Deficit, Program Cuts Will Test Bipartisan CT Budget Deal
The legislative cooperation that produced last October’s bipartisan state budget deal could face its toughest test starting next week.
Now that legislators have reversed cutbacks — through June 30 — to a popular health care program for seniors and the disabled, they face two more pressing questions.
What should happen to that health care program — the Medicare Savings Program — and other popular items that are again slated for reductions starting July 1?
And what about the $224 million budget deficit projected for the current fiscal year?
Senate President Pro Tem Martin M. Looney, D-New Haven, called Tuesday for leaders to tackle both challenges starting next week. And while Looney was careful not to propose tax hikes or other revenue enhancements, he made it clear GOP leaders have to have an open mind on this topic.
His Senate counterpart, Republican leader Len Fasano, said Democrats need to expand their thinking as well. And that includes the GOP’s push to order cuts now to future state employee benefits.
“A bipartisan budget requires a bipartisan fix,” Looney wrote in a letter to other legislative leaders, urging them to resume budget negotiations on Jan. 15. That’s when Gov. Dannel P. Malloy’s budget agency and the legislature’s nonpartisan Office of Fiscal Analysis must submit their latest revenue projections.
The governor’s office warned earlier this week that one key component of the overall revenue stream — the quarterly income tax filings that reflect capital gains and other investment-related income — surged in December and January by $900 million.
But it remains unclear how much of that growth will be sustained. It could be offset next week, and in another revenue forecast on April 30, if other revenue streams continue to shrink.
Malloy also warned some of the $900 million actually reflects money Connecticut income taxpayers normally would have paid in April. They simply paid it early so it could be reported in the 2017 tax year. This is part of a larger strategy some are employing to maximize the state tax deduction on federal income tax returns before new federal limits are imposed.
“Although we received potentially good news this week with a $900 million jump in income tax estimates over previous projections, ongoing uncertainty remains,” Looney wrote.
Malloy spokeswoman Kelly Donnelly said, “We applaud Senator Looney for recognizing the importance of addressing the totality of the budget deficit and for urging his fellow leaders to follow him in this endeavor.”
Now, Looney says, it’s time not only to address the deficit, but also to consider:
- Bolstering the Medicare Savings Program after July 1.
- Mitigating municipal aid reductions.
- And reversing at least some of the cutbacks ordered to the Husky health care program. A new eligibility limit eliminated coverage for an estimated 9,500 poor adults.
Completely restoring all of the cuts in these areas would cost about $200 million next fiscal year.
When Malloy gave lawmakers a plan on Dec. 13 — just to close the deficit — it was dominated by revenue-raising options. Connecticut already has imposed deep cuts on social service, health care and higher education programs, and most other segments of the budget are fixed by contract.
Malloy suggested boosting the sales tax rate from 6.35 to 6.9 percent, ending the sales tax exemption for nonprescription medicines and creating a surcharge for restaurant transactions.
Fees and taxes back to top
The new budget, which many Republicans supported, increases the cigarette tax by 45 cents per pack and boosts state income taxes on the middle class and the poor by reducing credits.
It also raises the state’s tax on hospitals, but channels all of that increase — and more — back to the industry as a mechanism to qualify for more federal Medicaid payments to the state.
But Looney said Wednesday that, “We can’t go into it (new budget talks) drawing lines in the sand.”
Democrats hold a narrow edge in the House while the Senate is deadlocked 18-18. And both sides said after the October budget vote they couldn’t foresee any budget plan being adopted without strong bipartisan support.
So is there a bipartisan solution to the deficit — and to the additional concerns Looney raised?
Fasano said he wouldn’t draw lines in the sand, but also made clear he is extremely reluctant to consider tax hikes. “Maybe some points I will stress more harshly than others,” he said.
The Senate GOP leader also said he will be looking for Democrats to show flexibility in those talks.
Fasano argued last fall that the new budget should order reductions to worker pension benefits starting July 1, 2027 — right after the existing benefits contract expires — and to take some of the savings now in the form of reducing pension contributions.
Malloy and his fellow Democrats in legislative leadership said that never would hold up in court, and union leadership vowed to sue on grounds it violated collective bargaining. The GOP ultimately relented and pulled the plan.
“They (Democrats) will also have to consider things, perhaps, that they are very uncomfortable with,” Fasano said.