Republicans Call For Special Session To Cut Budget [Courant]

November 24, 2014

Hartford Courant

Top Republican legislators called Friday for a special legislative session by December 15 to start solving the state’s budget problems.

The two new leaders, Senator Len Fasano of North Haven and Rep. Themis Klarides of Derby, said the legislature needs to act quickly to rein in state spending. They said the state’s projected deficit of $99 milllion for the current fiscal year is actually higher because the state is not collecting back taxes at the rate that was projected when the budget was approved by the legislature.

Gov. Dannel P. Malloy’s administration said that $75 million in back taxes would be collected through increased enforcement efforts in the current year, but only $30 million has been collected so far, officials said Friday.

“We cannot reach a solution and properly address the true severity of our current problem unless we sit down together and work across the aisle to change course and get our finances back on track,” Fasano and Klarides wrote in a letter to Malloy and top Democratic lawmakers.

But Republicans do not have enough votes to force a special session as they are in the minority, and the Democrats say the budget gap can be closed without a vote by the full legislature.
“There is no need for a special session,” said Andrew Doba, Malloy’s spokesman. “The rescissions that were announced [Thursday], in addition to the management measures that were announced more than a week ago, are more than sufficient to address this minor shortfall.”

The two top Democrats in the Senate – President Pro Tem Donald Williams and Majority Leader Martin Looney – both said the special session is “unnecessary” because Malloy is making cuts within his authority under state law.

The state’s budget problems were front and center Friday as top legislators poured through the red ink during a public hearing that lasted nearly three hours.

In addition to a projected deficit in the current fiscal year, the legislature’s nonpartisan fiscal office is estimating combined deficits of $4.47 billion over the next three fiscal years – starting in July 2015.

Alan Calandro, the fiscal office’s director, told legislators that the state has problems both on the spending and taxing sides of the budget. In the short term, the state is still trying to obtain about $200 million in additional funds from the federal government for Medicaid that is currently under negotiation. The federal budget has not yet been adopted, and the government has been funded under continuing resolutions.

“That’s where the bigger problem is – on the revenue side,” Colandro said. “We have not been able to get that additional revenue.”

If the state suddenly received an extra $200 million, that would solve the projected deficit for the current fiscal year. Both Malloy and state treasurer Denise Nappier have cited the $200 million as an important source of money in the efforts to balance the budget.

Calandro testified at the annual joint hearing of the finance and appropriations committees on the state’s Fiscal Accountability Report, which is required by law. Both the fiscal office and the governor’s budget office are required to submit reports to the legislature each year in November.

Another factor, Calandro said, is that state officials will be closely watching the collection of state income taxes leading to the April 15 tax deadline. At more than $9 billion annually, the state income tax is the largest revenue generator in the state budget by far – at about 53 percent of the overall total. The sales tax is in second place at more than $4 billion for the current fiscal year, but that level is less than half of the income tax level. Sales tax revenues were impacted by the deep recession on both the federal and state levels as consumers cut back on their spending as the economy slowed and then continued to remain sluggish.

Comparing the state budget to 2009, for example, is difficult because the Malloy administration and the legislature moved millions of dollars “off budget” that is no longer counted in the general fund.

“Apples to apples is a difficult thing,” Calandro told lawmakers at the Capitol complex.

Despite the projections for large deficits, Malloy has pledged that he will avoid deficits because the projections assume that the state budget will increase annually by 7.8 percent in order to maintain the current level of services. During the recent election campaign, Malloy said repeatedly that he would not allow the budget to increase by the current services level – saying that it never happened during his first four years in office.

Besides the deficits, the fiscal office is also projecting the state would be above the state-mandated spending cap that is designed to control spending. If current services remain in effect, the state would be above the spending cap by $590 million in the next fiscal year, $692 million in the 2017 fiscal year and $871 million in the 2018 fiscal year. The governor’s budget office also showed spending above the cap, based on the current services projections.

“The governor will propose a budget that is balanced, that is under the spending cap” and will not rely on raising taxes, said Karen Buffkin, the number 2 official in Malloy’s budget office. “In 2015, our budget will be balanced.”

“Our income tax projections are highly dependent on capital gains,” Buffkin said, noting that the trends on Wall Street have a large impact on the state’s revenues. “April continues to be our big month.”

After Buffkin told legislators that employment is increasing and the state economy is rebounding, Rep. Arthur O’Neill of Southbury asked why state revenues are not coming in faster.
“Do we still face fiscal challenges? Yes, we do,” Buffkin responded. “What is occurring now is good news for the Connecticut economy. … Yes, Connecticut’s economy is improving. Yes, these are good times. … We will balance that budget as the governor has done over the past four years. … We do not have a deficit in the current fiscal year. We have a projected deficiency.”

With those improving economic factors, then, O’Neill said the state should be having surpluses instead of deficits.

Buffkin delivered the presentation to the legislators because Malloy’s budget chief, Ben Barnes, was ill on Friday. Buffkin described Barnes as “significantly under the weather.”
Sen. Toni Boucher, a Wilton Republican, said that the sluggish economy has not gone away.

“We’re feeling that we’re stuck in the mud here,” Boucher said.

On an annual state budget of about $20 billion, the projected deficit of nearly $100 million is about 0.5 percent, said Sen. John Fonfara of Hartford. For a family with $100,000 in income, that would be the equivalent of a $500 deficiency, he said.

“We’re not in the worst place right now, halfway through the fiscal year,” Fonfara said.

Sen. Beth Bye, a West Hartford Democrat who co-chairs the budget committee, agreed that the problem is relatively small on a percentage basis in the current year and actions are already being taken to make sure that the budget will be balanced. She said, however, that she was concerned about more than $6 million in proposed cuts at the Department of Children and Families concerning temporary group homes for troubled children.

Buffkin said the department still had millions of dollars to help the children for board and residential care.

Sen. Rob Kane, the ranking Senate Republican on the budget committee, said the forecasts were “rosy” before the gubernatorial election and the Malloy administration said there were no deficiencies from overspending in various state departments. Now, however, the state is looking at a deficit of nearly $100 million that had been projected as a modest surplus of $300,000 only one month ago.

“I don’t want to sound like Oliver Stone, but what happened in between?” Kane asked.

Despite any fiscal problems at the moment, Buffkin said, “We expect to end the fiscal year in balance.”

With the budget cuts that were announced this week, combined with a hiring freeze and spending restraint, Buffkin said the state would end the fiscal year in the black.
Later, Kane said, “There are people on our side of the aisle who think things may be worse.”

Republicans said the deficit figure does not include $31.8 million in health expenses for retired state employees, $10 million for autism care through Medicaid, and $10.5 million in overspending in personnel costs in the state prison system.

Buffkin said that the retiree health expenses are “on the radar” on a “watch list” of potential problems, even thought the number is not included in the calculations.
“There are a lot of things that can happen during the course of a fiscal year,” Buffkin said.

One of the issues in the budget is that Malloy’s administration said that the state tax department could receive an additional $75 million by increased enforcement efforts and collection of back taxes that had not yet been paid. As of today, $30 million of that total has been collected, while state officials are still trying to collecting the other $45 million. Much of the $45 million is related to expected collections through the state’s sales tax.

Regarding bonding, the state used up 86.3 percent of its maximum for bonding, and that number is expected to increase to 89 percent over the next three years. The state has total unfunded liabilities of $68.4 billion, including outstanding debts.

“We continue to lower our gambling revenue estimates,” Calandro said of the slowdown in spending at the two Indian casinos in southeastern Connecticut.