Legislature OK’s last-minute budget

Bipartisan compromise, reached hours before deadline, is approved nearly unanimously

The legislature overwhelmingly approved a new state budget shortly before its midnight deadline Wednesday that restores aid for towns; reverses health care cuts for the elderly, poor and disabled; and defers a transportation crisis — at least for another year.

The $20.86 billion package, which the Senate passed unanimously and the House nearly so, does not increase taxes, though it does raise the maximum tax rate cities and towns can levy on motor vehicles. It also would spend rather than save more than $300 million from this April’s $1 billion surge in income tax receipts.

It does not include several major changes sought by Republicans to collective bargaining rules regarding state and municipal employees.

And while state finances are projected to face multi-billion-dollar deficit projections after the next election tied in part to legacy debt costs amassed over eight decades, the new budget would leave Connecticut with $1.1 billion in its emergency reserves.

The budget, which the Senate passed 36-0, boosts General Fund spending about 1.6 percent over the adopted budget for the current fiscal year, and is 1.1 percent higher than the preliminary 2018-19 budget lawmakers adopted last October. The House vote was 142-8.

In a related matter, legislators also passed several state tax changes aimed at protecting Connecticut households and businesses that may face higher federal taxes under the tax plan passed this past winter by Congress.

“Leaders came together and said the state of Connecticut matters,” Senate Republican leader Len Fasano of North Haven, said. “We need to move the state of Connecticut forward . ... This is another monumental step forward for this state.”

Senate President Pro Tem Martin M. Looney, D-New Haven, praised both parties for uniting to make government work for its citizens. “We’ve been able to make those changes in response to the needs and outcries of our constituents,” Looney said.

The Senate passed the budget after a mere 17 minutes of debate before sending it down to the House.

Reversing Medicare, Husky A cuts

Democrats and Republicans alike faced a hailstorm of criticism last fall after they voted to tighten eligibility requirements for the Medicare Savings Program, which uses Medicaid funds to help low-income elderly and disabled patients cover premiums and medication costs.

Lawmakers scrambled and postponed the cutbacks to July 1, even though it worsened a deficit in the current fiscal year, after learning an estimated 113,000 seniors and disabled residents would lose some or all assistance.

The new budget reverses all cutbacks, at a cost of approximately $130 million.

Legislators also put $12 million back into the budget to reverse new restrictions on the Medicaid-funded health insurance program for poor adults, Husky A. Advocates say this funding would enable approximately 13,500 adults from households earning between 155 and 138 percent of the federal poverty level to retain state-sponsored coverage.

For a family of three, the 155 percent threshold represents an income limit of $32,209 while 138 percent is $28,676. The new budget also would:

Provide a 1 percent increase in rates paid to private, nonprofit social service agencies.

Add $5 million for emergency residential placements for individuals with intellectual and developmental disabilities.

Add $5 million for the Temporary Aid for Needy Families welfare program.

Shielding cities and towns

Legislators also took a different approach with this budget regarding aid to cities and towns.

Democrats and Republicans clashed with Malloy back in November when the governor — who was mandated to achieve unprecedented savings after the budget was in force — cut $91 million from statutory grants to cities and towns.

The new budget gives communities $70.5 million more in 2018-19 than they received this year — and prohibits the governor from cutting town grants to achieve savings targets.

It also provides additional education and other funding for communities with large numbers of evacuees from Puerto Rico.

Big reserve — even bigger post-election deficits

Legislators did tap a portion of this April’s $1.3 billion surge in state income tax receipts tied chiefly to capital gains and other investment income. And that’s despite a new revenue “volatility” cap that was established last fall to force Connecticut to save such funds.

How did they get at those funds?

The budget “carries forward” $299 million in resources earmarked for payments to hospitals this fiscal year. The industry, which originally expected to get the money this spring, won’t get paid unless federal Medicaid officials approve a new state hospital taxing arrangement — and approval is not expected until late summer or in the fall, after the next fiscal year has begun.

By carrying those resources forward, the state has an extra $299 million to spend in the next budget while simultaneously enlarging the outgoing fiscal year’s deficit by the same amount.

The new deficit for the outgoing fiscal year would be $686 million, which would be closed entirely with the dollars in the budget reserve — which is filled primarily with this spring’s income tax receipts.

Even after that maneuver, the budget reserve is expected to have between $700 million and $800 million on hand when the books close on 201718.

But analysts also project the volatility cap system will direct more income tax receipts tied to investment earnings into the budget reserve next fiscal year — albeit a more modest amount. After that deposit is made, and if the state budget remains in balance in 2018-19, it would close the fiscal year with about $1.1 billion in reserve.

That potential fiscal cushion, which represents just under 6 percent of annual operating costs, would be the state’s largest reserve since 2009 — but also well below the 15 percent level recommended by Comptroller Kevin P. Lembo.

More importantly, it also is smaller than the projected deficits in the first two fiscal years after the November elections.

According to the legislature’s nonpartisan Office of Fiscal Analysis, the newly adopted budget — unless adjusted — would run $2 billion in deficit in the 2019-20 fiscal year. And the potential shortfall rises to $2.58 billion in 2020-21.

Much of those deficits are attributable both to surging retirement benefit costs stemming from decades of inadequate state savings, and also to the Connecticut economy’s sluggish recovery from the last recession.