Citing declining revenues and a shaky economy, Connecticut Gov. Dannel Malloy ordered across-the-board agency budget reductions of nearly 6% on Wednesday to balance the state's biennial budget for fiscal 2016-17.
Spending, he said, must match revenue projections.
"It's clear that we have not gone far enough," Malloy said in his State of the State address to the General Assembly in Hartford, which kicked off the legislative session.
His proposed $18.1 billion general fund spending plan, which calls for no new taxes or tax increases, would represent a 3% drop from what legislators passed last summer. The plan, which state budget Director Benjamin Barnes called "narrowly balanced," contains a $10.6 million surplus.
Malloy and Barnes painted gloomy pictures. Barnes, in a budget briefing before Malloy's speech, said the state has lost 40,000 high-wage jobs over the past several years. That has affected revenue from capital gains taxes as well as income, corporate and sales taxes.
Last month, General Electric Co. announced it would move its world headquarters from Fairfield, Conn., to Boston.
"The new economic reality is there," said Barnes, who warned of possibly a further 9% cut in discretionary spending for fiscal 2018.
Malloy cited the need to tackle long-term pension obligations.
"We still face a fiscal cliff in 2032 that will be impossible to meet," he said. "The instability created by this cliff is shaking the confidence of the business community and looming over the next generation of Connecticut taxpayers."
The state's unfunded pension liability is around $47 billion and a report by the Center for Retirement at Boston College that Malloy commissioned recommended several changes, which lawmakers and pension boards would have to approve.
The capital markets have taken note of Connecticut's financial stresses, which contrast with enviable per-capita wealth metrics notably in Fairfield County, which is in the New York City commuter belt.
Bond ratings reflect that contrast. Last March, Standard & Poor's revised its outlook the state's general obligation bonds to negative while Fitch Ratings veered four months later, improving its outlook to stable.
Moody's Investors Service rates Connecticut GOs Aa3. Standard & Poor's, Fitch Ratings and Kroll Bond Rating Agency rate them AA.
"Connecticut benefits from a well-educated work force and proximity to the vibrant New York City economy, but the high cost of doing business likely underlies its slow post-recession job recovery." Janney Capital Markets managing director Alan Schankel said in a recent commentary.
Capital spending, according to Barnes, includes an additional $60 million in special tax obligation bond authorizations for bus and rail projects and $181 million to continue a new renovation and parking garage project at the state office building. Other bonding is for transit-oriented development, health and human services, economic and community development programs and utility work at the York Correctional Institution in East Lyme.
To balance the capital expense, the state is de-authorizing $385 million in bonding, including an amount to cover deficits related to conversion to generally accepted accounting principles budgeting.
According to Barnes, the 5.75% cuts to discretionary agency accounts, including municipal aid, will save about $360 million and result in cuts to the workforce in the thousands.
Attrition-layoff breakdown would be up to the commissioners, Barnes said. "If you see any commissioners today, be nice to them."
Education cost-sharing aid, the primary form of state education aid to Connecticut municipalities, is exempt from the cuts, Barnes added.
Separate budget reductions and a rollover from Malloy's December budget mitigation account for further savings of $118 million and $91 million respectively, said Barnes.
