Christine Stuart photo

Legislative leaders and Democratic Gov. Dannel P. Malloy agreed Wednesday to close a $350-to-$370 million mid-year budget shortfall after a second round of negotiations.

Last week legislative leaders emerged from their first budget negotiation with Malloy and agreed to determine the size of the shortfall. Now that they’ve agreed, they will spend the next week coming up with suggested spending cuts to fill the hole.

The $350 to $370 million shortfall estimate includes the $103 million Malloy already used his executive authority to cut. The deficit, according to state Comptroller Kevin Lembo is $118.4 million, but lawmakers and Malloy believe it’s not long before that number increases so they identified a larger shortfall.

Legislative leaders from both parties said the $103 million in cuts needed to be included in their proposals because of the impact those cuts had on hospitals and social services.

“Going forward I think we feel very strongly about including the $103 million in rescissions in this number,” House Minority Leader Themis Klarides, R-Derby, said.

House Speaker Brendan Sharkey also said the $103 million has to be back on the table. Sharkey, who caucused last week with his members, said there’s overwhelming support to find other places to cut the budget and restore those funds.

The Connecticut Hospital Association also launched an advertising campaign Wednesday asking residents to tell the governor to restore the funding.

“After five years of cuts and taxes totaling more than $1.3 billion to hospitals in Connecticut, we have reached the breaking point and have no choice but to fight back against the Governor’s dangerous and deeply damaging actions,” Jennifer Jackson, CEO of the Connecticut Hospital Association, said. “Governor Malloy’s cuts have already cost healthcare jobs and forced hospitals to cut back critical services. Enough is enough.” 

Senate President Martin Looney, D-New Haven, said there’s support in his caucus to restore the hospital funding and the money for the Department of Developmental Services and Department of Mental Health and Addiction Services.

Malloy said he’s already cut $103 million so the deficit he’s looking at is smaller. He said he understands lawmakers want to restore some of those rescissions and is willing to entertain that discussion. He suggested eliminating 500 positions in state government through attrition and has already deferred scheduled wage increases for 1,600 non-union managers until January to save about $1 million.

At the same time, Malloy put some changes to the business tax structure back on the table that will cost the state about $25 million.

Malloy is proposing changing the unitary tax structure so that it is only calculated using the sales a company has in Connecticut. Malloy is also proposing a 15-day exemption on personal income taxes from employees who may come to Connecticut to train at a company’s corporate headquarters here.

Christine Stuart photo

Malloy also is proposing to restore the 70-percent limit on Research and Development tax credits by 2017 and changing how net operating loss carry-forwards are taxed. Malloy still wants to maintain the 50-percent threshold for losses carried forward by a company into the next tax year, but will exempt companies that continue to pay a minimum tax of $2.5 million.

In order to fund those changes, Malloy will need to find an additional $5 million in the 2016 budget and $20 million in the 2017 budget.

Asked if he was frustrated with the speed of negotiations, Malloy said it’s a process and “everyone moves at their own speed.”

Pressed about the speed of the negotiations, Malloy said he’s always frustrated with that.

“We don’t have an unlimited amount of time, so I’m hopeful people are going to put their ideas out there. I have put mine out there,” Malloy said. “… The purpose of these discussions is to get to a point where everybody else puts their ideas out there. We’re not there yet, but hopefully next week or the week after we will be fully there.”

Despite the governor’s impatience, legislative leaders said the meeting moved negotiations forward.

“We’ve made very good progress since last week. I’m optimistic,” Klarides said.