Budget leaves Malloy, lawmakers, little margin to handle crises
September 22, 2011 By Keith M. Phaneuf CTMirror.org
Though just a fraction of the
state budget, the $80 million winter heating assistance funding shortfall might
not be the last small-ticket item to toss a big wrench in Connecticut's fiscal machine.
With virtually no cushion below
the constitutional spending cap, more than $830 million in savings targets that
must be hit, the potential for cost overruns in key
health care programs, and a volatile revenue outlook, the budget effectively
has no margin for error with nine-plus months still to go this fiscal year.
"We know this is going to
be enormously challenging," Gov. Dannel P. Malloy's
budget director, Office of Policy and Management Secretary Benjamin Barnes, said Wednesday, adding that
allocating $80 million in extra state funds to compensate for a potential loss
of federal aid for the Low-Income Home Energy Assistance Program is easier said
than done. "We've been over the lists many, many times."
In terms of state finances,
little has been easy for Malloy since he was sworn in on Jan. 3 - and inherited
a built-in budget deficit for 2011-12 projected as high as $3.67 billion, or nearly
one-fifth of all annual spending.
The governor and his fellow
Democrats in the legislative majority settled on a $20.14 billion budget that
falls a paper-thin $1 million below the
constitutional spending cap. That margin represents 1/200th of 1
percent of projected annual spending.
Contrast that $1 million with
the $329.2 million in General
Fund cost overruns agencies reported last year. Even after additional savings
of $130 million were factored in, state government spent nearly $200 million
more than the legislature had appropriated in 2010-11.
And though the new fiscal year
is less than three months old, with no major deficit reported to date, Barnes'
office did warn Comptroller Kevin Lembo this week that demand for Medicaid and other
state-funded health care for the poor - one of the big causes of last year's
cost overruns - remains a concern.
The spending cap is not an absolute limit on state finances.
Initially employed in the
1991-92 fiscal year, the cap was crafted to counter voter outrage over the new
state income tax and is designed to tie most state budget growth to the annual
increase in personal household income. But it can be exceeded, legally,
provided the governor signs a declaration of fiscal exigency and both chambers
of the legislature endorse the additional spending by a 60 percent affirmative
vote.
Malloy's two Republican
predecessors, John G. Rowland and M. Jodi Rell,
routinely worked in concert with Democrat-controlled legislatures to approve
spending in excess of the cap - usually several hundred million dollars worth
of agency overruns at the fiscal year's end. The two GOP governors exceeded the
cap eight out of 11 years between 1998 and 2008.
Malloy, though, campaigned on
the need to end the fiscal gimmicks that helped create the deficit he inherited
from Rell.
"The fact that something
was done in the past is not a sufficient argument for doing it in the
future," Barnes said. "In our view they did a poor job of developing
budget policy."
Even in good fiscal times,
state agencies typically run up $80 million to $100 million in cost overruns,
commonly called deficiencies. And if the governor doesn't want to exceed the
cap to deal with them, that means his administration has to press agencies to
find matching savings to offset these costs.
The problem with that, though,
is that agencies already have to come up with huge savings to keep the budget
in balance.
This year's also hinges on $700 million in concessions
this year from state employees - with another $900 million in 2012-13. Some
components of that savings plan are relatively well defined: a wage freeze,
changes to health and pension benefits, increased worker retirements.
Other components are not so certain.
The deal directs the
administration and unions with jointly finding more than $170 million in cost
efficiencies in health care, technology and across state government in general.
Another $102.5 million has to be saved this year through an employee wellness
program.
That means any opportunity to
reduce spending might be needed just to meet those targets - or expose Malloy
to charges that the concession deal's value was exaggerated from the beginning.
Further complicating matters,
the governor and legislature also built another $130 million in undefined
savings to be found - exclusive of those required by the concession deal --
into the budget's bottom line.
"I think looking at all of
this we are operating under a very tight margin," Senate Majority Leader Martin
M. Looney, D-New Haven, said Tuesday, adding that in past years the
winter heating funds issue wouldn't have posed as difficult a problem as it
does now. "It's too soon to speculate on what we might do, but I think
everything will be on the table."
House Majority Leader J.
Brendan Sharkey, D-Hamden, conceded that while Democratic lawmakers
also played a role in bursting past spending caps - and in crafting an
extremely tight-fitting budget to solve the deficit, they aren't ready to stop
trying to make it work.
"Exceeding the cap should
be the last resort," Sharkey said, adding that while he doesn't believe Connecticut should
ignore needy families who lack winter heat, there still is time to pursue other
solutions. And if the rosiest options - increased aid from
the federal government or from private utilities - doesn't materialize,
Sharkey said he believes the legislature should try to find $80 million in cuts
elsewhere in the budget to allow the heating program to be increased without
jeopardizing the cap.
Sen. Robert
J. Kane of Watertown, ranking Republican senator on the
Appropriations Committee, said Malloy and the Democratic majority boxed
themselves into a fiscal corner by relying too heavily on tax and fee hikes -
more than $1.5 billion - and by
increasing overall spending amidst a poor economy by 5 percent.
"They do not want to
increase spending. They just can't see the light," Kane said, adding that
more fiscal restraint would have left state government the flexibility to
safeguard the winter heating program and still comply with the cap.
And even if Democrats
ultimately decide to exceed the spending cap again, Kane added, they shouldn't
assume given the volatile nature of Wall Street and the new state burdens
placed on Connecticut
households and businesses, that revenues will be sufficient to support them.
"Any time you raise taxes,
you're doing more harm to the economy than good."
Neither the administration nor
the legislature's nonpartisan Office of Fiscal Analysis has projected any
revenue trends so far this fiscal year, which hasn't concluded its first
quarter yet.
But Barnes said that to date
there have been no signs that tax revenues will surpass the projected levels
built into the new budget, a pleasant surprise that helped the administration
close last fiscal year with a surplus.
"It's not like anyone's
being wowed by the results coming out of" the Department of Revenue
Services, he said. "We'll just have to watch that, too
Complete report at http://www.ctmirror.org/story/13974/budget-leaves-malloy-lawmakers-little-margin-handle-crises