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Budget plan raises doubts

By Kenton Robinson

Publication: The Day

Published February 17. 2011 4:00AM   Updated February 17. 2011 6:42PM
Lawmakers question Malloy's proposal to win union concessions, boost taxes

Hartford - In unveiling his proposed two-year state budget Wednesday, Gov. Dannel P. Malloy called on lawmakers and the people of Connecticut to join him on "the road less traveled."

But when it turned out that Malloy's "road" involves raising an additional $2.9 billion in taxes from residents and businesses and that state employee unions have to make $2 billion in concessions to balance the state budget, few seemed immediately eager to link hands with the new governor.

"I can't say $1 billion is a very easy number," said Leo Canty, a spokesman for the Connecticut State Employees Association, referring to a year's worth of proposed union givebacks. He added that when it came to Malloy's call for shared sacrifice, "we may have slightly different definitions."

And John W. Olsen, president of the Connecticut AFL-CIO, said Wednesday night that while union members "recognize we have problems in the state, when you look at Wall Street and the housing market and all these things that have happened to us on the financial side - these are not things the workers have created."

Olsen wondered why Malloy wasn't raising taxes more on the "top 5 percent wage-earners in this state" rather than on the middle class.

Even fellow Democrats expressed concern.

State Rep. Diana Urban of North Stonington said the tax increases would be a hard sell. "I'm getting hammered with e-mails already about increases in taxes," she said.

Much of what was going to be in the budget had been leaked over the past two weeks, including the host of new taxes and the higher sales tax. But until Wednesday Malloy and his staff had kept a lid on what kind of concessions he expected from state employees.

There are 45,000 people employed full-time in state government.

In his speech before the General Assembly, Malloy laid it on the line, saying that state employees' "current wage, health care and pension benefit levels are simply not sustainable."

Malloy said the state could save $100 million over two years by moving state employees to a health benefits package like the one that covers federal employees.

"Another change would involve asking state employees to do what President Obama has asked federal employees to do: accept a wage freeze," said Malloy. "Over two years, that would save us close to $300 million."

Requiring state employees to take three furlough days per year over the next two years "would save us $80 million," he said, and "adjusting the retirement age would save us close to $300 million."

"Other changes, like freezing longevity payments and modestly increasing medical co-pays for unnecessary emergency room visits would save the state millions more," said Malloy.

"These are only some of the ways we can get to that $2 billion figure. There are many others," he said. "But let me be clear: We have to get to that number."

Malloy said he has received some cost-saving suggestions from state employee union leaders.

"And I appreciate those ideas," he said. "But they're not nearly enough. The time has come to take the next step and begin discussions regarding concessions. I don't make these suggestions to be antagonistic. Just realistic."

And then Malloy pulled out the L-word.

"The alternative to the $2 billion figure would require us to completely shred the safety net and lay off thousands of state workers. Which is to say there's no alternative. We have to get it done. And I'm confident we will get it done."

Asked if that was a realistic goal, Malloy's budget chief, Benjamin Barnes, said Wednesday it was "very realistic."

"This is a reality-based budget, I like to say," Barnes said.

But that was not the thing most emphasized by Malloy in his budget message. The chief goal of his budget, he said, is to create jobs.

"Without jobs, government's resources will dry up, its programs will become exhausted and the relief they provide will be temporary, to no lasting effect," Malloy said. "Jobs, ladies and gentlemen, represent the light at the end of the budget tunnel. That's why job creation drives this budget. … From this day forth, state government will exist to help create jobs, not just to perpetuate itself."

While he's asking for everyone to make sacrifices, he said, he is also caring for the state's poorest working residents.

"I am proposing that we enact a robust earned-income tax credit of 30 percent," he said. "For a low-income family of four, this credit will mean an additional $1,700 a year in their pockets. For those who won't take a low-wage job in the hopes that something better will come along, this is an incentive to take that job - because you will only get the credit if you're working."

In order to "foster a climate" in which the private sector creates jobs, Malloy said, state government must "get its fiscal house in order."

