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Drop In Stock Market Prompts Nearly $103M In Emergency State Budget Cuts

by | Sep 18, 2015 11:29am () Comments | Commenting has expired | Share
Posted to: Business, The Economy, Health Care, Labor, State Budget, Taxes, State Capitol

Christine Stuart photo (Updated 9:18 a.m. Sept. 19) Based on the poor performance of the stock market, Gov. Dannel P. Malloy’s budget office announced Friday it would rescind nearly $103 million from the 2016 state budget.

Office of Policy and Management Secretary Ben Barnes said in his monthly letter to state Comptroller Kevin Lembo that volatility on Wall Street and uncertainty about the future have led him to rescind nearly $103 million from the state budget to make sure they end the year in the black.

“OPM’s estimate of capital gains has decreased for the current fiscal year, and it would be reckless to expect these revenues to grow when the S&P 500 is down more than 6 percent since May,” Barnes said. “Only once since 1994 have we seen positive capital gains revenue growth when the market was down. Conversely, five times in the last 20 years a down market has led to significant revenue drops.”

Barnes said that’s why they made the decision to rescind nearly $103 million, because toward the end of the month the second quarter allotments will be sent to state agencies, which likely would spend the money. He said there’s an opportunity to withdraw the rescissions if things turn around before the end of the year. However, Barnes conceded that there’s a “possibility there will be further reductions needed in the future.”

Barnes said his office rescinded $99.2 million from executive branch agencies and expects legislative leaders and the Judicial Branch to reduce spending by $420,000 and $3.1 million, respectively.

The largest rescission is $63.4 million in Medicaid funding that was supposed to go to state hospitals. Barnes estimated that it represents about 40 percent of the total amount of funding hospitals receive from the state. The remaining 60 percent is reimbursed by the federal government.

Jennifer Jackson, CEO of the Connecticut Hospital Association, said she was “outraged” by the cut.

“It puts a tremendous additional strain on healthcare providers, who already provide services with reimbursement that is nowhere near the actual cost of delivering that care,” Jackson said.

She urged lawmakers to intervene and restore the funding. But it’s unlikely the Democrat-controlled legislature will take action against a Democratic governor.

Malloy has the power to rescind up to 5 percent of any line item and 3 percent of any fund without seeking legislative approval.

As part of his announcement Friday, Barnes also changed some underlying budget assumptions. Mainly, he revised personal income tax growth from 7.1 percent down to 4.5 percent. As a result, Barnes said the state expects to collect about $96.1 million less than it did in June when the General Assembly approved the budget.

In addition to the $103 million in rescissions, Barnes identified $15 million in municipal aid reductions. The $15 million is part of a $20 million reduction mandated by the state budget. This reflects an effort by the Municipal Opportunities and Regional Efficiencies Commission (M.O.R.E) to create incentives for multi-municipal cooperation.

The state’s largest municipal lobby expressed concern about the reduction because it doesn’t believe Malloy has the ability to make it without the legislature.

“These cuts, while included in the state budget, still represent a breach in the state-local funding arrangement in the middle of the fiscal year, after local budgets have been set, and would adversely affect some of our neediest communities,” the Connecticut Conference of Municipalities said in a statement. “Furthermore, the MORE commission has not created, enacted or provided for any specific set of efficiencies that towns can immediately use that will make up dollar-for dollar for these aid cuts.”

House Speaker Brendan Sharkey said he’s disappointed in the rescissions just three months into the fiscal year.

“I’m disappointed and certainly opposed to what appear to be cuts targeting some of the very areas we sought to protect in the budget,” Sharkey said in a statement. “Under our budget agreement, the bipartisan MORE Commission was charged with identifying additional municipal savings, and they haven’t been given the opportunity to do so yet. We also agreed to restore hospital funding the governor proposed to cut, and so these renewed cuts will very likely impact the delivery of healthcare services.”

Sharkey admitted it’s within the governor’s purview to make these cuts, but the legislature will continue to monitor their status.

Senate President Martin Looney, D-New Haven, agreed.

