Gov. Ned Lamont and his budget adviser, Melissa McCaw. mark pazniokas / ctmirror.org
Governor Ned Lamont, seen here speaking at an affordable housing conference in September, has rejected requests from nonprofit agencies to share some of the state’s budget surplus. Emergency budget cuts could hit this sector hard, if Lamont chooses to make them. Monica Jorge
Governor Ned Lamont, seen here speaking at an affordable housing conference in September, has rejected requests from nonprofit agencies to share some of the state’s budget surplus. Emergency budget cuts could hit this sector hard, if Lamont chooses to make them. Monica Jorge

While mustering legislators’ support for tolls and a long-term transportation plan remains his top priority, Gov. Ned Lamont has also recently raised the specter of emergency budget cuts — something his predecessor did frequently to the consternation of the General Assembly.

But while Gov. Dannel P. Malloy’s cuts came amidst significant budget shortfalls, Lamont is weighing reductions to close a deficit equal to just 1/7th of 1% of the General Fund. 

More importantly, Lamont is taking aim at the $28 million deficit projection even as analysts estimate a new savings program in the current budget holds a $318 million windfall. In other words, under old budget rules, instead of a $28 million deficit projection, Connecticut would be anticipating a $290 million surplus.

“While the projected shortfall represents only about 0.1 percent of the General Fund, agencies are making efforts to curtail hiring and discretionary expenditures, and the governor is prepared to exercise rescission authority if necessary to mitigate against ending the year with an operating deficit,” Lamont’s budget chief, Office of Policy and Management Secretary Melissa McCaw wrote in her last monthly budget forecast, issued Dec. 20.

“Usually when we have discussions about rescissions we have a very large [budgetary] wall to climb over,” said Rep. Toni E. Walker, D-New Haven, longtime co-chairwoman of the Appropriations Committee. “That’s not the case now. It does not sound like this is being propelled by real planning and real thought.”

State law gives governors tremendous discretion to unilaterally rescind spending ordered by the legislature, allowing line-item reductions of 5% or less in many areas. In theory, this reduces the chances of any one department, program or other budget initiative from absorbing a deep cut.

But reality works a little differently.

“Usually when we have discussions about rescissions we have a very large [budgetary] wall to climb over. That’s not the case now. It does not sound like this is being propelled by real planning and real thought.”

Rep. Toni E. Walker, D-New Haven

Municipal aid, grants to hospitals, and allocations for watchdog agencies such as the Freedom of Information Commission and Office of State Ethics are exempt. Debt payments, state employee salaries and benefits and other contractual obligations also effectively are exempt.

And governors try to limit cuts to health care programs supported in part with federal Medicaid funds because Washington takes back 50 cents or more of its payments to Connecticut for every dollar of spending that’s rescinded.

What all this means is that emergency cuts traditionally have fallen heaviest on higher education, community-based social service programs not backed by Medicaid, and miscellaneous agency accounts. But the last item only provides limited savings, meaning the first two typically are hit harder.

Malloy, whose tenure from 2011 through 2018 was dominated by a sluggish economic recovery, ordered emergency cuts a whopping nine times. Seven of the nine fell between November 2014 and December 2017, and he canceled almost $400 million in legislature-approved spending during his second term.

Walker said the last eight years took a heavy toll on the social services safety net — and some of Connecticut’s most vulnerable residents.

“It was dramatic,” she said, arguing many of the hundreds of community-based nonprofits that Connecticut hires to deliver social services are hanging on by a thread. “They can’t afford to stay in business any more. We’re destroying the infrastructure we have here.”

Lamont rebuffed a request from nonprofits last fall for $100 million from the state’s swelling budget surplus, which is currently pegged at a record $2.5 billion.

The CT Community Nonprofit Alliance responded by modifying its request. If the rainy day fund — Lamont’s chief defense against the next recession — is off-limits, it asked, could the governor and legislature dedicate a share of future revenues to an industry whose state funding hasn’t kept pace with inflation for more than a decade?

The governor said no.

