Malloy rejects hospital tax plan but signs most of budget into law
State’s four-month drama finally comes to an end
Gov. Dannel P. Malloy used his line-item veto to reject a new taxing arrangement on hospitals but signed into law the bulk of a new, two-year state budget negotiated without direct input from his administration.
The governor signed a $41.3 billion biennial plan that closes major projected deficits while boosting taxes close to $500 million per year; cutting municipal aid, higher education and social services; and sweeping tens of millions of dollars annually from energy conservation programs.
It also would provide emergency assistance to keep Hartford out of bankruptcy, implement a stringent spending cap and enact a new statutory limit on borrowing.
“After 123 days without a budget, it is time to sign this bipartisan bill into law and continue the steady and significant progress our state has made over the past several years,” Malloy said. “Connecticut’s families and businesses deserve to have a budget in place, one that provides a stable environment to live and work. While there are certainly many provisions of this budget I find problematic, there’s also a clear recognition of many of the fiscal priorities and concerns I’ve consistently articulated since January. I appreciate the work of the General Assembly in passing a budget to my desk that I can sign.”
Hospital tax still needs a fix
The hospital tax is a complex legal and fiscal maneuver designed to increase federal Medicaid reimbursements to the state and to ease burdens on the industry.
Technically the state’s tax on hospitals would rise from $556 million to $900 million per year. Connecticut would redistribute those funds and return them to the industry — plus about $229 million more — qualifying the state for a big boost in federal aid.
The net effect on the state budget would be a $137 million annual gain.
This taxing change still needs to be approved by the U.S. Centers for Medicare and Medicaid Services, commonly referred to as CMS, which oversees the Medicaid program.
The administration says the budget bill appears to guarantee the hos-
pitals a windfall paid by the state, regardless of whether the federal government signs off on the Medicaid change.
The governor added that absent his line item veto — and had federal officials rejected the tax increase agreement — Connecticut still would be obligated to pay roughly an extra $1 billion to the hospital industry across this fiscal year and next combined.
“I am not opposed to a new, mutually beneficial relationship with hospitals that realizes additional federal dollars for the state of Connecticut,” Malloy wrote in a letter to legislative leaders. “In fact, my administration has repeatedly offered workable language to that end — language developed by nonpartisan, classified attorneys in the executive branch with considerable expertise in this specific area.”
Legislative leaders have said they didn’t receive the administration’s proposed language in time to incorporate it into the budget, which was adopted last Tuesday. Malloy’s budget chief, Office of Policy and Management Secretary Ben Barnes, disputes this assertion.
Legislative leaders nonetheless have said they are willing to adopt corrective language regarding the hospital tax in the near future, if it is necessary. There was some grumbling on that point.
“The ongoing dispute between the governor, the hospitals and the legislature on the language required to access the pool of federal money the hospitals are seeking we believed was settled in the compromise budget,’’ said House Minority Leader Themis Klarides, R-Derby. “Now we need to deal with his line item veto.’’
Senate Republican leader Len Fasano of North Haven said lawmakers are certain to return, either to override the line-item veto or make revisions suggested by Malloy.
“The governor made the right decision to sign the budget into law, thus assuring that critical funding, particularly for our schools as well as important services and programs, will now be in place,” House Speaker Joe Aresimowicz, D-Berlin, said. “Though I disagree with his line-item vetoes, the legislature is committed to working with the administration on any fix necessary to ensure that taxpayers are protected and our hospitals have the resources to provide residents with quality health care.”
“I appreciate the patience of Connecticut’s residents,” said Senate President Pro Tem Martin M. Looney, D-New Haven, thanking Malloy for signing the budget. “Reaching a bipartisan agreement was a difficult process, but it was the right course for Connecticut to take. I am confident that now that this budget is law, legislators will be able to work with the governor to make any technical fixes which may be necessary.”
Jennifer Jackson, CEO of the Connecticut Hospital Association, said, “The governor’s line-item veto of hospital supplemental payments undermines the agreement to maximize federal funds for the benefit of the state, hospitals, and the patients they serve.”
Jackson also said “the language in the budget approved by the General Assembly is similar to language used and approved in other states. We stand ready to work with the state to address additional legitimate issues throughout the implementation of the hospital agreement contained in the budget.”
Is the budget truly balanced?
The new budget relies on revenue from tax and fee hikes worth $494 million this fiscal year and $535 million in 201819, or just over $1 billion for the biennium.
The largest increase, though, is the $344 million per year tax hike on hospitals. If the hospital tax hike is not counted, the overall tax and fee increase is $150 million in the first year and $201 million in the second.
The budget raises income taxes on middle class and working poor households by reducing tax credits. It raises taxes on cigarettes and other tobacco products, and creates a new fee on fantasy sports betting. A $10 surcharge on motor vehicle registrations will go to support state parks.
Still, Malloy — who urged lawmakers to minimize tax hikes — questioned whether the numbers truly add up.
“I want to be clear, that this is not a document that I would have negotiated,” Malloy told reporters shortly after signing the budget. “And I do have very real concerns about many aspects of it.”
The governor also cited nonpartisan projections that the budget is far from sustainable.
The nonpartisan Office of Fiscal Analysis projects that when the next governor and General Assembly must begin drafting the biennial budget for the 2020 and 2021 fiscal years — a process that begins in February 2019 — that budget will have a built-in deficit approaching $4.6 billion.
That’s more than the $3.5 billion, two-year shortfall that analysts said state finances would face this fiscal year and next without adjustment.