“The intent of our budget was to achieve cost savings on the municipal level through greater cost sharing and efficiencies,” Looney said. “I would emphasize that nothing announced today in any way decreases our commitment to increase funding to cities and towns so that residents throughout Connecticut will realize significant property tax relief.”

At least one Republican, Rep. Melissa Ziobron of East Haddam, was happy the administration’s decision to take steps to reduce the budget, even if she disagrees with where the cuts were made.

Ziobron said she appreciates the decision to make these cuts so early in the fiscal year.

“This is exactly what my caucus has asked be done early on in the last session,” Ziobron wrote on her Facebook page. “It’s time we live within our means.”

Those statements were made before Ziobron had a list of the cuts. She said that it was not an endorsement of specific cuts many of which she opposed.

“To blame the stock market fluctuations on Connecticut’s ongoing and apparently perpetual inability to balance its budget is absurb,” House Minority Leader Themis Klarides said Friday. “We have relied on one-shot budget gimmicks to keep the lights on—this is just an earlier than expected move timed right after the local primary elections that signals what it ahead.”

However, Senate Republican Leader Len Fasano believes lawmakers should be allowed to participate in the process.

“The legislature should convene in special session next week to address this mess,” Fasano said in a statement. “What are Democrats waiting for? Are we just going to let the governor make 5 percent cuts to social services every month like he did last fiscal year?”

Barnes said the rescissions became necessary largely because of the lackluster performance of the stock market, and this was reinforced by the lower-than-expected second quarter estimated income tax payments — paid by the self-employed and individuals whose income is derived from the stock market.

“Everyone’s belief we would return to a normal business cycle has faded,” Barnes said. Most economists and most observers believe this recovery will continue at a slower pace.” However, he added that he hopes it will be a longer recovery.

Barnes has two tools in order to keep the budget in balance: hiring and rescissions.

He said the budget already assumes the state won’t be hiring, even though there’s no hard hiring freeze in place at the moment. He said they were simply riding the brakes. The second tool is rescissions, and in fiscal year 2015 there were three rounds of rescissions starting in November after the fall election.

Asked why he was sounding the alarms much earlier this year, Barnes said the changes they saw last year were “far less troubling” and provided no clear trends.

But last year ended with a deficit and Barnes said he didn’t want that to happen again this year.

“I don’t want to have deficits at the end of the year. I’m embarrassed we had a deficit at the end of the year. ”Barnes said “I do not wish to repeat that.”

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(29) Archived Comments

posted by: dano860 | September 18, 2015  12:37pm

Medicare will get hammered but when it comes down to labor who will. The Union is sweating this, no doubt. If it comes down to personnel cuts I’ll bet that managers and supervisors remain unscathed.

posted by: Noteworthy | September 18, 2015  1:20pm

The market was just as volatile during the budget debacle. This is not new. Still, Sharkey and his team of big spenders along with Malloy, still jacked up spending and debt, ignored the warnings, violated the no tax increase promises and here we are not even a quarter into the fiscal year - already a deficit. F-ing amazing. We’re a state run by nitwits. Throw the bums out.

posted by: oldtimer | September 18, 2015  1:27pm

Yet another example of what we conservatives have complained about with Malloy’s ridiculous budgets. As we’ve predicted, Malloy and the spend-a-holic Dems base their budget on gross assumptions, ( only for the purpose of satisfying the Cap), that can never be achieved. So much for a budget that “puts CT on the road to prosperity “. Now let’s see how long it takes the liberal readers here to put forth their specious defense of Malloy and his cabal. It ought to be entertaining…

posted by: watcherkat54 | September 18, 2015  1:36pm

Dan Malloy and his subordinate, Ben Barnes screwed up bigtime.  This is almost an impeachable offense if we could impeach a governor.  While taxes are the highest in the country, hospital critical care workers take a hit while CEO of hospitals rake in millions.  Thanks so much Dan.  You ruined Connecticut bigtime, but the democrat controlled General Assembly helped.  Marty Looney, Brendan Sharkey…....You are the ones to blame as well as Ben Barnes.

posted by: LE 2015 | September 18, 2015  1:43pm

If Connecticut is adding jobs why are income tax receipts going down?  My guess is we are losing good paying jobs and we are adding low paying jobs. My income has been reduced by higher medical premiums and higher property tax on house and car. Add this to other state taxes and fees and there is not much left to spend. One person spending is another persons income. Connecticut is in trouble.

posted by: CTHostage | September 18, 2015  3:31pm

If Connecticut is adding jobs why are income tax receipts going down? 

