Christine Stuart photo

Gov. Dannel P. Malloy’s budget director Ben Barnes told a group of advocates for children Tuesday that the two-year budget he’s preparing is challenging mostly because there’s so little he can change or control.

He said the spending everyone cares about in the budget, such as spending on children and education, are falling behind because mandated spending in other areas of the budget, such as pensions and debt service, are eclipsing them.

About 25 percent of the $17.5 billion 2015 general fund budget goes toward the state’s contractual or legally obligated fixed costs. That includes debt service, which is 9 percent of the budget at $1.6 billion, Barnes said. Another fixed cost is the annually required contribution to the state employee pension fund, which is 5.6 percent of the budget at $970 million. There also is the teacher’s pension, which is $1.18 billion.

Then there’s the Medicaid program, which amounts to about $2.3 billion, and wages for state employees, which cost about $2.7 billion. There also are state agencies like the Department of Children and Families, which is operating under an active court consent decree. The state spends about $536 million a year on the agency, “but even if we wanted to reduce that, we have to do that within the confines of the consent decree,” Barnes said.

Then there’s non-education funding municipal aid, which costs the state $1.55 billion a year. However, Barnes said “the General Assembly could cut it, but that is extraordinarily problematic because it will raise property taxes.”

The Malloy administration, even when faced with a $3.67 billion deficit in 2011, spared municipal governments because cutting there would force local governments to increase property taxes, which is regressive. Instead, that was the year the state increased the income tax and lowered or eliminated a number of tax credits.

He tried to avoid questions about what the 2016-17 budget, which Malloy will deliver on Feb. 18, will include. However, Barnes did say that if nothing changed the budget would grow $1.2 billion between 2015 and 2016.

That means there will need to be spending cuts. But exactly how much Malloy will cut, and where those cuts will be made, remains to be seen.

“We’re left with some difficult choices,” Barnes said.

Barnes reiterated Malloy’s campaign pledge saying there were no plans to increase taxes.

“I’m preparing a budget that will be balanced within the spending cap and will not raise taxes,” he told reporters.

The bad budget news started shortly after the 2014 election when legislative analysts and Malloy’s budget office reported that revenues were lagging and the economy wasn’t recovering as quickly as anticipated. Since then the Malloy administration has made two rounds of rescissions to the 2015 budget, which is still in deficit. That’s in addition to the $1.3 billion deficit projected for the 2016 budget.

“For us to cut that money out of our budget and fix it on the spending side is awful,” Barnes said.

Barnes didn’t say whether the administration is looking to cut the entire $1.2 billion from the budget. But he said the spending cuts would be greater than “one dollar.”

“In the meantime we’re stuck trying to find the best path through very, very treacherous terrain right now,” Barnes said.

Connecticut Voices for Children, the advocacy group that hosted the forum where Barnes spoke Tuesday, is advocating for the state to change its tax system.

A new report from the organization found that Connecticut is only one of two states with an income tax that fails to offer either a tax credit or exemption for dependents. As a result, parents with children or other dependents pay virtually the same amount in state income tax as couples earning the same amount with no children.

The group also advocated restoration of the Earned Income Tax Credit. The program was reduced in 2013 from 30 percent of the federal credit to 25 percent and was restored partially to 27.5 percent in 2014. Full restoration is planned for this year, but Barnes declined to say if the Malloy administration would restore it fully.

It would cost the state an additional $13 million to $14 million to increase it from 27.5 percent to 30 percent.

Currently, the program costs the state $110 million a year and supports about 200,000 working households statewide.

Barnes said the program already has a big impact at 27.5 percent.

“We have a very meaningful EITC program,” Barnes said. “We’d all love it to be higher . . . it’s really a question of looking at a whole bunch of choices and making the best of them we can.”