Malloy Calls for Spending Cuts, Tax Increases [Update]

Update 6:10 p.m.:

Calling his budget proposal fair and sensible, but one that would require “shared sacrifices” and “hard decisions,” Gov. Dannel P. Malloy delivered the first budget address of his administration before a special session of the General Assembly at the state Capitol in Hartford Wednesday.

Malloy’s recommended biennium budget, which has a “bottom line” total of $17.94 billion for the 2011-12 fiscal year, and spending of $18.37 billion in fiscal year 2012-13, plugs an estimated $3.2 billion deficit in the coming year, contains numerous spending cuts and tax increases, requires the consolidation of about 30 percent of state agencies and changes in the state’s revenue structure to eliminate dependence on borrowing or one time revenue to meet operating expenses.

“When I stood before you in January, I talked about crisis and opportunity, of standing at a crossroads of historic proportions, of having to choose our path forward,” Malloy said in his address. “I called for innovative thinking and for us to muster up the intellectual, emotional and political courage to take a different path, a better path, on behalf of the people of Connecticut.”

Malloy said his proposed budget could best be summed up in one word: “Jobs.”

“Without jobs, government’s resources will dry up, its programs will become exhausted, and the relief they provide will be temporary, to no lasting effect,” Malloy said. “Jobs, ladies and gentlemen, represent the light at the end of the budget tunnel. That’s why job creation drives this budget.”

Malloy’s proposal includes $1.76 billion in reductions in spending, coupled with $1.51 billion in estimated increases in income, sales and other taxes in the first year of the budget.

The bulk of those reductions – $1 billion each year – would come from projected savings and reductions from unionized state employees who are already under contract.

“This budget proposal does ask state employees to make sacrifices,” Malloy said. "I know they’ve made them in the past, and I appreciate those sacrifices. I appreciate the good and hard work they do every day, and I hope you do as well.”

“But I need to ask them to do what I’m asking everyone else across the state to do: more,” Malloy continued. “Because their current wage, health care, and pension benefit levels are simply not sustainable.”

Malloy said the “sacrifices” would start with the Governor’s Office, and that his budget reduced the cost of the office by 15 percent and eliminated “longevity payments” for employees of his administration.

“I did those things, first, because they’re the right things to do,” Malloy said. “And second, because you can’t ask others to make sacrifices if you’re not willing to make them yourself."

The governor's budget also calls for the restoration of $270 million over each of the next two years to the Education Cost Sharing grant, the state’s largest means of support to local schools, to compensate for the anticipated loss of funds from the American Recovery and Reinvestment Act, which is set to expire at the end of June. The federal funding is currently plugging a roughly 14 percent hole in ECS grants to local municipalities. Malloy said the restoration would bring the state’s ECS funding to 2009 levels, but included a blunt warning to the state’s teachers unions as part of his address.

“We have done our part in increasing funding for education, but we need all of you to step up to the plate – as some of you already have,” Malloy said. “I am asking you not to take this additional $270 million in funding for education and use it to demand raises that will surely result in some of your colleagues losing their jobs or having larger classroom sizes.”

Malloy continued that his remarks should not be interpreted as a threat to local unions.

“It’s not,” he said. “It’s a respectful request that reflects the reality of our times."

Revenue changes and tax hikes incorporated into Malloy’s budget would include the elimination of numerous tax exemptions – which he called “ridiculous” – on goods and services currently in place, such as on boats, aircrafts, haircuts and shoes and clothing under $50.

“Look at the sales tax, for example, to see how certain items are taxed while others are not is to understand the corrosive influence special interests have had on our state government,” Malloy said. “For example, we tax Pilates studios, but we don’t tax yoga studios.  Forgive me, but can anyone tell me why? Is it because the yoga people have a better lobbyist?”

A revamp of the real estate conveyance tax would generate an estimated $52.9 million. Under Malloy’s budget, the sales tax rate would also increase, from 6 percent to 6.25 percent, while an additional .10 percent sales tax would be collected for cities and towns based on sales generated at local retail establishments.

“Asking virtually everyone to share a slightly higher tax burden is the only way we can ensure that no one group of people bears a much higher burden,” Malloy said of his proposed tax increases.

