Sen. Kane: “We’re blowing right through” spending cap

June 4, 2013

Article as it appeared in the Journal Inquirer on June 4, 2013

HARTFORD — A $44 billion, two-year state budget that would increase spending 6 percent in the coming fiscal year cleared the Senate on Monday.

The Democrat-controlled Senate approved the plan in a 19-17 vote. Three Democrats joined all 14 minority Republicans to oppose the budget, which now goes to Gov. Dannel P. Malloy for consideration.
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Malloy, a Democrat, is expected to sign it. The Democrat-led House of Representatives approved the plan Sunday.

The budget would maintain state funding for towns, cut payments to hospitals, expand education initiatives authorized last year, fund a $27 million expansion at the University of Connecticut, and pay for 3 percent raises for most state employees in each of the next two years.

It calls for spending $21.5 billion in its first year and $22.5 billion in 2014-15. That’s a spending hike of 6 percent in the first year and 4.6 percent in the second.

But lawmakers signed off on a procedural move that allows them to claim the budget’s bottom line is less than that — $37.6 billion, or $18.6 billion in the year that starts July 1 and $19 billion in 2014-15. That would mean a spending decrease of 9.2 percent in the first year and an increase of 2.2 percent in the second.

That’s only on paper, though, because the new budget doesn’t count as spending any money the state is reimbursed for Medicaid expenses.

Lawmakers approved several one-time revenue sources to prop up spending. Those include sweeping and raiding funds for transportation infrastructure, energy efficiency improvements, and cancer research; spending a $220 million projected surplus in the current year’s budget; and delaying the repayment of debt. That last move saves money up front but will cost the state about $45 million more in interest.

While Malloy and Democratic lawmakers say the budget doesn’t raise taxes, it would extend taxes set to expire on electricity generators and businesses and would reduce a tax credit for the working poor. The budget also allows for the tax exemption on clothing and shoes under $50 to be reinstated starting in July 2015.

To bring in more revenue, the budget turns to gambling. Keno would be allowed in bars and restaurants, generating revenue of nearly $4 million in the first year and $27 million the year after that, a move minority Republicans referred to as a tax on the poor.

Medicaid, spending cap

Debate in the Senate focused on how the state accounts for Medicaid. The state now “gross funds” the health care program — counting all expenses as spending, regardless of how much the federal government reimburses.

The problem with that is that this year’s budget would have blown through the constitutional spending cap, which is the limit on year-over-year budget increases put into place when the state implemented the income tax in 1991.

Malloy had proposed changing spending cap rules so anything completely reimbursed by federal funds wouldn’t count as spending. That would primarily cover the $500 million the state expects to expend for Medicaid starting next January for low-income adults, who earn slightly more than the traditional Medicaid population.

But the governor’s proposal would have required a three-fifths vote in the Senate. He lacked that support, so lawmakers found another way around the cap.

They decided to “net fund” Medicaid, counting only the money the state is responsible for and ignoring as spending any money that’s reimbursed. And instead of limiting that to the $500 million, they removed $2.8 billion from under the spending cap in the budget’s first year and $3.2 billion in the second.

Senate President Pro Tem Donald E. Williams Jr., D-Brooklyn, defended the move, saying Connecticut is alone in how it counts Medicaid, which has hindered efforts to seek federal reimbursement.

“Taxpayers are going to get their fair share of federal funds without risking the crowding out of our commitment to seniors, children, our schools, and all of the other critical services,” Williams said. Not changing the rules would mean cutting hundreds of millions of dollars that’s spent on programs people use and need, he added.

But Minority Republicans slammed the move, saying it violated the constitution and justifies what they characterized as runaway spending.

“We’re blowing right through it,” Sen. Robert Kane, R-Oxford, said of the spending cap. “It was a way to hold the line and to caution the legislature and the administration … that we can’t continue this spending path. We can’t continue this spending spree.”

Grants to towns

The budget would preserve state payments to towns, and the bill doesn’t specify whether some of the restrictions Malloy proposed concerning how towns could spend the money would become law.

The bill adopted Monday would increase education funding to towns by 3.8 percent, with most of that funneled through the Education Cost Sharing grant program. Noneducation funding would decrease by 0.2 percent, according to figures from the Connecticut Conference of Municipalities.

James Finley, CCM’s executive director, called the budget a “clear win” for towns and taxpayers. “CCM commends the legislature and the governor for listening to the concerns of municipalities across our state,” he said.

Hospital cuts

The budget would cut $500 million in state payments to hospitals over two years. That money had come in reimbursements for treating people without insurance — and much of it came from a tax on hospitals imposed two years ago so the state could leverage additional federal dollars.

Hospitals fought the cuts, which Malloy proposed in February, saying they would lead to layoffs and reduced care.

Lawmakers didn’t restore the money, but the budget includes $15 million a year to “mitigate” the cuts, Sen. Toni Harp, D-New Haven, said. A bill lawmakers expect to pass this week will have nearly $40 million in additional funds for hospitals, she added.

One time revenue, raids

More than $500 million over two years would come from one-time revenue streams and raids of funds earmarked for other purposes. That includes a $220 million projected surplus in the current year. The budget would spend $190 million of that in its first year and $30 million in the second.

The spending plan also takes $35 million from the Connecticut Resources Recovery Authority, $50 million from a settlement from tobacco companies, and hopes to bring in $35 million by extending amnesty to people and companies that owe on taxes.

A gas tax that was adopted years ago is expected to hike the price of gasoline by more than 3 cents per gallon and take in $60 million from taxpayers. But instead of earmarking that money for infrastructure, the budget would take that and $30 million more from the Transportation Fund.

Other raids would hit funds designated for energy efficiency, including $30 million over two years from the Clean Energy Finance and Investment Authority and $5 million from the Regional Greenhouse Gas Initiative, a cap-and-trade system on pollution.

“Electric ratepayers pay into these funds for the express purpose of building clean energy systems, reducing energy costs, and cutting pollution. Now those payments are being diverted to close the budget gap as nothing more than a back-door tax on electric bills.” Christopher Phelps, director of the group Environment Connecticut, said.

EHartford, SWindsor carve outs

Companies in East Hartford and South Windsor would benefit under the budget with special consideration.
The Connecticut Center for Advanced Technology, a nonprofit in East Hartford, would get $250,000 a year from the University of Connecticut under the bill. CCAT helps businesses and manufacturing companies become more efficient and train their workers.

The Connecticut Studios project in South Windsor would get a special exception from a moratorium on film tax credits. The moratorium is expected to save the state $2 million in the budget’s first year and $4 million in the second.

Sen. Tony Guglielmo, R-Stafford, said the budget makes the state a less attractive place for people and businesses. “It’s just become an extremely difficult place to live, work, and raise a family,” he said.
Malloy and Democrats have criticized Republicans for not offering their own budget proposal. Instead, Republicans have offered criticisms and suggestions.

“We took all of the good ideas that were in the Republican’s budget plan and put them in the budget,” Malloy said Monday.