The budget gimmicks Gov. Dannel P. Malloy promised to avoid on the campaign trail in 2010 have made their way into his second two-year budget proposal, according to sources who have been briefed.
From eliminating municipal aid programs like Payment In Lieu of Taxes or PILOT — which helps towns recover a portion of the money they would have collected on tax exempt state properties — to borrowing large amounts of money and redefining the spending cap, Republican and Democratic sources said Tuesday that Malloy’s two-year budget seems to be full of smoke and mirrors.
Sen. Minority Leader John McKinney, R-Fairfield, said his staff was given a budget briefing Tuesday morning and were told the budget Malloy will unveil Wednesday would increase spending 9.7 percent over the next two years and is about $1 billion over the state spending cap as the cap is currently defined. McKinney said Malloy attempts to redefine the constitutional spending cap in order to get around it.
McKinney, who will announce his own run for governor this spring, said Malloy obviously doesn’t want to continue bipartisan budget discussions because “he’s already knocked us out of the park.”
By proposing a 9.7 percent spending increase, Malloy has set the floor in budget negotiations with the Democrat-controlled legislature and “that’s what I don’t understand,” McKinney said.
Malloy spokesman Andrew Doba was surprised Republican lawmakers would share some of the details of the briefing with the news media.
“In an attempt to begin budget negotiations in a bipartisan manner, [the Office of Policy and Management] briefed Republican leaders on the proposal earlier today,’’ Doba said in a statement Tuesday. “It’s unfortunate that Senator McKinney and Representative Cafero used that confidential briefing and their ambitions for higher office to serve as an opportunity to leak half truths about the governor’s budget. It may not fit in with their political agendas, but tomorrow the governor is going to present a balanced budget with no new taxes, one that grows our economy and creates jobs.”
House Minority Leader Lawrence Cafero was not available for comment Tuesday, but McKinney maintained that even though he didn’t attend the briefing with his staff there was no indication the information shared was supposed to remain confidential.
“This is the most disingenuous and dishonest budget I’ve ever seen,” McKinney said.
Taxes and Revenues
As promised, Malloy’s budget does not increase taxes, but it does extend the electric generation and corporation taxes that were scheduled to expire at the end of the fiscal year.
Democratic lawmakers have been vocal about their desire to keep their promise and allow at least the electric generation tax to sunset.
Malloy had previously said he “would not consider continuing existing taxes as raising taxes.”
The revenue package also reduces the Earned Income Tax Credit from 30 percent to 25 percent in the first year. The $110 million credit was distributed between about 180,000 households during 2011.
In addition to extending the taxes or lowering credits, Malloy’s budget also would raise about $750 million in new revenue, according to McKinney.
In order to do this, Malloy delays repaying the $1 billion Connecticut borrowed in 2009. By refinancing those Economic Recovery Notes and delaying payment until 2018, Malloy is able to free up millions in spending for the two-year budget, according to McKinney.
Malloy also will look to securitize about $600 million in order to help the state transition to Generally Accepted Accounting Principles. Malloy’s administration made compliance with the accounting standard a priority, but has failed to fully realize the plan because it would mean the state would need to come up with about $1.2 billion on top of the current deficit. In order to comply with GAAP, the state must account for the expenses in the year they were incurred. Currently, the state uses a modified cash basis accounting method, which allows it to spend money before it’s counted toward the bottom line.
It’s unclear at the moment exactly which state asset or revenue stream Malloy will securitize in order to get the money. Former Gov. M. Jodi Rell proposed securitizing revenue from a state-operated version of Keno, which is one of the games available at the Indian casinos. Democratic lawmakers instead responded by offering to securitize a surcharge on consumers’ electric bills. In the end, the two sides agreed to use about $1 billion in Economic Recovery Notes to close the budget gap — the same notes Malloy wants to delay paying until 2018.
Malloy was praised by local officials Tuesday for finding a way to increase the Education Cost Sharing grant to cities and towns, but he may be panned tomorrow by those same local officials who are likely to be upset that he’s eliminating or converting the Mashantucket Pequot grant and PILOT for state-owned property.
McKinney said it’s his understanding Malloy’s budget uses the PILOT money to fund the increase in education aid to municipalities, and he converts the Mashantucket Pequot fund into a capital program for every town except the ones that are home to the two Indian casinos.
Town Aid Road would also be converted into a capital program that will go on the state’s credit card, instead of coming from the state’s general fund.
“I do believe there are missing pieces he did not share with us,” McKinney said, referring to rumors Malloy would eliminate the motor vehicle tax. In order to make whole the municipalities that collect the tax, the state may replace it with some type of state funded grant, but the governor’s office was unable to offer details. A media briefing has been scheduled for 10:15 a.m.
Local elected officials are expected to receive a briefing at the governor’s mansion in the morning.
Malloy embraced at least one Republican idea. According to McKinney, the governor will propose consolidating all six legislative commissions that serve minority communities.
The commissions for Latinos, African-Americans, Asians, women, elderly, and children will be consolidated into one under the governor’s budget proposal. It’s a small cut in the grand scheme of things, but currently the six commissions cost the state about $2.7 million a year to operate.
Democratic lawmakers are likely to push back against the proposal since they are “legislative” commissions that don’t answer to the executive branch.
Malloy made a big deal about previous Republican governors’ decisions to postpone payments to the state employees pension fund, but McKinney said that’s exactly what he does this budget.
Malloy had proposed contributing an additional $125 million a year above the actuarially required contribution to the pension fund to ensure its future solvency. Connecticut has one of the worst funded pensions in the nation.
McKinney said it’s just one more promise Malloy is breaking.