Other highlights from Malloy’s address include:

• The enactment of an earned income tax credit of 30 percent for working citizens;
• A new incentive for the first five companies "that bring hundreds of new jobs" to the state;
• The consolidation of state agencies by 30 percent;
• Maintain municipal grant funding from the state;
• Decrease municipalities reliance on the property tax;
• Provide money for more magnet schools and begin to transfer control of vocational-technical schools from the state to local school districts;
• Convert Medicaid programs to a self-insured model; and
• Improve the state transporation infrastructure.

No sooner had Malloy finished delivering his remarks, prominent state Republicans began to criticize aspects of his proposal.

"Here’s the rub for me: it’s the bottom line," House Minority Leader Lawrence Cafero, R-Norwalk, said immediately following Malloy’s address. "How much do we spend to run government today? The answer is $19.3 billion. How much does the governor want us to spend to run government tomorrow? $19.7 billion. There’s a disconnect there. If this is a shared sacrifice, spending has to come down."

"He’s increasing taxes by $3.5 billion over two years on every tax you could imagine: income tax, sales tax, taking away the property tax credit, gasoline, hair cuts,” Cafero continued. "At the same time we’re actually going up in the cost of government instead of down."

Editor's note: See also "GOP Responds to Governor's Budget"

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Update, 1:30 p.m.:

In his first budget address, Gov. Dannel P. Malloy touched upon several areas of the proposed state budget for the next two fiscal years, from local and state education and municipal funding to state employee concessions and increased taxes. For a more detailed breakdown, view the actual budget here.

For a more general overview, here are some highlights from the governor's address:

• State employees must agree to various concessions or risk the chance of mass layoffs;
• The enactment of an earned-income tax credit of 30 percent for working citizens;
• A new incentive for the first five companies "that bring hundreds of new jobs" to the state;
• The consolidation of state agencies by 30 percent;
• The institution of various new taxes and an increase in the sales and, for some, income taxes;
• Maintain municipal grant funding from the state;
• Fill the gap that will be left in state Education Cost Sharing funding when the federal American Recovery and Reinvestment Act grant expires in June;
• Provide money for more magnet schools and begin to transfer control of vocational-technical schools from the state to local school districts;
• Convert Medicaid programs to a self-insured model; and
• Improve the state transporation infrastructure.

The Republican leadership has already begun to question Malloy's proposal and are critical of his accounting and his suggestion to raise various taxes. They have said that not enough of the spending portion of the budget has been eliminated. To view a YouTube video of House Minority Leader Lawrence Cafero discussing Malloy's proposal on Feb. 15, click here.

Original story:

In a briefing prior to the release of Gov. Dannel P. Malloy’s state budget proposal, Office of Policy and Management Secretary Benjamin Barnes detailed the plan to reporters Wednesday morning.

Faced with filling a projected $3.2 billion deficit in the coming year, Barnes repeatedly touched on the point that Malloy’s budget calls for a number of “shared sacrifices,” but protects local services.

Among the proposals included in Malloy’s recommended budget, which has a “bottom line” total of $17.94 billion for the 2011-12 fiscal year, and spending of $18.37 billion in fiscal year 2012-13, are numerous spending cuts and tax increases, the consolidation of about 30 percent of state agencies, and changes in the state’s revenue structure to eliminate dependence on borrowing or one time revenue to meet operating expenses.

“Balancing this budget will require shared sacrifices,” Barnes said. “Overall, the budget includes more spending cuts than tax increases.”

Malloy’s proposal includes $1.76 billion in reductions in spending, coupled with $1.51 billion in estimated increases in income, sales and other taxes in the first year of the budget.

The governor's budget also calls for the restoration of $270 million over the next two years to the Education Cost Sharing grant to cities and towns to make up for the anticipated loss of funds from the American Recovery and Reinvestment Act, whith is set to expire at the end of June. The federal funding is currently plugging about a 14 percent hole in ECS grants to local municipalities. Barnes said the ECS restoration would restore the state’s funding to the 2009 level.

Malloy’s proposal also relies on about $2 billion in savings and reductions over the next two years - $1 billion each year - from unionized state employees who are already under contract, Barnes said.

When asked how the budget would be balanced if those savings were not realized, Barnes replied: “The spending reductions that the governor has proposed, we intend to accomplish.”

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