit,” said Sen. Cathy Osten of Sprague, Senate Democratic chairwoman of the Appropriations Committee. “Are we taking money … from something that happens in nine years? It’s not real savings.”
Disputing emergency aid for Hartford
Republicans also proposed reducing future municipal aid to Hartford to reflect a debt assistance agreement the Malloy administration reached with the city earlier this spring.
GOP leaders were frustrated earlier this month to learn the city and the administration had reached an agreement to pay off Hartford’s general obligation debt.
The new, two-year state budget enacted last October appropriated about $80 million in assistance for the city — $40 million in this fiscal year and $40 million in 2018-19.
Lawmakers also agreed that the city would seek to refinance its debt over the long-term, and that the state would guarantee this refinancing.
But Republican legislative leaders were stunned earlier this month when they learned the refinancing agreement between the city and its bondholders included a pledge from the state not only to provide debt payment assistance this fiscal year and next — but for the next 20 or 30 years, depending on how the city’s debt ultimately is restructured.
Over the long-term, the state would pay off the full $540 million principal of the city’s general obligation debt, and likely significantly more in interest charges.
The Republican budget says that traditional state grants would be reduced to match any debt assistance Hartford receives in excess of originally pledged amounts.
That would mean Hartford would lose about $8 million in regular state grants in 2018-19, and about $40 million per year after that.
“There should be no confusion about the fact that, if the state were to roll back the assistance included in last year’s budget, Hartford would be back in the same position of insolvency and crisis,” Mayor Luke Bronin said Friday in response to the GOP proposal. “This should not be a partisan issue. You cannot run a city with the tax base of a suburb, and we will not grow Connecticut without building stable, strong cities.”
Competing plans had some common ground
Tapping the rainy day fund wasn’t the only common point in the competing plans.
“We heard many people coming up and talking to us,” said Rep. Toni E. Walker, D-New Haven, the House chair of the Appropriations Committee. Walker added that requests for extra funding for various programs came from members of both parties.
Both Democratic and Republican plans would partially reverse cuts to the Medicare Savings Program that helps poor seniors and the disabled cover medication costs. Both parties also would dedicate additional funds to the Special Transportation Fund.
Malloy has been warning since November that the fund is headed for insolvency.
Absent more funding, the state would need later this year to scrap some rail services, drive up fares, and suspend 40 percent of planned capital projects worth about $4.3 billion in construction activity — including major highway projects such as rebuilding the Hartford viaduct, the Malloy administration says.
“We will see two-thirds of the workers that work on the roads laid off” if those emergency cutbacks are ordered, Osten said. She added that to do nothing would badly damage the state’s economy and its transportation infrastructure. “That cannot happen.”
The Democratic plan would restore about $115 million in municipal aid.
Malloy has trimmed more than $90 million from local aid mid-fiscal year. But he did so to meet a legislative mandate to achieve unprecedented savings after the budget was in force. The main grant municipalities receive to help pay for their local schools – the Education Cost Sharing grant – would see a boost of $85.5 million over what municipalities are slated to receive this fiscal year.
That funding would be distributed to municipalities according to the bipartisan budget adopted last year, with a minor $3 million adjustment that factors in up-to-date enrollment figures.
The GOP budget increases education aid by $86 million over the current fiscal year.
Both budgets also maintain a statewide cap on municipal property tax rates on motor vehicles at 39 mills and reimburse the $15.7 million municipalities will lose. The cap otherwise is scheduled to rise to 45 mills starting July 1.
“Towns and municipalities need a clear structure on where they stand,” Osten said.
Both parties’ budgets increased funds for child-care subsidies for low-income families.
Democrats proposed added funds for several other programs. Their budget would:
- Grant community colleges $16.2 million more to help cover the estimated $25 million in increased costs of providing health and retirement benefits.
- Restore next year $18 million for regional magnet schools that was cut mid-year.
“We understand that we are still looking at what we need for revenues,” Walker added. “But we do know what the people of Connecticut expect for us to do going forward.”
Malloy said the budget approved by the split Appropriations Committee was deficient on several counts. It shortchanged the Department of Children and Families, possibly invited court intervention. The department is under the supervision of a federal master.
The governor suggested the funding was a reflection of the dissatisfaction some leaders of both parties have with the department’s commissioner, Joette Katz.
“It underfunds that basic olbigation by at least $20 million,” Malloy said. “You know, get over yourselves. You don’t like the commissioner? Don’t punish the kids.”
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