Sen. Kane: “We have an unsustainable path, and we have no economic growth.”

Senate Approves Budget With Major Cuts On Party Line Vote; Republicans, Unions Opposed
By Christopher Keating

Hartford Courant

HARTFORD – The state Senate voted Thursday to approve a $19.76 billion spending plan that Gov. Dannel P. Malloy says “changes how we do business” but that Republicans and union members decried as flawed and incomplete.

The budget that now goes to the House of Representatives on Friday will eliminate about 2,500 state employee jobs and substantially reduce future projected deficits. The budget has no state tax increases and reduces spending for the general fund for fiscal year 2017 by 4.4 percent when compared to the original budget passed by the legislature.

After a three-hour debate, the Senate voted 21 -15 after numerous lawmakers made speeches about the difficult cuts that Democrats said were unavoidable to balance the budget.

Those cuts across the state government include grants for municipalities, school transportation, hospitals, psychiatric clinics for children, and substance abuse and mental health services. Millions of dollars were cut for homeless services, alternative incarceration for juveniles, youthful offender services, and people with disabilities, among others.

Malloy touted the deal as the start of structural change for state government, which includes a change in the methodology of how the state budget deficit would be calculated. According to the agreement, future budgets would be based on the “fixed cost drivers,” such as debt service, Medicaid, pensions and other entitlements — instead of merely assuming what Malloy calls “autopilot” cost increases in state programs.

“As part of the budget agreement, the state will change how it does business, and give residents and businesses the predictability they seek as government works to live within its means,” Malloy said. Malloy also called for mandatory legislative approval of labor contracts and enacting the constitutional spending cap that the voters approved nearly 25 years ago, but those changes were not included in the package.

On a party line vote of 21 to 15, the Senate rejected a Republican amendment to require votes on all labor contracts – as Republicans charge that Democrats want to protect the union workers who volunteer for Democratic campaigns in the fall.

Republicans complained that the budget cuts $43 million in state funding for hospitals, which have tangled for months with Malloy in a high-profile advertising campaign on television and the Internet.

“This new economic reality looks at hospitals as banks,” said Sen. Kevin Kelly, a Stratford Republican. “Year in and year out we look at budgets that just don’t work for the people of Connecticut.”

Kelly said it makes no sense that residents in hardworking communities like Seymour and Stratford will not be receiving cuts in car taxes that had been promised in the next fiscal year – before being removed from the plan in a move to balance the budget. Other middle-class towns dropped from the list are Ashford, Chaplin, Stafford, and Vernon, among others. All towns with local property tax rates above 32 mills were originally eligible, but that was moved up to 37 mills in the deal.

“Instead, communities like Simsbury and Woodbridge are going to get tax cuts,” Kelly said on the Senate floor. “The wealthy get tax breaks, and the middle class goes without. … We can do better than the hopelessness of the new economic reality.”

Lobbying over the bill continued in the hallways Thursday – with businesses supporting the package and laid-off union members from District 1199 standing outside the Senate caucus rooms and asking legislators to vote “no.” Republicans, who often clash with union members on various topics, told the laid-off employees that they will be voting against the plan.

Business leaders have been critical of the Democratic leadership of the General Assembly for past tax increases and unstable leadership, which they say is pushing employers such as the General Electric headquarters out of the state. But the 10,000-member Connecticut Business and Industry Association is among the most vocal advocates for the current proposal, saying it is the first step toward getting the state’s fiscal house in order.

After numerous delays, the budget debate started at about 1:40 p.m. Thursday in an all-day marathon that is expected to last into the evening as the Senate debates five separate bills.

In an early test vote, an amendment on the budget passed on a straight party line vote by 21 to 15. Senate President Pro Tem Martin Looney of New Haven said last week that all 21 members of his caucus supported the budget. That included conservative Democrats Joan Hartley of Waterbury, Gayle Slossberg of Milford and Paul Doyle of Wethersfield – a trio that had raised questions about the budget and voted as a bloc against the “retirement for all” proposal that passed the Senate.

“It’s filled with difficult cuts to all branches of government,” said Sen. Beth Bye, the co-chairwoman of the appropriations committee. “We’re still recovering from a financial services recession in a financial services state. … We wish we didn’t have to make as many cuts as we did.”
Senate Majority Leader Bob Duff of Norwalk said lawmakers protected public education, transportation, and higher education but were forced to make cuts because state tax collections have been below expectations and caused large deficits.

In a wrap-up speech, Senate Republican leader Len Fasano of North Haven said, “It is too expensive to run a business in this state. … We have to do better. We can do better. … We have to change. This is not the new economic normal – unless you want it to be.”

