Hugh McQuaid photo

The Senate gave final passage Monday to the two-year, $37.6 billion budget that moves more than $6 billion in Medicaid spending out from under the spending cap. If that money was kept under the cap, the two-year budget would be about $44 billion, an increase of almost 10 percent over the last biennium.

Republican Senators objected to moving the federal Medicaid money. It was the focus of nearly eight hours of debate before the budget passed 19-17. Democratic Senators Joan Hartley of Waterbury, Gayle Slossberg of Milford, and Paul Doyle of Wethersfield joined Republicans in voting against the budget.

The trio of Democrats were opposed to Gov. Dannel P. Malloy’s proposal to change the spending cap, which prompted budget negotiators to come up with the plan to move the federal Medicaid funding out from under the cap. The dissent of the three senators threw a wrench into budget negotiations, but an agreement was hammered out on a package late Saturday night.

Sen. Scott Frantz, R-Greenwich, said the spending cap was put in place by the public following the implementation of the income tax in 1991 as a way to keep spending under control.

The spending cap is calculated by tying increases in state spending to either personal income growth or the rate of inflation. The growth rate allowed next year under the cap was 1.79 percent. The average growth rate over the past 20 years has been 4.6 percent per year.

Sen. Toni Harp, who co-chairs the Appropriations Committee, said the public voted on the constitutional spending cap in 1992. But she says the legislature never returned to codify it.

“It has never been defined by any legislature to date,” Harp said.

She said a Supreme Court case clarified that the legislature had an obligation to pass the implementation language of the constitutional spending cap. The legislature meets every year and has the ability to implement it, but bills proposing definitions are often defeated in committee.

“It’s a failure of ours not to address this in 22 years,” Frantz said.

Connecticut voters ratified the spending cap by a 4-to-1 margin through a ballot question on Nov. 3, 1992. Sen. Michael McLachlan, R-Danbury, said more than 1 million residents voted and 829,868 voted in favor of the spending cap that day.

Harp pointed out that technically the legislature never approved the statutory spending cap and doesn’t have to abide by it, even though it does.

Hugh McQuaid photo

“We have operated under the statutory spending cap as if it existed when in fact, we didn’t really have to,” Harp said.

Democratic lawmakers also said that no other state counts Medicaid under its spending cap. They said it would limit the amount of money the state would be able to use on other programs and limit the state’s ability to chase federal funding.

“Finally taxpayers are going to get their fair share of federal funds,” Sen. President Donald Williams, D-Brooklyn, said. “Without risking the crowding out of our commitment to seniors, schools, and all of the other critical services.”

He said Connecticut will join 49 other states — including 22 states with spending caps — in treating the Medicaid funds this way.

By making the change, Williams said Connecticut is going to be “apples to apples” with every other state. In the past, Connecticut’s budget has looked higher because it included the federal funds. He said this budget represents a significant decrease of $2 billion in the first fiscal year.

According to Williams, the two-year budget adopted Monday represents a decrease from the budget they approved two years ago. That’s what he’s going to tell his constituents.

“Because now it’s going to truly reflect the dollars that are contributed by state taxpayers to pay for services in the state of Connecticut, not the dollars that we have already been taxed on by the federal government, sent to Washington, and then received back as our fair share of federal funds,” Williams said Monday evening in a visit to the Capitol press room.

Republican Minority Leader John McKinney, R-Fairfield, said he’s going to be interested to hear what his colleagues say about the budget when they’re talking about it with the public and constituents.

Will they say it’s $37.6 billion or $44 billion? Or will they explain that the “same people are getting the same amount of money, we’re just not counting it as spending,” he said.

He called the “net appropriation” of Medicaid and avoidance of the spending cap “too cute by half.” He said according to the Office of Fiscal Analysis the budget will be in deficit by about $1.3 billion at the end of the next two years, so the budget passed Monday doesn’t even solve the problem.

Hugh McQuaid photo

“Do we really believe when the people of the state of Connecticut made the extraordinary attempt and successful attempt to amend our constitution to have a constitutional spending cap that their intent was for the legislature to sit and do nothing?” McKinney said.

McKinney, who is considered to be a gubernatorial candidate for 2014, said he’s been accused of using the budget to score political points by politicizing the budget.

“I don’t need to try to score political points. I just need to tell the people what the facts of this budget are and the points will score themselves,” McKinney said.

Democratic legislators and Gov. Malloy raised taxes $2.6 billion two-years ago when the last biennium budget was passed, and the state still ended up with a $3 billion deficit.

“We have not seen a robust economy. We’re just beginning to turn the corner nationwide,” Williams said. “This has been the longest and deepest recession of our lifetime.”

Harp pointed out that this budget doesn’t raise income or sales taxes.

However, it does continue hundreds of millions of dollars in taxes that were supposed to sunset at the end of this fiscal year and, for one reason or another, were continued.

Malloy has been saying there’s no new taxes in the two-year budget, even though at least three taxes scheduled to sunset have been continued. According to the Office of Fiscal Analysis, the budget includes $315.9 million over the biennium in new tax revenues.

The budget also borrows $750 million to cover the Generally Accepted Accounting Principle differential. GAAP is an accounting method which requires the state to account for the money it receives and pays out in the same year it’s received. Transitioning to the new accounting measure means the state will need money to cover its obligations, but the budget approved Monday pushes the implementation date for GAAP out to 2016.

“This budget like all budgets is not perfect. Compromises have to be made,” Gov. Malloy said Monday during a conference call with newspaper editorial boards.

Malloy touted the fact that the budget fully funds the state’s pension obligations and funds all but $2 million of his education reforms.

“This budget continues to move Connecticut forward in a big way,” Malloy said. “We need to make change. Is this perfect? Not by a long shot.”

The budget does not include a proposal to sell residents’ electricity at an auction to the highest bidder. Democratic lawmakers in the House were successful in killing that proposal and made up for that revenue by sweeping several funds, including about $30.4 million from the Clean Energy Financing and Investment Authority and $5 million from the Regional Greenhouse Gas Initiative account.

But Malloy attributed the removal of the auction to the addition of Keno to the budget.

“They didn’t want to recognize the $80 million that would have been generated by the client- auction,”  Malloy said. “They began looking for other opportunities. We’re not an island here in Connecticut. We’re surrounded by Massachusetts, Rhode Island, New York, all of which have Keno. And ultimately they came to the conclusion that that was something they were willing to do.”

Office of Policy and Management Secretary Ben Barnes, who joined Malloy on the conference call, said one of the largest one-time uses of money is carrying over the 2013 budget surplus into the 2014-15 budget.

Barnes remained confident that the revenue structure in Connecticut will be fully capable of supporting the “spending framework that we have in place today.”

Malloy said the administration has been “conservative” in its expectations and has “negotiated on a conservative basis with a legislature who wanted to . . . go a little further than I was willing to.”

But Sen. Kevin Kelly, R-Shelton, pointed out that in order to achieve the spending the state is planning, income tax revenue will have to increase 11.5 percent. He said Connecticut’s income tax revenue growth last year was just 2 percent.

According to the Office of Fiscal Analysis, the budget assumed that income tax revenue will increase 6.9 percent between 2013 and 2014 in order to stay in balance.