Facing $5 Billion Deficit, Governor, Lawmakers Negotiate Budget

Governor Dannel Malloy began budget talks with legislative leaders this week, promising to deliver a new version of his two-year spending plan on May 12.
But with revenue shortfalls of around $450 million in the current fiscal year, and projected deficits totaling $4.9 billion for the 2018 and 2019 fiscal years, lawmakers and Malloy face a daunting task.
Legislative leaders met with Malloy for 90 minutes May 2 for budget discussions.
“Today was our starting point and we’ll continue down the road from here,” House Minority Leader Themis Klarides (R-Derby) said.
Lawmakers approved the two largest tax hikes in the state’s history in 2011 and 2015, and now face projected budget deficits of $2.2 billion for fiscal 2018, and $2.7 billion the following year.
Declining revenues also left a $393 million gap for this year.
This time, Malloy is urging lawmakers not to tax their way out of the deficit.
“This year’s eventual budget should not and will not be driven by new revenue,” he said.
“We cannot afford to stay on our current course,” added Ben Barnes, the governor’s budget director.
Whatever spending plan ultimately gets adopted, it must address the underlying problems that caused these deficits, CBIA economist Pete Gioia said.

New Economic Reality

“It’s essential that the final budget solves not only the immediate problems but builds in enough leeway to deal with a potential future tax shortfall that has a lot to do with people relocating to more affordable states,” Gioia said.
“Given demographics, there’s no reason to think that trend isn’t going to continue over the next two years.”
Gioia said the April tax shortfall proves that tax hikes have “totally backfired.”

“And it's been a case of raise taxes, get less revenue than projected. All this combined says you need to make sure any budget solution does not increase taxes,” he said.
“What we need to do is right-size government and services to fit the new economic reality of lower revenue.”
The governor's proposed budget and proposals from both Democrats and Republicans assume $1.5 billion in concessions from state employee unions in 2018 and 2019.
The Malloy administration is negotiating with a coalition of unions but has yet to reach an agreement on a concessions package.
The governor has said 4,200 layoffs are possible if no agreement is reached.

'Clock Is Running'

"I think what we're saying is the clock is running," he told reporters this week.
"We have to take a series of steps to put our budget in balance, and that will be easier for labor and easier on labor if we can get that done sooner than later.''
House Speaker Joe Aresimowicz (D-Berlin) said he was “very confident” an agreement would be reached.
"We all know what 4,200 layoffs would do here in the state of Connecticut," he said. "It would decimate our services, and they [state employee unions] know that, too."
Aresimowicz also told reporters that given the size of the deficit, lawmakers faced tough choices as the 2011 and 2015 tax hikes failed to end the cycle of budget deficits.
"Yes, we did raise taxes, and maybe it didn't necessarily have the effect that we were hoping for," he said. "We're still in this situation.
"Priorities that we've had as a state are going to be shifted to what we think we have to provide to the citizens, not necessarily what we want to provide."

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For more information, contact CBIA's Pete Gioia (860.244.1945) | @CTEconomist