Senate President Pro Tem Martin Looney of New Haven said, “It is a stringent budget for stringent times, and it is what we need at this time. … This year, there is only one option, and it is cuts. … This is a responsible budget for the state. It is certainly a painful budget. … This is the necessary budget for these times.”

Regarding some calls by advocates for further taxes on the rich to balance the budget, Looney said, “It’s not a viable option this year.”
Greenwich billionaires, GE leaving

Bye noted that the nonpartisan fiscal office reported that the state’s top 50 highest individual taxpayers had $2.9 billion less in combined income in 2015 – meaning that they earned an average of $60 million less per tax filer. As a result, they paid $217 million less in state taxes – helping to cause the deficit.

“But they’re still billionaires,” Bye said.

Sen. L. Scott Frantz said that four Greenwich billionaires “are brilliant investors” who earn so much money that they had a direct impact on the state budget when they left the state.

“They will never come back to the state. I know them personally,” said Frantz, himself a millionaire investor. “They’re sick and tired of being treated like second- and third-class citizens and being demonized. … Even our former governor has announced she is leaving. Jeff Immelt, the GE CEO, put his house on the market yesterday.”

Bye, however, questioned Frantz’s statements, saying that anecdotes are different from data. The data, she said, shows that the number of millionaires actually grew 22 percent from 2009 until 2015, according to Phoenix Marketing International.

“We have to separate anecdote from fact,” Bye said on the Senate floor. “Sometimes those anecdotal stories hurt our state. We are number one in per capita income. … I challenge the idea of a death spiral.”

But Frantz responded that the four billionaires who left Greenwich had an average net worth of more than $5 billion. That number, he said, is far beyond a person with $2 million or $3 million.

“A billion is 1,000 times a million,” Frantz said. “Yes, we have some more millionaires in the state, but it’s not going to make up anywhere near” the level of the billionaires.

“The anecdotes become the data because the numbers are so large,” he said.

While some have blamed the economy, Republican Sen. Rob Kane said Connecticut has had the two largest tax increases in state history in 2011 and 2015.

“The reason GE left is because we don’t have our fiscal house in order,” Kane said. “We have an unsustainable path, and we have no economic growth.”

While Malloy says the state will eliminate 2,500 jobs to save more than $250 million next year, Bye said on the Senate floor that she did not have an overall estimate on the layoffs. The state is currently using an estimate of saving about $100,000 per position, including salary, pension, and fringe benefits.

The bill also calls for dropping the “current services” form of budgetting that led to projections of large budget deficits into the future. Some lawmakers have dismissed those projections through the years as futuristic and unrealistic, while others saw them as a cause for concern.
“It’s important that we base projections on the reality, not the worst possible outcome,” said Bye, who favors the change. “I think this will be a positive notion on the real deficits we face.”

Frantz said that the deficits have gotten so bad that “we unfortunately are going to have to make people hurt” with cuts in social services.
“People will really feel it deep down for the first time,” Frantz said, adding that Connecticut ranks low for places to retire or start a business. “Keep your eye on Puerto Rico. It is a harbinger of what will happen to states.”

The budget compromise devised by Malloy and Democratic leaders from the General Assembly trims more than $800 million in spending, making reductions in programs across the board, from transportation to public health to schools to economic development. The plan eliminates the sales tax on diapers and avoids any changes in the minimum bottle pricing for liquor. The bill cuts hospitals by $43 million, along with cuts in virtually every department in state government.

“In February, I said we needed to change how we budget, that we needed to do things differently. This budget makes more than $820 million in long-term cuts, which helps mitigate long-term deficits,” Malloy said. “It’s a good budget, and I urge the legislature to pass it.”

Republicans charge that the measure lacks deep, long-term structural reforms that would make lasting cuts and allow the legislature to wrestle down future deficits – such as permitting the legislature to vote on all union contracts, tightening the state’s spending cap, helping towns with relief from state mandates, and reforming the lucrative pension system for state employees.

Currently, more than 240 retired state employees are earning pensions of more than $125,000 per year, according to the state comptroller’s office.

The highest pension for 2016 is more than $300,000 for John F. Veiga, a retired University of Connecticut professor. Former UConn president Harry J. Hartley is receiving more than $230,000 this year.

The budget proposal delays by a year a previously scheduled 3 percent raise for judges and family support magistrates. Under the bill, those increases will take effect on July 1, 2017 instead of 2016.

The 291-page budget implementer which includes the nuts and bolts that makes the budget work, was posted online shortly before 3 a.m. Thursday. Republican leaders were critical of the fact that the document wasn’t released far enough ahead of the budget vote.

