November 21, 2017

CT budget deficit crosses emergency action threshold

Gov. Dannel P. Malloy intensified pressure on the legislature Monday to come into special session to repair the new state budget, projecting a $203 million deficit that exceeds a key risk threshold.

But while Malloy may now have to develop a deficit-mitigation plan, it remained unclear whether legislators would meet to resolve the shortfall before the regular 2018 session begins on Feb. 7.

The governor, who warned lawmakers last month that he feared the budget they were crafting was not in balance, projected the deficit in his monthly report to Comptroller Kevin P. Lembo.

"The very challenging level of [savings targets] to be achieved in the adopted budget, along with underlying level of appropriations in several agencies … may lead us to increase our deficit projection," Office of Policy and Management Secretary Ben Barnes, Malloy's budget chief, warned in the report.

State law requires the governor to prepare a deficit-mitigation plan whenever the comptroller certifies a shortfall exceeds 1 percent of the General Fund. In the context of the new budget, the threshold is $187 million. Lembo's next report is due Dec. 1.

Revenues create largest part of deficit

Legislators learned last week the new budget was in serious trouble when they received a joint report from the administration and the legislature's nonpartisan Office of Fiscal Analysis.

That forecast — which dealt solely with revenues — projected shortfalls of $178.4 million this fiscal year and $147.1 million in 2018-19.

Federal Medicaid reimbursements represent the largest part of this fiscal year's revenue shortfall, though income and sales tax receipts also are running behind budgeted levels.

The administration took its first look Monday at the spending side of the budget since its adoption in late October.

Legal, child welfare costs exceed budget levels

While spending is running close to budgeted levels, the budget does not cover $15 million in legal costs tied to settling the lawsuit filed by state employee unions over layoffs ordered in 2002 by then-Gov. John G. Rowland.

It also does not cover $10 million related to federally mandated staffing and services in the state Department of Children and Families.

While the 1-percent threshold might seem extremely conservative at first glance, it is set this low because large portions of the annual budget cannot be cut quickly in any given year because of contractual obligations.

And the executive branch's ability to achieve savings unilaterally is restricted even more than usual in this budget. A new union concessions deal greatly restricts the state's ability to lay off workers for this fiscal year and for the next three.

Malloy warned budget could run in the red

"I want to be clear that this is not a document that I would have negotiated," Malloy said on Oct. 31 shortly after signing the budget. Legislative leaders excluded the administration from the talks that produced the final budget deal.

Though it was important to end a nine-month budget debate that had extended four months into the new fiscal year, the governor added that, "I do have very real concerns about many aspects of" the budget.

Among the concerns Malloy cited are unprecedented savings targets he has to achieve now that the budget is in force, targets approaching $880 million this fiscal year and exceeding $1 billion in 2018-19.

Unclear if legislature will tackle deficit before Feb. 7

When asked last week about the revenue-shortfall projections, most legislative leaders said they would monitor the numbers, but would not commit to call rank-and-file lawmakers into session before Feb. 7. The statute requires the governor to submit a deficit mitigation plan, but there is no deadline for the legislature to act on it.

Among leaders, only Senate Republican leader Len Fasano of North Haven said he favored addressing any budget shortfall before the regular 2018 session begins.

"A small projected deficit at this point is not totally unexpected, yet it is still somewhat disappointing, particularly the decline in federal funds," said House Speaker Joe Aresimowicz, D-Berlin, who added that the shortfall "is not an unmanageable number."

But while he said the legislature stands "ready to work with the administration in the coming months to ensure the budget is balanced going forward," the speaker did not say whether he favored action before Feb. 7.

House Minority Leader Themis Klarides, R-Derby, said the legislature should convene in special session. But her top priority is to reverse a series of budget cuts Malloy assigned last week to municipal aid programs.

Faced with a legislative directive to achieve roughly $880 million in savings after the budget was in force, Malloy assigned $91 million of those mandated cuts to municipal aid programs. Klarides and other leaders argue the governor could have spared local aid and instead cut more deeply into agency budgets.

"The governor's cuts last week were clearly intended to punish towns and cities,'' Klarides said. In addition to the municipal aid cuts, she also vowed to fight to restore money for the state's fire training schools.

Pat O'Neill, spokesman for the House Republican Caucus, said leaders would make a decision about a deficit-mitigation plan after it has been submitted by the governor and reviewed.

"I'm disappointed to see Gov. Malloy purposefully inflate the budget deficit projection," Fasano said, reaffirming his support for prompt mitigation of the shortfall. "I believe the legislature should work together to quickly resolve any sizable deficit once confirmed, and I believe fellow leaders will also support needed safeguards to ensure the intent of any mitigation plan is fully followed. We cannot let a deficit go unaddressed, and I know my fellow leaders from both sides of the aisle are committed to working together to find solutions that prioritize and protect the core functions of government."

"It's becoming clearer by the day that Representative Klarides has a strong case of buyer's remorse," Malloy spokeswoman Kelly Donnelly responded. "If she and other leaders had a specific plan for how these lapses should have been implemented, they should have included those details in the budget they gave to their members, voted on, and adopted. They didn't do that. … Legislators trying to avoid ownership of the decisions that they collectively made and voted for in this budget is quite frankly absurd. This is the budget they crafted and voted for – if they want it changed, they have the authority to come in at any time and pass a new budget."

Senate President Pro Tem Martin M. Looney, D-New Haven, said, "The legislative leaders have agreed to meet early next week for bipartisan discussions in order to determine next steps regarding the state budget."

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