Malloy On Budget Problems: ‘There’s No Easy Way Out’

April 6, 2015

Article as it appeared in the Hartford Courant
HARTFORD — As the legislature struggles with a difficult budget, Gov. Dannel P. Malloy said Thursday that he does not expect changes in the state-mandated spending cap to help solve fiscal problems. Malloy also said that it is “way too early” to talk about using the state’s rainy day fund to plug this year’s budget gap.

The state faces a projected deficit of nearly $173 million for the fiscal year that ends on June 30, and has almost three full months to enact budget cuts in departments and agencies.

“I think we are so early in the process about what the end of the year is going to look like,” Malloy said Thursday morning in his Capitol office. “We’re going to be taking in revenue until the end of July, early August because there are revenues that get reported and come in afterward.”

Even though the fiscal year ends on June 30, sales taxes and gasoline taxes that are paid by consumers in late June, for example, would not end up in the state’s coffers until after the new fiscal year begins.

Based on the ups and downs of the economy and tax collections, Malloy said state officials cannot predict the exact size of the deficit before the fiscal year ends.

“We’re just way too early” to talk about using the rainy day fund, he said.

As a result of the state’s troubles, Malloy issued another round of budget cuts Wednesday that cover $13.7 million in reductions from 20 departments and agencies. The largest cuts are $5.8 million from the Office of Early Childhood for child care services, $2 million from UConn’s operating expenses, and $1 million from UConn Health in Farmington. The cuts also include $1 million from the Connecticut State Colleges & Universities and smaller cuts from the departments of labor, social services, revenue services, veteran’s affairs and environmental protection.

The state is hoping to collect more money from capital gains taxes, which are paid through the personal income tax, from gains in stocks on Wall Street. That, however, has not been happening at the pace that was expected — prompting the deficit estimates to grow. The state’s fiscal fortunes have been directly affected in the past by trends on Wall Street and changes in federal tax law. A major change was the end of the Bush-era tax cuts on capital gains, which prompted wealthy investors to sell their stocks at certain times and not at others, officials said.

Connecticut multimillionaires and billionaires traditionally make estimated tax payments in January, and this year’s total grew by only 4.9 percent from last year. The money from gains or losses on Wall Street can fluctuate widely — leading either to deficits or surpluses in state coffers.

If there are no changes in the spending cap, the legislature would be forced to make budget cuts within the framework that Malloy has established for the two-year, $40 billion budget. As such, lawmakers could not solve the deficit problems by only raising taxes because the cap prevents spending above a pre-set level.

“I understand that the legislature is having a hard time with what has to be done,” Malloy said. “The reality is that’s the framework, folks. We have a spending cap. There’s not a way around the spending cap. … The reality is they’ve got to get to the reality.”
He added: “We have a spending cap. There is no more room. Get used to it.”

“It’s not about revenue. It’s about a spending cap,” Malloy said. “You can’t spend more money. I think that’s part of the trouble we’re having.”

Based on Republican gains in the 2014 elections that included 10 additional seats in the House of Representatives, Democrats do not have the necessary three-fifths margins in both chambers to change the spending cap.

“The governor does not have to worry about the legislature exceeding the spending cap, because we can assure you Republicans won’t allow it,” Senate minority leader Len Fasano of North Haven said in a joint statement with Sen. Rob Kane of Watertown. “Republicans have already pledged to respect our constitutional spending cap and adhere to the wishes of Connecticut’s citizens. We stand by that. Republicans control this issue. Without Republican support, there simply isn’t a strong enough majority to exceed the cap.”

The Republican leaders added: “Gov. Malloy also needs to demand and get assurances that legislators will not engage in any gimmickry to circumvent the spending cap. We are going to ask Gov. Malloy to affirmatively state that he will veto any budget that utilizes questionable tactics or money maneuvers to direct funds off budget. Honest budgeting is the only way to be truly respectful of the cap. We’ll be sending a letter to the governor shortly seeking a formal pledge.”

House Republican leader Themis Klarides said: “We are now confronting extremely difficult financial challenges that are more than four years in the making, the result of choices and policy decisions made by the governor and Democratic majorities. They consistently rejected Republican proposals. What the governor has proposed is not balanced, relies on millions in new revenues and violates the state Constitutional spending cap. Calling it a budget is being charitable.”

The budget-writing appropriations committee and the tax-writing finance committee are expected to make recommendations by late April, and a final budget compromise would likely not be ready until late May or early June.

Regarding possible changes in the definitions of the spending cap in order to allow more spending, Malloy said: “I don’t think that there is any desire evidenced in the legislature to do that. … There’s no proposal. No one has offered a proposal to do that, and I think it’s clear why no one has offered. I don’t think it’s really on the table.”

Malloy added, “There’s no easy way out.”

Malloy raised the spending cap multiple times.

Asked for his definition of a tax increase, Malloy said: “A tax increase in this situation would be that which takes us beyond the spending cap, and we can’t do that.

“With all due respect, I’m going to talk about, in my office, what I want to talk about. And I’m not talking about tax increases.”