Retirement for all

Prompted by a veto threat by Malloy, the implementer includes a new plan to create a retirement savings program for private sector workers whose employer does not offer a pension or 401(k) plan. Although a bill to create the program passed the Senate and House, Malloy said he would not sign it if the changes were not made.

Under the new proposal, a quasi-public 15-member board known as the Connecticut Retirement Security Authority would be created. As passed, the bill would have given the authority to hire a single vendor to manage the retirement fund, but the new wording allows multiple vendors to be selected by the authority. Malloy also had various other concerns that were technical in nature involving the makeup of the authority, which appeared to be addressed.

Of five bills that are scheduled for votes Thursday, Republicans said that two were still not available as noon approached – Malloy’s proposal to overhaul the criminal justice system and the annual bond package. No debates had started shortly before 1 p.m., and one Democrat predicted that the bills could be completed by 10 p.m. Thursday after an all-day marathon. The Senate will be debating on a day when a new poll showed that Malloy is the second least popular governor in the country.

Senate Republican leader Len Fasano said the lack of the two bills made no sense because the vote was delayed by more than a week so that legislators had more time to review the proposals. While some bills were still not available, Fasano said that he started reading the implementer at 5 a.m. Thursday.

“I don’t mind an imperfect process, but what I mind is a disastrous process,” Fasano told reporters. “The implementer has a lot of stuff in there. There’s some retroactivity with respect to hospitals that affects the current lawsuit they have. How does it affect the current lawsuit? I don’t really know yet, but I know it’s retroactive to 2011, and I know it affects the lawsuit the way it’s written.”

Republicans and special interest groups have sharply criticized the budget deal, which came after months of inaction and disagreement between the Democratic leadership and Malloy. The plan reduces transportation spending, a priority for Malloy, spending by about $33 million. And while overall municipal aid for 2017 is reduced, state aid to municipalities has increased by $109 million since 2015, according to Malloy’s office.
But the budget plan also provides municipalities with some relief: under the proposal, any city or town that experiences a cut in state education aide can reduce its budgeted appropriation for schools spending by “an amount equal to the aid reduction.”

The proposal would eliminate the sales tax on diapers and feminine hygiene products in July of 2018. Together, the taxes generate a total of nearly $8 annually for the state. But supporters of the tax cut say tampons and diapers are essential items that should not be taxed as a matter of fairness.

It would also exempt events at the new Dunkin’ Donuts Park in Hartford from the state’s 10 percent admission tax, effective as soon as the bill is signed. Athletic events at New Britain Stadium, such as New Britain Bees minor league baseball games, would also be exempt from the tax, starting next July. Communities could assess a surcharge of up to five percent of the admission charge; in the case of events held at Dunkin’ Donuts Park, the city of Hartford could impose a surcharge up to 10 percent and then use that money to pay off the bonds to build the stadium near Interstate 84.

While Democrats said that the package includes no tax increases, Republican Sen. Toni Boucher of Wilton said that was incorrect because the cuts in state aid to municipalities would force those towns to increase their local property taxes. Fairfield County towns such as Wilton and Ridgefield are among those grappling with cuts.

“This is a property tax increase,” Boucher said in an interview. “Absolutely.”

The budget also includes a provision to expand Connecticut Innovations, the state’s venture capital firm, authorizing it to promote startup and early-stage businesses in the state. CTNext, as the unit within Connecticut Innovations is known, would serve as a clearinghouse for information used by startups, coordinate development of strategies to promote technology-based talent and innovation among state and quasi-public agencies and a range of other tasks.

Business support

The 10,000-member Connecticut Business and Industry Association is backing the plan, along with Joseph McGee, vice president of the Business Council of Fairfield County.

While Republicans say the plan doesn’t go far enough, business leaders say it is a solid first step that cuts spending and does not increase taxes.

“I just wish Malloy had done this two years ago,” McGee said. “We’ve got to get control over spending and our taxes.”
Connecticut’s cities, McGee said, cover 22 percent of the state’s population, but contribute less than 11 percent of the state’s gross economic product.

“We’ve got to have a strategy that rebuilds the economy of cities,” McGee told reporters Thursday at the state Capitol. “I think the next big step here is an economic growth strategy in which we really focus on rebuilding the economies of cities. … That, to me, is the biggest decision looking out over the next 10 years.”

When asked about former Republican Gov. M. Jodi Rell’s recent decision to switch her domicile to her second home in Florida, McGee said, “She likes the weather.”

Courant staff writer Daniela Altimari contributed to this report.