Connecticut Gov. Dannel Malloy released a $40.6 billion biennial budget for fiscal 2018-19 that calls for a variety of measures aimed at closing a $1.7 billion annual deficit.
Measures totaling $1.4 billion of cuts include shifting $407 million, or one-third of the annual costs of local teachers' pensions, to municipalities, and a projected $700 million in labor savings. The governor also called for redistributing local education aid to the state's poorest cities in the face of a state court order and enabling localities to impose a first-time real-estate tax on hospitals.
"Alright, we've got work to do," Malloy, a Democrat, told lawmakers Wednesday at the state capitol in Hartford.
A major battle looms in the legislature with the Senate split between Democrats and Republicans, 18-18, after the GOP gained three seats in November. Democrats have a slim lead in the House of Representatives, 78-72 with one vacancy. Last week's bill to restructure pension debt forced Lt. Gov. Nancy Wyman, also a Democrat, to break a tie with her vote in favor.
"This is the year creative solutions will have to come to bear," said former House Speaker Brendan Sharkey, a Democrat.
Budget imbalance prompted bond rating agencies to downgrade Connecticut's general obligation bonds three times in 2016. Additionally, S&P Global Ratings on Nov. 30 lowered its outlook on Connecticut GOs from negative to stable. State officials project a deficit of up to $1.4 billion for fiscal 2018.
S&P, Fitch Ratings and Kroll Bond Rating Agency assign Connecticut AA-minus ratings while Moody's Investors Service assigns an equivalent Aa3 rating. Moody's has a negative outlook while Fitch and Kroll have stable outlooks.
"The budget and debt struggles of Connecticut state government are now almost as notorious as those of New Jersey and Illinois," Stephen Eide wrote in a report co-published by the Yankee Institute for Public Policy and the Manhattan Institute for Policy Research.
According to the report, Connecticut routinely ranks around the top in national surveys of states' bonded and retirement benefit debt burdens.
"Connecticut is among the most productive, best-educated and highest-income states," wrote Eide. "But its recent low-growth trends raise questions about whether Connecticut will be able to rely on economic activity alone to resolve its current debt and deficit challenges."
Malloy said the budget details contingencies should labor savings not materialize.
Additionally, Malloy proposed eliminating the real estate tax-exemption for hospitals. They now make payments in lieu of taxes.
"We're eliminating that Pilot funding," state budget director Benjamin Barnes told reporters in a briefing before Malloy's speech. "That would be a local option."
According to Barnes, the hospital tax could generate "tens of millions of dollars" for the state's four largest cities, Hartford, Bridgeport, Waterbury and New Haven.
The tax exemption for hospitals has come under fire of late. In a headline case two years ago, New Jersey tax court Judge Vito Bianco stripped Morristown Medical Center of its tax-exempt status, citing the use by the Morris County facility for profit-making purposes including the provisions of loans and capital to for-profit operations such as physician groups.
Malloy, a former Stamford mayor elected governor in 2010, proposed updating the educational cost sharing grant formula – the state's main public education grant awarded to every municipality – with an emphasis toward current enrollment and recognizing the shifting demographics of small towns and urban growth. It would tilt education funding toward poorer communities such as Hartford, New Haven and Waterbury.
State Superior Court Judge Thomas Moukawsher in September ordered Connecticut to revise its educational aid-distribution formula to better serve students in low-income communities. Connecticut Attorney General George Jepsen is appealing the ruling.
"This addresses the serious issues that were raised in the [court] decision," Barnes said Wednesday.
Malloy also asked for an additional $10 million towards special education, the first such increase in several years.
Republicans on Tuesday requested Malloy to restore $20 million in educational aid to municipalities that he cut late last year.
"What cities and towns are saying is 'please, please, please don't cut the rug out from under us in mid-stream," said House Minority Leader Themis Klarides, R-Derby.
Some education advocates worry that budget juggling could force some local districts to cut back on educational basics in favor of teacher pensions.
Malloy also has proposed a municipal accountability board and
Hartford Mayor Luke Bronin, who has pitched regionalism to suburban towns the past two months, endorsed the concept.
"Hartford is operating with one hand tied behind its back," he said. "A lot of people understand that we're all tied together."
The budget includes increased contributions of $357 million to the state pension systems in the first year.
