Hugh McQuaid Photo
Gov. Dannel P. Malloy (Hugh McQuaid Photo)

Gov. Dannel P. Malloy presented the legislature with $40 billion budget proposal Wednesday that boosts tax revenue by $900 million and cuts $1.3 billion in state spending to address more than $2 billion in projected deficits.

“The budget I present to you is filled with tough choices,” the governor told a joint session of the legislature during the first budget address of his second term. “The vast majority of these cuts are choices that, under ideal circumstances, Connecticut would not have to make.”

The budget eventually negotiated between the administration and the legislature must close a projected deficit of more than $1 billion in each of the next two years.

Malloy, who pledged not to raise taxes during his re-election campaign, said his budget plan provides taxpayer relief by shaving less than 1 percent from the state sales tax over two years. But that reduction is more than offset by revenue increases elsewhere in the budget. The plan calls for cancelling scheduled tax breaks, including an exemption on certain clothing, and delaying a planned restoration of the Earned Income Tax Credit for poor families.

The budget also increases the tax burden on hospitals and corporations by $357 million through changes to tax credits and new restrictions on how corporation can carry their losses forward.

On the spending cut side, Malloy revived a previous budget proposal that would drop 34,000 parents from Husky A insurance and force them to purchase insurance on the exchange. The budget assumes the change will save the state more than $44.6 million in the first year and $82.1 million in the second year. The legislature’s Democratic majority rejected a similar proposal in 2013.

Malloy also plans on saving $23 million from closing a state prison. He’s leaving the decision about which prison to close up to Correction Commissioner Scott Semple.

The governor’s budget calls for no givebacks from the state workforce, but does assume savings from an “aggressive hiring lapse” as the administration intends to hold between 300 and 400 positions vacant for one year.

Generally, the budget holds state aid to towns steady, but increases the share small municipalities must pay for a resident state trooper from 70 percent to 100 percent.

For much of his half-hour speech to lawmakers, Malloy advocated for long-term investments in the state’s aging transportation infrastructure. Although his budget plans for a five-year “ramp up” of transportation projects, he did not specify how the long-term projects would be financed. Instead, Malloy called for establishing a nonpartisan panel of experts to explore financing options.

Lawmakers on both sides of the aisle had mixed thoughts on Malloy’s proposal. House Speaker Brendan Sharkey praised the budget for generally holding towns and cities harmless. But Sharkey said he had concerns about Malloy’s sales tax policy.

“The average taxpayer in Connecticut won’t feel the four-tenths of 1 percent reduction in sales tax in as dramatic of a way that they will feel some of the other individual things that we’ve already had planned— for example, the clothing exemption,” he said.

Senate President Martin Looney praised Malloy’s proposal and said reducing the overall tax rate was a “sound” policy because the sales tax is considered a regressive tax.

“I commend him on his proposal. The details of it — obviously now it’s our responsibility as a General Assembly to take his proposal and work it through our [committee process] and come up with a response to his budget,” Looney said.

Hugh McQuaid Photo
Rep. Themis Klarides (Hugh McQuaid Photo)

Republicans were more critical of the budget. House Minority Leader Themis Klarides accused the Democratic governor of breaking promises, like scrapping the scheduled clothing exemption.

“It’s one promise after the next, they keep being broken, they keep adding new ones. So it’s the middle class that’s being hurt, unfortunately,” she said.

Senate Minority Leader Len Fasano called Malloy’s proposal to hold state employee positions vacant a good policy.

“But we’re balancing this budget on the backs of the poor, the elderly, the folks who need the most help,” Fasano said.

Cuts in the budget quickly drew complaints from several associations and advocacy groups.

Heather Gates, president and CEO of mental health services provider Community Health Resources, said the budget failed to address a $25 million cut passed last year that had been previously been mitigated with one-time funding.

By carrying the cut forward, Gates said, the administration would “gut” the adult mental health system and force providers to close clinics for people with the most severe mental health problems. The plan to shift residents off Husky A insurance exacerbates the problem, she said.

“People will end up in emergency rooms, they will end up in the streets, and they will end up in jail,” she said. “There are only so many places those individuals can go.”

Connecticut Business and Industry Association President Joseph Brennan said the tax changes to corporations and hospitals threaten to hurt Connecticut’s economy.

“We think it strikes a blow at confidence and it can have a chilling effect on our recovery,” Brennan said. “As the governor pointed out, we have seen positive job growth numbers in 2014 in the fourth quarter. We want that to continue. … Let’s not throw up roadblocks.”

Town government organizations, which were bracing for potentially deep cuts in the budget, were split on Malloy’s proposal. Matthew Galligan, town manager of South Windsor and president of the Connecticut Conference of Municipalities, said he was relieved by the budget.

“We thought we were going to have an uphill battle,” he said. “We’re very pleased.”

The Connecticut Council of Small Towns released a statement criticizing the administration’s decision to shift the entire cost of resident state troopers onto towns.

“By requiring small towns to pick up more of the costs of the resident trooper program, small towns will take a big hit under the proposed budget,” Betsy Gara, executive director of COST, said.

Christine Stuart and Sarah Paduano contributed to this report