Democrats and Republicans have offered sharply contrasting spending plans for the next fiscal year. While they share some common ground involving municipal aid and health care for the elderly and disabled, major disagreements involving labor costs, higher education and revenue stand in the way of another bipartisan budget agreement.
Still, leaders from both parties remained optimistic Friday, shortly after the competing proposals were unveiled, that an agreement could be reached before the legislative session ends on May 9.
“Despite facing obvious election year tactics,” House Speaker Joe Aresimowicz, D-Berlin, said, Democratic legislators “were able to put forth budget adjustments that reflect the values and needs of the people we serve. We now have a firm basis to work from, and we all share the responsibility of making adjustments to the bipartisan budget, so that is what we will continue to work toward in the coming weeks.”
“We welcome any and all budget ideas,” House Minority Leader Themis Klarides, R-Derby, said, adding that she hopes the legislature will move “closer to adopting 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.”
Back in early February, Gov. Dannel P. Malloy offered his own plan to close a modest hole in the preliminary 2018-19 budget legislators adopted — while excluding his administration from negotiations — last October.
Malloy avoided any major tax hikes but did recommend: eliminating a middle-class income tax credit; boosting cigarette, hotel and real estate conveyance taxes; and closing a sales tax exemption for over-the-counter medications.
The prospect that legislators from either party would vote to raise taxes in a state election year was slim — despite a projected deficit of $265 million in the preliminary budget for the upcoming fiscal year — even before state income tax receipts began to surge earlier this year.
But with the legislature’s nonpartisan Office of Fiscal Analysis reporting Monday that income tax receipts tied to capital gains and other investment earnings were running $1.09 billion ahead of expectations this fiscal year, the chances of tax hikes went from slim to nil.
Battling over revenues, across-the-board cuts
Still, revenues remain a key point of contention between the two parties.
The Republican plan would spend $20.4 billion while Democrats would spend almost $470 million more at nearly $20.9 billion.
The GOP notes their plan cuts spending 0.7 percent compared with the preliminary 2018-19 budget, while the Democratic version not only boosts spending 2.1 percent, it exceeds the new state spending cap by $31 million.
The Democrats’ proposal also exceeds projected revenues for the next fiscal year — based on the last official forecast, produced in mid-January — by about $400 million.
Even if this spring’s projected income tax bonanza holds up, Republicans said Friday, it remains to be seen whether analysts will project similar growth for next year.
A significant portion of this year’s extra revenues are attributed to two trends that probably won’t repeat:
- Extra state income tax payments Connecticut residents made in December 2017 to take advantage for one last time of favorable-yet-expiring federal income tax rules.
- And a rush of capital gains taken by Connecticut households earlier this spring as the stock market underwent a significant correction.
If analysts don’t believe this spring’s income tax bonanza will happen again 12 months from now, Democrats could plug the hole in their plan by using some of this year’s surplus. But that would require suspending a new initiative legislators adopted last October to force Connecticut to save these types of surpluses, and not spend them.
GOP lawmakers said Friday that the Democratic budget ultimately would lead to tax increases, either this spring or after the fall election.
Democrats counter that one of the Republicans’ chief methods to keep spending down is dangerously misleading. The GOP applied cuts of 5 to 7 percent to many agency budgets. And though it isn’t immediately clear just how many programs that would influence — and how severely — Democratic legislators said the affect of those cuts usually are understood too late, after they’ve been imposed.
Controversy over cutting labor costs
Democrats counter that the Republican plan has some questionable fiscal logic of its own.
The GOP says its OK to tap this spring’s income tax bonanza — about two-thirds of it, or $650 million to $700 million — as long as those funds are deposited into the state’s cash-starved pension programs.
Still, the Republican plan uses those deposits to justify taking about $40 million out of the original pension contribution line items, and shifting those dollars to spend on other programs.
Democrats also don’t like an idea the GOP first offered last year and revived in its latest plan: cutting labor costs a decade down the road but claiming some of the savings now.
Specifically, Republicans proposed restricting state employee pension benefits starting in mid-2027 — after the current contract expires — but reaping $61.7 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.”
Key differences: transportation and higher ed
The two parties also assign different priorities to transportation and higher education.
Democrats devote $26 million more to the Special Transportation Fund than Republicans did, nearly matching the resources Malloy sought.
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.
A huge divide remains over how the parties would fund higher education.
The Republican budget targets the University of Connecticut for a $37 million cut – an 11 percent reduction. The UConn Health Center would lose $29 million – a 15 percent cut. These cuts are on top of similarly large cuts imposed over the previous two fiscal years.
To help achieve these steep cuts, the Republicans propose requiring professors to teach one more course each semester and requiring the health center to privatize services by next fiscal year and realize more savings than initially expected from from the fact that the health center will no longer be managing health care for inmates in state custody.
The Republican budget also would cut the state’s other college system that operates four regional Connecticut state universities and 12 community colleges by $18.4 million – a 5 percent cut over what the Board of Regents is slated to receive this year.
About half of those savings would be realized by ending state funding to help the colleges pay for instructors and other costs related to providing non-credit courses to prepare students for college-level courses. The remaining half would come mostly from the state universities.
The Democrat’s budget is more favorable to the state’s colleges.
The community college would receive a $16.2 million boost in state funding – but that is to make up for the expected increase in costs for fringe and retirement health benefits that the system must cover. The other state universities and UConn Health face the same increases in fringe costs, but neither the Democrat nor Republican budget provides help to mediate the increase.
The Democrats flat-fund UConn otherwise and cut the Health Center by $2.5 million to realize additional savings from the center’s no longer managing health care for inmates.
The state universities would see an increase of $4.1 million from what they are expected to receive this year while the community colleges would lose $3.5 million. Separate from these changes, the budget would launch a new $5 million initiative – “Free 2 Start” – that would help students pay for college.
Finding common ground
Still, the two parties did find common ground in a few areas.
Both Democrats and Republicans offered additional resources — though Republicans proposed $14.4 million more — to mitigate the majority of cuts ordered previously for the Medicare Savings Plan.
Both parties also took special care to shield cities and towns.
Republicans and Democrats recommended an Education Cost Sharing grant program that’s $85.6 million larger than the current fiscal year. Democrats also restored $33.1 million for other town aid grants and $18.5 million for regional magnet schools.
Lawmakers from both sides also took care to shield communities from a cost-savings technique that took a heavy toll on towns this fiscal year.
Legislators directed Malloy to achieve unprecedented savings targets this fiscal year after the budget was in force, and the governor — left with few other options — reduced municipal grants by more than $90 million.
The budget proposals for next fiscal year require the governor to find the bulk of savings after the 2018-19 plan is in force from agency budgets, prohibiting him from reducing municipal grants.