Facing A Deficit, Malloy’s Next Two-Year Budget Will Increase Spending
Based on current spending the state is expected to have a built-in $2.2 billion budget deficit over the next two years, but Gov. Dannel P. Malloy said Friday that the budget he will present to the General Assembly on Wednesday will include a spending increase.
“Yeah. That would be correct,” Malloy said in answer to a question about whether the new budget will increase spending.
“But we are going to present a balanced budget with no tax increases,” Malloy insisted. “And we are going to support programs that are most likely to produce a growing economy in the future.”
He was talking about plans like the one he announced last week regarding the University of Connecticut. Malloy wants to invest $1.54 billion in bonding over the next 10 years in the state’s flagship university to improve facilities and expand enrollment 30 percent. That includes an additional $286 million in annual spending on salaries for 259 new professors.
“Listen, Connecticut is not going to move forward doing the same things that we did unsuccessfully for 22 years,” Malloy said Friday. “This is a big idea.”
But at least one Republican leader, who is toying with a run for governor, criticized the idea.
“What are we thinking? How are we going to pay for this?” Cafero said last week during an interview in the Capitol press room.
Cafero said the budget deficit isn’t as bad as it was when Malloy first took office two years ago, but he said he “would argue the state is in worse financial shape because the tool box — the things in which we can address that deficit — is depleted.”
Malloy wasn’t fazed by the criticism from Cafero.
“If you want to increase the overall population of the school by a third, obviously you don’t do that without building dormitories,” Malloy said.
As it currently stands, “We are turning away some of the most qualified applicants to the University of Connecticut with the highest grade point averages and the highest SAT scores because we didn’t figure out a way to get water to the campus. Really?”
“This is about the future and competing” Malloy said.
Budget Balancing Tight-Rope
There are few places in the budget where Malloy can actually increase spending without bumping up against the spending cap. If the state continues spending what it’s currently spending, the budget next year already is about $1.2 billion over the spending cap, according to Malloy’s own budget office.
So while Malloy can make investments through the state Bond Commission, there’s not much he can do to increase general fund spending.
Some of what is driving state spending is “Medicaid expansion under the Affordable Care Act, fast-growing pension contributions resulting from more prudent assumptions, and our commitment to convert to GAAP,” according to Andrew Doba, Malloy’s spokesman.
“In order to keep those promises and others, without raising taxes and still presenting a balanced budget, very real and very painful cuts will need to be made to offset some of the necessary increases,” Doba said Friday in an emailed statement.
Social service providers and anti-poverty advocates have been bracing for those cuts.
Last week, 800 nonprofit community providers and their clients rallied outside the state Capitol to call upon Malloy and the legislature to increase funding. Malloy joined them and told them his budget will include $20 million in bonding to improve infrastructure or upgrade their technology system. But the private providers who care for the disabled want more.
“We may have needs to fix the roofs and get the generators and put in new furnaces. But we have a crumbling human service infrastructure,” Sheila Amdur, interim president of the Connecticut Community Providers Association, said.
In the last five years, private nonprofit providers have seen their cost-of-living allowances rise only one time, and only by one percent. Employees who care for the disabled are making between $11 and $16 an hour, which means some of them are able to qualify for the state’s low-income health insurance program — meaning, their low wages are simply shifting costs back to the state elsewhere.
Liz Dupont-Diehl, policy director for the Connecticut Association of Human Services, said there aren’t that many places in the budget to cut spending so she is concerned that social service agencies and programs will see the bulk of the cuts.
“The writing has been on the wall for awhile,” Dupont-Diehl said Sunday.
But she warned that if the state doesn’t invest in human infrastructure, then it won’t recover as quickly as it hopes.
“The number of low-income individuals in the state is still going up and more and more people aren’t earning enough,” Dupont-Diehl said.
She said an increase in the minimum wage and maintaining the current Earned Income Tax Credit will help the state get out of the recession. She said increasing the minimum wage — something that hasn’t happened in three years — would also help the state spend less on social programs like food stamps and Medicaid because it would mean people are earning more and depending less upon the state for services.
She argued that there’s even a little room to increase income taxes and still remain competitive with the neighboring state of New York. But Malloy has said he won’t increase taxes and House Speaker Brendan Sharkey has said he doesn’t think now is the time for another tax increase.
Malloy and the Democrat-controlled legislature have increased taxes $2.6 billion over the last and current fiscal years.
However, with Connecticut’s unemployment rate at 8.6 percent, and a loss of 1,800 jobs as recently as December, the state isn’t collecting as much revenue as it anticipated.
“The economy and state government finances are extremely difficult to project in these unusual times, particularly given the significant shifts in income tax revenue that occur surrounding the dates of major tax changes,” Office of Policy and Management Secretary Ben Barnes has said.
As revenue continues to fall below projections, the business community is looking for the state the cut spending.
The Connecticut Business and Industry Association issued a report last month arguing that the state has a spending problem.
Over the past two decades, when the state has confronted deficits it has chosen to increase or expand taxes to fill the gap and “any ‘cuts’ have been, in reality, usually just a slowing in the rate of spending growth,” the CBIA report says. “The truth is that Connecticut has a spending problem that’s been exacerbated by tax revenues not being used as effectively as possible.”