Faced with a deficit of "over $3.2 billion next year and $3 billion in year two," he said, the base spending in the general fund in the next fiscal year will actually be lower than it was this year.

This was a point made by Barnes at a briefing for the media before the speech.

The 2012 fiscal year budget cuts $1.76 billion from the "current services" spending level, Barnes said, which was the level necessary to maintain services at this year's levels. Overall spending, however, when the transportation fund and other items are included, will actually go up by 2.5 percent.

In addition, both Malloy and Barnes stressed, the budget does not rely on any borrowing or other gimmicks, and it will fully fund the state's pension obligations.

Continuing with the theme of job creation, Malloy introduced "our new First Five initiative that will offer powerful incentives to the first five companies" that bring more than 200 new jobs to the state.

In addition, the budget will include $15 million to promote tourism, which will create jobs, $130 million to develop affordable housing, which will create jobs, and $572.3 million for transportation projects, which will also create jobs, Barnes said.

Also, Malloy boasted that his budget will restructure state government, reducing the number of state agencies, mostly through consolidation, from 82 to 58, a 30 percent reduction.

And he addressed the tax plan his staff unveiled earlier this week.

"Asking virtually everyone to share a slightly higher tax burden is the only way we can ensure that no one group of people bears a much higher burden," Malloy said.

Under the governor's budget proposal, the state sales tax will rise from 6 percent to 6.35 percent on virtually all retail sales. Also, a new set of tax rates, graduated by income levels, would take a larger bite out of taxpayers.

Barnes defended the tax hikes by showing how Connecticut's rates would compare to its neighboring states. The sales tax, he argued, would be the same as the sales tax in Massachusetts and lower than Rhode Island's.

As to the proposed personal income tax rates, the rate for those on the low end of the scale would be lower than in Massachusetts, New York and Rhode Island, he said. The rate for those on the highest end of the scale would be higher than in Massachusetts and Rhode Island but lower than in New York, Barnes said.

Education

On the subject of education, Malloy said he would continue ECS funding for local school districts and would spend $5.7 million over the next two years to leverage about $4.1 million in funds from private foundations for pre-kindergarten education, and, among other things, the state would spend $60 million for magnet schools, $6.5 million for charter schools and $7.2 million for the OPEN Choice program.

He also would begin transferring control of the state vocational technical schools to the local districts and regions that host them.

As to funding for municipalities, Malloy said his proposed budget would increase funding to them by nearly $100 million in the first year and more in the second. That will be done, in part, by returning to the towns .10 percent of the 6.35 percent sales tax on retail purchases made in those towns, an estimated $24 million statewide.

Also, there will be a similar sharing of the hotel tax, the tax on car rentals and an expansion of the local conveyance tax.

Transportation, health

Addressing the issue of transportation, Malloy said he's committed the funds for 38 new rail cars for Metro North and Shoreline East. And increased taxes on gasoline and diesel fuel will go to upgrade roads and bridges.

Malloy also pledged to reduce the number of people in the state's prisons, thereby saving millions of dollars, by giving people who've been arrested for minor, nonviolent or drug offenses alternative forms of punishment.

On the issue of public health, Malloy said he was proposing to convert the state's Medicaid programs "to a self-insured model so that we can implement these best practices and save as much as $80 million per year."

Barnes said certain cuts would be made in Medicaid, such as the reduction of dental and vision checkups from twice to once a year. Other cost-control efforts would include reducing reimbursement levels under the state Department of Social Services pharmacy programs to save $159 million over the next years and a cut of $83.3 million in uncompensated care grants for hospitals.

Also, the governor plans to move 2,251 Medicaid clients from nursing homes into the community, which could result in a net savings of $16.4 million over the next two years, Barnes said.

The one thing that Malloy's constituents could agree on Wednesday night was that the bargaining has just begun.

"It's a proposed budget," stressed Olsen, of the AFL-CIO. "I think discussion will take place, [but] it's not going to be easy."

Canty noted that the unions are ready to negotiate - if, that is, members are willing to reopen the contract currently in effect through 2017.

"We are absolutely committed to make the state work better," he said.

k.robinson@theday.com

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