Gov. Ned Lamont and his budget adviser, Melissa McCaw. mark pazniokas / ctmirror.org

Despite the $28 million deficit forecast, Lamont expects to grow the $2.5 billion reserve after the fiscal year ends on June 30 — the result of a new program that skims off a portion of state income tax receipts tied to investment earnings once they exceed a threshold level of roughly $3.1 billion.

This “volatility adjustment” — labeled as such because investment-related tax receipts are among the most unstable of revenue sources — is projected at $318 million. Before this system was created in November 2017, those funds would have been counted in the regular budget forecast. That would have turned the current $28 million deficit projection into a $290 million surplus.

Former Gov. John G. Rowland The CT Mirror

In the late 1990s and early 2000s, then-Gov. John G. Rowland, a Republican, infuriated majority Democrats in the legislature by using his budget-cutting authority to trim spending even in years when the state finished with a large surplus — typically when Democrats hadn’t adopted a lean budget according to his standards. 

But state law gives the governor great discretion to order cuts whenever he or she fears government’s resources “will be insufficient to finance all appropriations in full.”

Still, Lamont has reason to be cautious.

This year’s budget was drafted to run $141 million in surplus and the $28 million deficit represents a $169 million swing in the wrong direction.

Most of that hole is tied to cost overruns, and two-thirds of the problem reflects payments to help settle a risky lawsuit with the hospital industry — a problem Lamont inherited from Malloy.

Also, it’s been more than 10 years since the last recession ended and the governor has noted on many occasions that history suggests the next downturn cannot be far off.

Yet Lamont also is struggling to convince his fellow Democrats in the legislature to adopt a new plan to finance a long-term rebuild of the state’s aging, overcrowded transportation infrastructure.

He had sought to largely finance this plan with electronic tolling of all vehicles, but lawmakers from both parties balked. Lamont now is backing a request from Democratic legislative leaders to accept tolls just on trucks, though Republicans remain opposed.

Walker’s fellow co-chairwoman on the Appropriations Committee, Sen. Cathy Osten, D-Sprague, said it’s important that legislators respect the new initiative to force better savings habits.

McCaw did not comment on potential emergency cuts beyond her written warning, but Osten said “I believe what Melissa is really saying is that she does not want the legislature to come in and make a lot of changes to the budget.”

The regular 2020 General Assembly session convenes on Feb. 5 and some legislators from both parties already have said they want to add $5.3 million in spending to reverse cuts in state aid to nine nursing homes with high bed vacancy rates.

Still, Osten added, the $28 million deficit hopefully can be eliminated without emergency cuts. One option might be if the administration and unions are successful with ongoing negotiations to trim health care costs.

“We’ve pared down the [non-fixed] budget year after year,” she said. “I don’t think we’ll need rescissions.”

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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16 Comments

  1. Walker and Osten “said it’s important that legislators respect the new initiative to force better savings habits” You must be joking!!! These are the same two who repeatedly reminded us that “Connecticut was rich state” and as recently as 2016 were publicly stating that “we do not have a fiscal crisis that is a right wing conspiracy to hurt unions and a Republican talking point”.

    But they are not alone, the Democrat agenda and political “leadership” in Connecticut ignored our constitutional spending cap for 25 years. They CREATED our uncompetitive environment and they do not really believe in savings they believe in higher taxes and spending i.e government growth.

    Democrats economic policy and regressive taxation on the middle class has clearly failed the majority of people living in our once great state. The people who created the problems are not the ones who will fix them, vote them out they are not the solution – they are literally the problem.

    1. The well advertised Exodus from CT and a decade long stagnant economy/employment level ought to concentrate attention in Hartford. Lest we endure another such decade. We need remember that absent several hundred thousand Gold Coast families CT’s per capita income isn’t much different from the USA average.

