Budget Picture Remains Murky As Governor, Lawmakers, Prepare New Proposals

Will they implement spending reforms or raise taxes?
That’s the $5 billion question.

Connecticut’s budget picture remains murky, with Governor Dannel Malloy and legislative leaders postponing new proposals for addressing a near $5 billion, two-year deficit.
The governor reportedly will now release a revised budget proposal May 15, with proposals also expected from legislative Democrats and Republicans.
Malloy did release a plan for resolving a $393 million deficit for this year, the result of an unprecedented drop in income tax revenues.
That plan includes withholding $19 million in casino revenues promised to cities and towns, while draining most of the $235 million Rainy Day Fund.
He would also use about $48 million set aside to bring the state in compliance with Generally Accepted Accounting Principles, $14 million from a legal settlement the state reached with Volkswagen, and about $10 million in tobacco settlement funds to close the deficit.
However, the biggest challenge is the deficit facing Connecticut in the next two-year budget cycle and beyond.

‘Tax Increases Haven’t Worked’

CBIA this week released a new report, Fixing Connecticut’s Fiscal Problems: Spending Reforms, Long-Term Solutions, Best Practices, featuring a series of policy recommendations for addressing the budget crisis.
“It’s critical that state government becomes more effective, more accountable, and creates more affordable policies for its families and businesses,” said CBIA President & CEO Joe Brennan.
“We have to keep state spending within taxpayers’ means. Tax increases haven’t worked and they will continue to make this situation worse.”

Senate Democrats on May 11 proposed limiting the amount of state income tax receipts that could be applied toward the spending side of the budget.
The move to cap income tax revenue at $3.1 billion is designed to avoid issues like the current revenue shortfall attributed to overestimating income tax receipts.
Any funds that come in above $3.1 billion go to the Rainy Day Fund, to reduce pension and other retirement obligations, or toward capital projects to reduce borrowing.

Union Concessions

The Malloy administration continues to negotiate a $1.5 billion concessions package with state employee unions.
Those concessions, first proposed by the governor in February and assumed by both legislative Democrats and Republicans in their initial budget proposals, is key to restoring fiscal stability.
However, any concessions agreement should not be linked to an extension beyond 2022 of the current contract with state employee unions.
Earlier in the week, House Speaker Joe Aresimowicz (D-Berlin), said another possible revenue source—implementing tolls on state highways—was "inevitable.”
But legislative Republicans called for an in-depth study to determine the cost of tolls and the anticipated revenue they would generate.

---

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