With just over a week left to propose their own state budget, legislators still are waiting for Gov. Ned Lamont to fill in some fairly pricey line items in his own plan.
Between an expiring tax on hospitals, a high-stakes dispute over Medicaid rates, and ongoing negotiations with state employee unions, there are unknowns worth hundreds of millions of dollars that lawmakers are struggling to work around.
“There are so many moving parts that we are still trying to address,” said Rep. Toni E. Walker, D-New Haven, longtime co-chairwoman of the Appropriations Committee.
“I think there is still considerable uncertainty on the committee, especially about the future of the hospital tax,” said Rep. Jason Rojas, co-chairman of the Finance, Revenue and Bonding Committee.
Walker’s panel has until May 3 to develop a new spending plan for the next two fiscal years. Rojas’ committee has until May 2 to develop a revenue schedule for the upcoming biennium.
Democrats hold majorities in the House and Senate — as well as on the budget-writing committees — but they aren’t the only ones looking for information from the new governor.
“Now is an important time for you as governor to set the tone for our state, to offer a balanced and gimmick-free budget proposal, and to be honest about your negotiations to achieve savings,” Senate Minority Leader Len Fasano, R-North Haven, wrote in a letter to Lamont late Tuesday afternoon. And unless certain details are filled in, Fasano added, “your budget still does not balance.”
Striving for a new relationship with hospitals
One goal Lamont set early in his administration was to end the contentious relationship that developed between his predecessor, Gov. Dannel P. Malloy, and the state’s hospitals.
That dispute was centered on a provider tax which began only as a tool to draw more federal dollars into Connecticut — but ultimately became a huge source of friction as hospitals lost hundreds of millions of dollars annually.
That friction led in 2015 to an industry lawsuit — which is still pending — that argues Connecticut’s budgetary policies violated federal Medicaid rules.
Tensions rose to new heights during Malloy’s final months in office last fall when hospital officials said a new state rate calculation method led it to shortchange hospitals $230 million for treating Medicaid patients.
Lamont — who inherited a projected budget deficit of nearly $3.7 billion over the next two years — then proposed canceling a planned tax cut worth almost $190 million per year to hospitals and replacing it with a $43 million annual increase.
Lamont’s fellow Democrats in the legislature, acknowledging the deficit, said it would he easier to support the governor’s plan if he could resolve the outstanding lawsuit and Medicaid rate dispute.
“The Lamont administration is taking this as an opportunity to kick off a fresh start,” Melissa McCaw, Lamont’s budget director, told legislators during a February confirmation hearing. “It is not the intent of this administration to continue along that path.”
A spokesman for the governor’s budget office said Tuesday only that the administration remains in talks and is continuing to provide legislative leaders with regular updates.
Jennifer Jackson, CEO of the Connecticut Hospital Association, said that the tax relief adopted two years ago and due in July remains very important to the industry, but also confirmed that negotiations with the Lamont administration are continuing.
“We stand by the agreement we reached in 2017 and are opposed to the governor’s budget proposal, which increases the tax on hospitals,” Jackson said. “While we oppose the proposed budget, we are pleased that the administration is participating with us in budget and settlement discussions.
But both Walker and Rojas asked what their committees should do in the meantime.
Does the finance panel back a tax hike that rank-and-file lawmakers may oppose if the relationship with hospitals can’t be repaired?
What level of Medicaid funding does the Appropriations Committee recommend for the next two years, and how might a settlement of the disputed charges from 2018 be paid?
More details needed on labor savings
And these aren’t the only questions legislators need answered now, Fasano said.
Lamont’s budget counts on saving $50 million next fiscal year and $135 million in 2020-21 by making changes to state employee health care plans. Those are subject to ongoing negotiations with unions.
“We have not received an update from you regarding your progress in securing these savings through negotiations,” Fasano said.
Legislators did get an update involving another cost-savings initiative — but it wasn’t the kind they wanted.
Lamont told Capitol reporters two weeks ago that he won’t secure one concession he requested from unions — new limits on cost-of-living adjustments to pensions.
The governor said he still hopes to secure this giveback at some point, but added it’s unlikely to happen before legislators adopt the next, two-year state budget.
Lamont’s budget proposal counted on these COLA changes to stay in balance, assuming $26 million in savings next fiscal year and $28.6 million in 2020-21.
Perhaps the biggest question mark involving labor costs involves the governor’s proposal to refinance contributions owed to pensions for state employees and municipal teachers.
Lamont wants to scale back contributions owed between now and 2032, and then have a future generation of taxpayers cover those payments — plus the investment earnings the state would forfeit by not making the contributions on the original schedule.
This proposed deferral has sparked concern among legislators from both parties, who note it would smooth spiking payments — but do so by adding billions of dollars in costs to pension systems that already suffer from decades of inadequate funding.
Lamont’s budget assumes almost $640 million in reduced pension costs across the next two fiscal years combined.
I’m trying to separate what looks like a real budget mess from the normal horsetrading that goes on during the session. It does look like some things the Governor counted on (hospital tax; union concessions, teacher pension funding deferral) are not going his way though.
This article doesn’t identify an amount by which the Governor’s budget is out of balance as a result of recent developments.
It also doesn’t state that both the state employee unions have agreed that any reductions must be “win-win”. So using the word “concessions” isn’t appropriate.
And the discussion of spreading payments to the teachers’ pension fund doesn’t mention the legal problems resulting from the past bond covenant. Any developments in how that problem could be resolved? Despite the reluctance to extend payment in the article, that’s almost certain to happen.
I think the hospital negotiations are likely to add $ hundreds of millions to the deficit in the Governor’s budget, especially with the threat of a court case. That’s likely to turn into the largest issue for the legislature’s deliberation. If the CTMirror could discuss the strength of the hospitals’ case, that would provide useful context.
This article is a good description of some of the problems in a slowly worsening situation. With early May not too far off, extending it would be worthwhile. (Though I don’t think that with so many current unknowns, the Committees are likely to meet the official deadlines.)
The “key takeaways” are the increases in new taxes and increase in State Budget over the preceding Budget prepared by Gov. Malloy. With major increases in both taxes and the State Budget there’s no reason to suppose CT’s economy will not continue to stagnate well into another decade.
Arguments can be made on preferences for new or higher taxes. But the key focus ought be the total amount of new taxes. So far no post-War State in the US with a long period of stagnant economy has rebounded through successions of major new taxes. There’s no reason for CT to be an exception. Major new taxes will encourage further exodus of jobs, firms, residents and perhaps more important surely discourage major firms from investing in CT – a mostly Surburban economy with depressed major cities.
Those concerned about whether CT’s economy advances from its decade long stagnation need focus on the total amount of taxes levied by the Governor/Legislature and whether there are any major reductions in the State Budget. Understandably the Governor has been reluctant to announce his “new plan”. But the reality is that our economic future depends on restraining/reducing both taxes and State spending. Otherwise we continue to stagnate.