For the same reason we have the “lowest unemployment numbers in 7 years,” but can’t lay-off the state workers who are supposedly no longer needed, thanks to the low rate.  Because it’s all a lie.  the economy is bouncing along the bottom and the jobs numbers do not add up when you look at reality.

It’s all smoke and mirrors and we are expected to just buy the lies.

posted by: eastrivertype | September 18, 2015  5:14pm

And we wonder why the budget is a disaster year after year.
The Governor proposed a budget that was not in balance and threw it to the Legislature saying you go first.
Then the Legislature passed a budget which the Office of Fiscal Analysis says has an $800 million structural deficit!  The majority party Democrats made zero effort to meet the Republicans even part way and put in a provision that gives the Governor the authority to cut 5%.  In other words, the Democrats in the Legislature said to the Governor you make the cuts not us.
But now Sharkey whines that gee we should be consulted first.  What did he and his caucus think the Governor would have to do?  Everyone knew that this was a phony budget as usual.
And then Rep. Ziobran says this is great since we have to live within our means.  What planet does she live on?
This budget is not balanced.  We are not living within our means.  Not even close.  It will require more tax increases and more cuts.
So why does the Governor start with a huge cut to Medicaid which already doesn’t pay the costs of the services?  Maybe it is so that all of the non-Medicaid patients and users will pick up the cost.  Great just another hidden tax increase by the Governor.
In the end, the Democrats and the Governor played Alphonse and Gaston and the Republicans were excluded and clueless.

posted by: eastrivertype | September 18, 2015  5:19pm

Why should we have any confidence here.
Barnes says we have a revenue problem despite the latest massive tax increase.
The Governor thinks Medicaid cuts stick it to the hospitals which he hates.
Starkey says M.O.R.E. should be consulted even though it has done squat for years.
Ziobran says oh wow we are living within our means.
At least Fasano has the guts to say the Legislature has an obligation to fix this in a responsible way.
Good grief Charlie Brown.

posted by: SocialButterfly | September 18, 2015  7:10pm

Time for Malloy to take a deserved pay cut.

posted by: Biff Winnetka | September 18, 2015  7:12pm


A blind man could have seen this coming. I did. But of course Barnes and Malloy didn’t. Well, actually I’m sure they did too. 

“It’s the market’s fault!” 
Of course it is. 

The CEO of Tenet Healthcare certainly saw it coming and wisely bailed on buying CT’s struggling hospitals.

How many dots do you need before you people wake up and realize how far down the rabbit hole CT is?

posted by: Fisherman | September 18, 2015  8:58pm

“... What we’ve done… Is hold the towns and cities harmless”

D. Malloy

This move is the PRECURSOR to General Electric’s exodus from our state. It has NOTHING AT ALL to do with the current stock market conditions. But socialists are gullible; which is why you are reading about it on this website.

posted by: justsayin | September 19, 2015  7:18am

Personal income tax growth of 7.1% what was that based on. I think 4.5% is still a stretch. Especially when it is so dependent on fairfield county, where GE once was, too soon?

posted by: Biff Winnetka | September 19, 2015  9:45am

12 comments in and nothing yet from Politijoe.

He must still be waiting to receive his “Talking Points”.

2015 Connecticut is a lampoon of 2000 CT which was a lampoon of 1990 CT which was a lampoon of 1980 CT which was…...

posted by: Biff Winnetka | September 19, 2015  9:48am

The craziest angle in this fiscal implosion tragedy is that Malloy will fail upwards to national level politics just as he failed upwards from Stamford to Hartford.

posted by: eastrivertype | September 19, 2015  11:03am

Justsayin is on the money.  To pass a “balanced” budget the Governor and the majority Democrats assumed 7.1% revenue growth! 
How is that working out.  Everyone knew it was a dishonest number.  Now we have to pay for that.

