Gov. Dannel P. Malloy, as expected, is proposing a downward adjustment of $571 million from his 2017 fiscal year budget. It would reduce spending to $19.89 billion from an approved $20.44 billion.
The big news for business under the proposal, which will be taken up by the legislature over the next several months, would be an elimination of a personal property tax for companies with less than $10,000 worth of personal property. Stemming from a recommendation recently submitted by the State Tax Panel, the measure would impact 46 percent of all businesses in Connecticut, the governor said. It would amount to an estimated $6 million less in state revenue.
Malloy is also again proposing the elimination of minimum alcohol pricing, which has been met with strong opposition in the past by state liquor store operators, who fear it would give larger stores a bigger advantage.
Office of Policy Management Secretary Benjamin Barnes briefed the media Wednesday morning on the governor’s State of the Speech, which he delivered at noon before the General Assembly.
Malloy called for the legislature to craft an enforceable budget spending cap – a measure voters thought they had completed in 1992, but which was recently ruled unenforceable by Attorney General George Jepsen.
“It’s time we give them what they asked for,” Malloy said.
He also spoke about Connecticut’s economic challenges. Lower-than-expected tax revenue over the past several years, coupled with a net loss of higher paying jobs and stagnant wage growth since the recent recession, presents a new economic reality for the state, one that must be met with reduced spending, pension reforms and other measures, he argued.
The governor’s budget plan amounts to a 2.8 percent cut in general fund and other spending for fiscal 2017, a year in which the state faces a projected deficit of more than $500 million.
Malloy noted in his speech that Massachusetts is facing a $635 million budget deficit, and the gaps are wide in Pennsylvania and Louisiana.
The proposed spending reductions would be partly achieved through a 5.5 percent reduction for many discretionary state agency accounts, Barnes said. That includes municipal aid, but not for schools.
Agency commissioners, under Malloy’s plan, would have more flexibility in how to use their funding. Malloy wants to shift to a “block grant” funding model, which some see as less transparent decision making. Malloy said he would encourage agency use of tools such as the state’s public data portal to show funding decisions and results in real time.
On the healthcare front, Malloy wants to transfer $1.47 billion in agency-associated fringe benefits, such as health care, out of the Comptroller’s office and into agency budgets. He said it would be a more accurate way to show an agency’s true costs.
And he has proposed a new reimbursement system for intellectual disability residential programs. The governor wants to change it from a grant-funding model to a fee-for-service model, under which providers would submit claims to the Department of Social Services after providing services. Malloy said the shift would help ensure the state is getting the full amount of federal reimbursement possible for those services.
The $537 million in funding for those residential programs in fiscal 2017 was spared the 5.75 percent cut that many agencies faced.
Barnes warned in the 2018 fiscal year, the state may need another cut of 9 percent, totaling a cut of approximately 15 percent over the next 2 years.
Barnes also said the governor is committed to a reduction of the state workforce through attrition and possibly layoffs. He said OPM had not projected the number of workforce cuts.
Barnes said Malloy also wants to shift to a “zero-based” budget process, instead of forecasting a five percent growth in expenditures each year, under the so-called consensus revenue model.
In a written statement, Andrew Markowski, Connecticut state director of the National Federation of Independent Business (NFIB), a small business lobbying group, said Malloy set the right tone with his budget speech and proposals.
“Today Governor Malloy said that the days of spending outside of state revenue are over and we applaud him for accepting this new economic reality,” Markowski said. “Today’s remarks were a great start and demonstrated a tremendous shift in the thinking that has traditionally come out of the Capitol.”
Markowski said he appreciated Malloy’s small business property tax relief, but indicated the plan didn’t go far enough. Businesses, Markowski said, would also like the business entity tax eliminated.
Meantime, leaders of unions in the State Employees Bargaining Agent Coalition (SEBAC), which represents state workers, voiced displeasure with Malloy’s budget.
“The latest prescription for Connecticut’s budget woes is a double-dose of arsenic,” said Cindy Stretch, Southern Connecticut State University English professor. “We cut the budget for public services directly, and we threaten to further diminish public services by laying off thousands of state and municipal employees. Does anybody really think we help our struggling middle class by making sure we have fewer teachers, nurses and cops, and by making public higher education even less affordable than it is now?”
