Mal­loy has one more bud­get to tackle be­fore de­par­ture

The News-Times (Sunday) - - News - By Keith M. Pha­neuf

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-bil­lion­dol­lar 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 un­der­pro­jects 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 law- mak­ers in 2017 to or­der cities and towns to foot the bill for roughly onethird 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 sin­gle­hand­edly 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 state 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 on Feb. 6.

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