State Budget Crisis: Light at the End of the Tunnel?

State legislative leaders are targeting the end of the month for a vote after reaching tentative agreement Oct. 18 on a compromise budget plan.
Democratic and Republican leaders announced the deal after weeks of negotiation following Governor Malloy’s veto of the bipartisan budget that passed the state Senate and House last month.

A number of challenges remain before a vote can be taken to end the state’s three-month long budget deadlock.
Legislative leaders plan on meeting with the governor to review the agreement, which also must pass muster with rank-and-file lawmakers from both parties.
House Speaker Joe Aresimowicz (D-Berlin) told reporters “I’m absolutely confident that a vast majority of the House Democrats will vote in favor of this budget.”
House Republican Leader Themis Klarides (R-Derby) was more cautious, calling the agreement a “tough budget” and that her members now must weigh “the good, the bad and the ugly.”

Details ‘Under Wraps’

While legislative leaders are keeping many of the details under wraps pending conversations with the governor and members of their respective caucuses, some key elements were made public, including:

• No broad-based tax hikes
• Numerous spending cuts across most state agencies
• Elimination of the municipal property tax on motor vehicles
• Reduced cuts in education funding to cities and towns
• Reduced cuts to higher education
• Increased teacher pension fund contributions (from 6% to 7%)
• Adjusted labor mandates on cities and towns
• Higher sales taxes on cigarettes and other tobacco products

Additional reforms to the state employee retirement system that were featured in the budget vetoed by the governor were not included in the latest proposal.
The state faces a projected two-year, $3.5 billion budget deficit after legislators in July narrowly approved the $1.57 billion concessions deal Governor Malloy struck with state employee unions.
While that agreement partially offset the initial $5 billion-plus deficit the state faced at the beginning of the year, it extends current union contracts to 2027 and includes no-layoff provisions, generating concerns about its long-term sustainability.

Pressure Mounting

Connecticut is the only state in the country that has not adopted a budget and pressure continued to mount this week on lawmakers to resolve the deadlock.
On Monday, Wall Street credit rating agency Moody’s Investor Service signaled possible downgrades that could lead to lower bond ratings and higher interest costs for 51 Connecticut municipalities and six regional school districts.
S&P Global Ratings earlier put a negative outlook on the state’s general obligation bond rating, downgraded Hartford’s bond rating, and placed nine Connecticut municipalities and one school district on a “negative” credit watch.

Later in the week, Moody's warned Hartford likely will default on its debt by November and would incur annual deficits exceeding $60 million over the next 20 years if it doesn't make structural changes.
Moody's said the city's contractual obligations with its employee unions were "a constraint" to reducing deficits.
The agency recommended the state legislature adopt legislation to free up up the arbitration process and allow municipalities to renegotiate labor contracts.

Calls for More Tax Hikes

Financial publisher Kiplinger released its annual State-by-State Guide to Taxes this week, ranking Connecticut among the 10 least tax-friendly states in the country.
"Real estate taxes are the fourth-highest in the country and the state has not only a gift tax, but a luxury tax," Kiplinger said in its report.
"What's worse, Connecticut faces serious financial pressures that could force it to raise taxes even more."
Connecticut has endured the largest and second-largest tax hikes in the state's history over the last six years.
State employee union leaders sent letters to all 187 state lawmakers last week calling for more tax hikes to balance the budget.
The state's slow post-recession economic recovery also took a hit Thursday with the announcement that Connecticut lost 2,000 jobs in September. Connecticut has now lost 7,900 jobs since June.
"Connecticut's economy is impacted by the instability at the state Capitol," said CBIA economist Pete Gioia.
"September's disturbing employment report is a dramatic reminder of that."