posted by: SocialButterfly | September 19, 2015  12:01pm

The cuts will include $15 millinn dollars in muncipal aid which increases city and town property and auto taxes to pay..

posted by: One and Done | September 19, 2015  1:33pm

Hopefully they will force early retirement on enough state workers to put our pension fund into bankruptcy where it belongs.  Then we can drain the swamp and start over.  This is what happens when you let the financially illiterate liberals run things.

posted by: Bluecoat | September 19, 2015  8:07pm

Don’t worry boys and girls,
Malloy will appoint or create another un-elected board or commission with Demcrats who lose in the next election, with significant taxpayer supported salaries and benefits, to tell us how stupid we are.

posted by: oldtimer | September 20, 2015  9:16am

As Social stated, $15 million cut to municipalities, add to that $63.5 million in Medicaid cuts to hospitals. The end result of this is a direct tax increase on CT citizens and diminished healthcare as hospitals will be forced to cut further. Malloy and his democratic legislature should be jailed for malfeasance. In fact, they are so inept that we’ve yet to see the typical responses defending their actions.

posted by: Biff Winnetka | September 20, 2015  7:47pm

+1000 for @Bluecoat’s comment.

Such is life in Corrupticut.

posted by: oldtimer | September 21, 2015  12:29am

Maybe it’s time for state employees to give back from their wonderful compensation packages and start paying “their fair share”.

posted by: SocialButterfly | September 21, 2015  9:44am

When will Gov.Malloy finally admit that he is no administrator and that “He blew it?”

posted by: donpesci | September 21, 2015  1:03pm

Right. Reporters should put a “total” figure to the rescissions made by the Malloy administration since he first assumed office—big figure. “Misused, the rescission authority of the governor is one of multiple mirrors in a house of mirrors that legally skirts a constitutional provision assigning revenue and expenditure authority to the legislative branch of government. The rescission authority of the governor should be used only when EMERGENCIES occur that throw the budget out of balance.” Budget miscalculations are not “emergencies,” as defined in the statute covering rescission. The Malloy administration is using its rescissionary authority to “cover willful ‘miscalculations’ in the budget, and its frequent use absolves the legislative branch of its constitutional obligation to monitor, determine and adjust its own appropriations and expenditures.” http://donpesci.blogspot.com/2015/04/pretentious-progressives-and-recission.html#more

posted by: NOW What? | September 21, 2015  5:59pm

Well, at least the spending was cut as soon as the market dropped rather than waiting for a deficit to actually be looming. Thus particular kind of pro-active spending adjustment is EXTREMELY unusual and probably a good thing given that the original revenue projection was inaccurately high.

posted by: SocialButterfly | September 21, 2015  9:57pm

Austerity conflicts with false Obama/Malloy deficit prosperity in Connecticut.

posted by: jenand | September 22, 2015  5:15pm

If our money is so heavily invested in the Stock Market, doesn’t that benefit Fairfield County Hedge funds and their managers, and put our $ at risk? Let’s consider increasing that group’s tax burden so they are incentivised to show outstanding performance and good judgment in handling the Middle class’s hard earned coin.

posted by: oldtimer | September 22, 2015  6:43pm

jenand… isn’t it ironic that socialists like Malloy choose to consistently hammer “greedy” corporations with taxes and unfriendly business regulations yet, they rely on the dividends these very same corporations pay to their shareholders when calculating income tax receipts? Talk about killing the Golden Goose! Oh, and for the record, I submit their should be a state Constitutional Ammendment that a state budget can never exceed the previous year’s tax receipts. That would go a long way to eliminate the socialist gimmickery Malloy and his cabal employ.

posted by: eastrivertype | September 22, 2015  9:49pm

Beautiful!  Let’s blame our deficit on the Fairfield County guys and the stock market rather than the idiots who used a projected 7.1% growth in revenues to balance the budget.
At least those greedy rich guys know how to make money and not run a perpetual deficit that requires massive tax increases regularly.

posted by: jenand | September 22, 2015  11:34pm

Thank you Oldtimer and River - my comment was impulsive - admittedly I know little of this subject and appreciate you expanding my knowledge.  But, I still think that there is enough money in this state for everyone, even without going social - appreciate your responses.

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