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Next Malloy budget sets the stage for re-election

By Paul Choiniere

Publication: The Day

Published January 06. 2013 4:00AM

Connecticut's most fascinating political story in 2013 may well be how Gov. Dannel P. Malloy deals with a projected budget shortfall for the fiscal year that begins July 1 and the implications for the year that follows - a gubernatorial election year.

The governor's approach to closing a budget deficit projection for the current fiscal year offers some suggestions as to how the administration may handle the situation. Cuts made by the governor through his executive authority, and added to by the legislature, came down heavy on many of the non-profit agencies that provide human services in Connecticut.

These agencies are a de facto part of the state government, providing government services to the needy, people with mental health and mental disability issues, seniors and through a variety of other programs. The state can cut funds to these non-profits without having to renegotiate labor contracts, dictate where the savings will come from or directly order layoffs.

But many of these agencies contend they are at the "breaking point" and cannot continue to perform the services expected of them if more cuts come.

Also in closing the administration's $365 million deficit projection (there was no attempt to meet the $415 million deficit estimate that came from Comptroller Kevin P. Lembo's office), the governor and legislature also depended on some "soft" savings estimates, one-time savings and borrowing. About $11 million came from unspent funds; $10 million earmarked for support of stem cell research was "cut" from the budget, only to be replaced by $10 million in bond sales (i.e. borrowing). Connecticut hopes to do a better job of cracking down on state income tax fraud, producing another $8.5 million in savings, but hope is the operative word. No one can say for sure what savings it will achieve.

In preparing budgets for the next two-year cycle, it would be risky business for Malloy to include unrealistic savings and revenue projections that could come back to bite him in 2014, when he is likely to seek re-election. What ever fix the administration proposes it needs to work or the budget problems will continue into the election cycle, leaving the perception that Malloy never fixed the situation, despite signing a budget that included $1.5 billion in record-setting tax increases in 2011.

Yet the governor now finds himself boxed in by some of the deals he struck to address the $3.5 billion deficit projection he inherited when elected in November 2010. The Democratic governor did win concessions from state labor unions, but they came at a hefty price. Workers in place when the concession deal was signed have been assured they will not be laid off. After a two-year pay freeze, the deal also provides state workers substantial pay raises in each of the next three fiscal years.

On the revenue side it would be politically damaging for the governor to seek yet another tax increase and difficult to defend if, as expected, he runs again. Expect some tweaking - the legislature placed restrictions on business tax credits to address the current deficit and some taxes schedule to lapse may continue - but the governor will be trying hard to avoid anything that can be called a tax hike.

Which raises the question: How does he address the projected shortfall, about $2 billion over the next two fiscal years? More cuts to social services, perhaps, and quite possibly reductions in municipal aid. But Malloy and his budgeteers will need more than that to get to balance. Stay tuned.

Paul Choiniere is the editorial page editor.

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