    2. 1) Tiny reductions in increases are not cuts.
      2) Money borrowed by Malloy and counted as revenue was as crooked a move as I’ve seen here….and that includes selling us out to gain State Union support.
      3) Whatever happened to the Democrat promises to use GAAP principles in budgeting? For that matter, how about all those ‘lockbox’ promises made to us?
      4) The “Republican legislature” you mention has been Democrat for decades. As such, they have very little say–especially when Dem Governors and Legislators completely exclude them from discussions–whether physically or policy-wise.
      5) As the Republican ‘leaders’ could all tell you, I’m no fan of nearly all of the R members of the State Party/CGA. Ditto for our local RTC members. However, just imagine how little input they’d be allowed if they were actual conservatives.

      That’s just to start with.

    3. Ahem. Republicans have been the minority party in the state legislature. Yes, there was blame to share with Republican Governors, but your heroes in Hartford have owned this mess for nearly a decade.

    4. Yes, I do, but finding $25 million savings in a $21.5 Billion budget is not a sacrifice! – Barnes used to call that little a “rounding error”. Everyone knows who drives economic policy in Connecticut and it is not the Governor nor the Republican party – it is naive to believe otherwise, the Democrat Party has complete control of the agenda and you know it. But none of that matters, the damage is already done money spent – the bigger issue is why Democrats refuse to repeal bad economic policy and mandates? Many of them will die or retire believing their philosophy was more important than the damage it caused – the tab is now $120 Billion and we still have stagnant growth! A lot of people are going to get hurt and a lot of Republicans are saying “we told you so”. I would rather fix the problem but we need LARGE businesses to achieve that – we MUST lower taxes on the middle class and reduce their cost of living.

  2. What ever happened to the promised labor savings that had to be negotiated after the budget was adopted?

  3. Anyone, with any understanding of political manuvering, could have anticipated this veiled threat by Gov Lamont. Threatening to reduce funds for nonprofits, municipalities or other highly sensitive, emotionally charged services, or organizations. Is intended to pull the heartstrings of voters and taxpayers. Though there are thousands of opportunities to reduce non critical operating costs. They are ignored, because they exert little, or no political weight to drive a hidden agenda. Once again, politicians and the theater they perform within, sickens me.

    1. Just as everything, especially on a local basis, is tagged with “It’s for the children” and, if they are rebuffed, ‘you hate children.’ If I had a nickel for every time I’ve been told that…..I’d be in a much higher tax bracket.

    2. Lets stop paying the top management of Non Profits 500K a year. If 98 percent of your funding is coming from the state you should not be paid that much.

  4. Let’s have some honesty from Hartford for a change. First, place everything required to be paid out ‘on budget.’ Also, let’s stop the charade that reducing increases in spending is a ‘cut.’

    That would be a great start towards actually dealing with our State’s fiscal insanity.

  5. What we’re looking for are not “emergency cuts” but permanent cuts in CT’s overextended State Budget aka bloated. Plus reductions in taxes sufficient to attract major firms to invest in CT and create badly needed good paying jobs. Especially in our major depressed cities where 1/6th CT’s population live on per capita incomes one half the CT average. So far after one year in office Gov. Lamont has not yet made public a plan passing professional scrutiny that would revive CT’s decade stagnant economy. Given his business background and access to leading business professionals within and without CT that’s surprising. A great concern within the business community is what happens once a Recession hits CT and crucial income taxes from the Gold Coast fall off substantially. With stagnant real estate values throughout CT there’s concern the Exodus will only accelerate during a Recession.

  6. One should look no further than the most excellent plastic bag tax that backfired fiscally on the Hartford brain trust. Yes, it reduced plastic bags which is a good thing, but as I recall, it was budgeted to generate about $50 million in revenue. The stores did what businesses do; they got rid of the plastic and charged people for paper bags.

    Perhaps the Governor should try a state worker suggestion box again. Last time, it was budgeted to generate $250 Million in savings.

    1. Hi Meg Nutter, just passing along a few numbers: The plastic bag tax was projected to generate $27.7 million this year, or about $50 million over the biennium. It’s now on pace to generate about $7 million this year. The suggestion box was projected to generate $180 million in savings.

      1. Thank you for the clarifying numbers. Do you happen to know the actuals against those budget figures?

      2. Great question. The Malloy administration never released information on whether any savings were achieved through submissions to the suggestion box.

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