Malloy has one more budget to tackle

Jessica Hill :: AP

Gov. Dannel P. Malloy, right, talks Thursday with Gov.-elect Ned Lamont at the governor’s residence. (AP Photo/Jessica Hill)

After eight years of grappling with Connecticut’s finances, Gov. Dannel P. Malloy has one more budget to tackle.

Malloy must offer Gov.-elect Ned Lamont strategies to avert the multi-billion-dollar deficit state finances could face over the next two years — if adjustments aren’t made.

But while the governor’s mandated tentative budget isn’t due until Nov. 15, Malloy has been transparent about his fiscal principles. In many cases, these involve suggestions the governor made over the last two years to legislators — who rejected them and excluded the administration from budget talks.

“I urge you in the strongest terms to take action,” Malloy wrote last April to top lawmakers from both parties, “to give the next governor the best chance for success.”

According to the legislature’s nonpartisan Office of Fiscal Analysis, state finances  — unless adjusted — will run 10.5 percent or $2 billion in deficit next fiscal year. And by two years out the potential gap hits 12 percent or $2.4 billion.

A hefty chunk of that potential gap is tied to pension contributions, other retirement benefit costs and payments on bonded debt. Rising Medicaid expenses and compensation for state employees — who forfeited raises this fiscal year and last — also are key factors.

A new taxing arrangement with hospitals has been a win-win deal for both the state and the industry by drawing more federal Medicaid dollars to Connecticut. But that deal expires next year, potentially punching a $450 million hole in the budget.

Legislators also cut a few corners over the past 12 months, using gimmicks to defer budget challenges until after the 2018 elections.

They propped up more than $160 million in annual operating expenses with a raid of energy conservation funds.

After fierce public outcries they repealed new limits on a health care program for seniors, with no plans to cover the added costs next year. 

Similarly, they committed to move an extra $90 million annually into the transportation program starting July 1 — also with no plan to replenish the General Fund.

So how might Malloy whittle down the problem?

The administration hasn’t commented on the strategies it is preparing, though Lamont told reporters Thursday an initial meeting with the governor went well and that Malloy has been very supportive.

But again, the governor hasn’t kept many of his budget strategies a secret in recent years.

Here’s a quick rundown of Malloy proposals from the past two years.

Don’t promise relief you don’t plan to deliver.

After absorbing considerable criticism in 2017 for taking nine months to adopt a new budget, legislators laced the plan with a slew of small tax cuts — but scheduled many to take effect after the election, when deficits many times the size of this promised relief must be solved.

Middle income households, college graduates, retirees and others stand to receive tax breaks worth $120 million in the first year, and $163 million in the second.

In past years many of these types of tax cuts often are canceled before they can take effect — but after the election.

Malloy was charged with doing this himself after winning re-election in November 2014. Three months later he delivered a budget that canceled or deferred more than $200 million in approved tax cuts that had not yet been implemented.

The governor also has urged lawmakers to stop dangling municipal aid that likely won’t be delivered.

About $150 million of each annual deficit forecast involves local aid increases driven by formulas in state law — increases that are suspended year after year during tough times, rather than simply repealed entirely.

But as long as these potential municipal aid hikes remain on the books, budget analysts must count them, thereby making deficits appear larger and more imposing then they actually are.

Get real about revenue

The governor has asserted on several occasions that the too often state under-projects future revenue growth — though, on occasion, his administration also has been too optimistic in its assessments.

Connecticut currently adjusts its revenue projections three times annually — in November, January and April — through a consensus process that involves negotiations between analysts for the Executive and Legislative branches.

And when they can agree that revenue is on the rise, projected deficits — by definition — shrink.

Share teacher pension costs

Malloy challenged lawmakers in 2017 to order cities and towns to foot the bill for roughly one-third of the annual contribution to the pension fund for municipal teachers — an expense state government, to date, has borne by itself.

The governor has said Connecticut no longer can afford to single-handedly cover the fastest-growing expense in the state budget. The fund suffers from more than seven decades of inadequate contributions prior to 2010. And according to one study, the annual contribution could more than quintuple, topping $6.2 billion by 2032.

The current system of funding teacher pensions also is regressive.

To make his point, Malloy contrasted one of the state’s most affluent communities, Greenwich, with one of its poorest, New Britain. Both have similar populations and school enrollment totals, but Connecticut spent $24 million more last year to cover pension costs for retired Greenwich teachers than for those from New Britain.

In simple terms, Greenwich can afford to pay much higher salaries than New Britain can, yet it gets more help from the state on a per capita basis to provide pensions for its retired teachers.

Adhere to the spending cap

Even if all of these suggestions are followed, and if revenue projections improve, legislators will still likely face hundreds of millions of dollars in red ink in each fiscal year.

The state spending cap adopted last November would force Lamont and the next legislature to close much of any remaining projected deficit with spending reductions — but there also is a way to legally exceed the cap.

This can be done provided the new governor signs a declaration of fiscal exigency — effectively declaring a budget emergency — and if 60 percent of the House and Senate each votes in favor of doing so.

Malloy praised the enactment of the new cap and has urged lawmakers to live within its restraints.

Lamont, who announced his transition team on Thursday, said developing plans to stabilize the budget and spur economic development will be among their top priorities.

Lamont must submit his first two-year budget proposal to the General Assembly in February.