Connecticut Grapples With $350 Million Budget Gap [WSJ]

December 7, 2015

Wall Street Journal

Connecticut lawmakers had hoped to produce a bipartisan plan to cut spending by $350 million to close a gap in the state budget, but Democrats ultimately will head into a special legislative session Tuesday without Republican backing.

The Democratic leaders of the state House of Representatives and state Senate said they expected to have enough support from their fellow Democrats to pass the budget package on their own. Democrats control both houses.

The state’s nonpartisan Office of Fiscal Analysis places the general-fund deficit at $255.2 million. The state comptroller’s office estimates the shortfall is $122.4 million but urged legislators to identify at least $350 million in savings in deference to to “troubling economic trends,” including slow growth of state income-tax revenue. The general-fund budget for fiscal 2016, which began July 1, is $18.2 billion.

Democratic Gov. Dannel Malloy ordered the Legislature to convene the special session.

Full details of the proposed spending cuts weren’t available. House Speaker Brendan Sharkey said the final plan, which relied on input from Mr. Malloy, would spread the burden among agencies and programs.

GOP leadership supported about 90% of the package according to Senate Minority Leader Len Fasano. However, he said, the plan didn’t go far enough to address the state’s long-term fiscal problems, including implementing a legally binding constitutional spending cap.

“We said that we would only be at the table and would only vote on a package that included long-term structural changes,” Mr. Fasano said. “And this did not.”

The bipartisan negotiations over the past several weeks represented a departure from most budget talks under Mr. Malloy, a process from which Republicans typically were excluded. The state’s Democratic leadership, including the governor, heeded the calls by the GOP to be included, but ultimately the parties couldn’t reach an agreement

Mr. Sharkey said some of the long-term proposals that the Republicans were seeking should be examined during the regular legislative session and shouldn’t be included in the process to close this current budget gap.

“In the end, it was apparent on the Republican side there was no consensus within their caucus to compromise on a number of the items that Republicans had offered as part of this discussion,” Mr. Sharkey said.

In addition to spending cuts, the shortfall will be closed with about $70 million worth of sales tax revenue that had been allocated this year for transportation projects and funding for cities and towns, according to Senate President Martin Looney. Next year, the state will begin distributing that money for those purposes, he said.

The final package also is expected to restore more than half of the funding for hospitals, mental-health and developmentally-disabled services cut earlier this year. Mr. Malloy’s office reduced spending by $102 million in September to close an earlier budget gap.

A spokesman for Mr. Malloy said the governor hoped the legislature would also pass changes to business taxes and approves a constitutional lock box for transportation funding that would prohibit using the money for other purposes.

Mr. Malloy has called for reductions to some business taxes such as the so-called unitary corporate tax that is levied on companies with headquarters in the state. He also said he wanted to restructure tax exemptions for firms that have revenue losses and called for restoring research-and-development tax credits.
The second midyear budget deficit of fiscal 2016 comes as the state Office of Fiscal Analysis estimates the fiscal 2017 budget, which starts July 1, 2016, will be $552 million in the red. In the fiscal year after that, the deficit rises to an estimated $1.7 billion.

A “$350 million deficit is peanuts compared to the real problems we have going on in the state right now,” said House Minority Leader Themis Klarides. “The only way that changes is by making real structural changes, and they weren’t’ able to do that.”

The state’s spending cap dates to the 1990s, with lawmakers passing it in 1991 and voters approving it as an amendment to the state constitution in 1992. But the state attorney general’s office concluded in November that the cap wasn’t legally binding because the General Assembly didn’t write and pass definitions for cap.

Mr. Looney said the budget package will include creating a commission to study adding spending cap definitions.