Christine Stuart photo
Gov. Dannel P. Malloy (Christine Stuart photo)

Gov. Dannel P. Malloy refused to rule out tax increases in a 40-minute interview in his office with Capitol reporters Friday.

Malloy, who will be negotiating a budget with fewer Democrats than in past years, said “everything has to be on the table” if lawmakers expect to be able to reduce the budget deficit.

Malloy said he’s not “leading with taxes” even though he’s not taking them off the table.

“I think you can tell from my speech that’s absolutely not what I’m leading with,” Malloy said.

Pressed on what that means and why it shouldn’t be perceived by the public as a warning to brace themselves for tax increases, Malloy said he understands the desire of the media “to have absolutes,” but he’s not going to “play that game.” He said he has “serious work to do” and “there was not a word in my address about increased taxes.”

In 2014, Malloy campaigned on the promise he wouldn’t increase taxes, but in 2015 he ended up adopting tax increases proposed by Democratic lawmakers. The burden of those tax increases fell largely on the business community and a few months later General Electric announced it was moving its headquarters to Boston.

There’s been plenty of ink spilled on why GE left Connecticut and whether the $160 million tax break Massachusetts and Boston gave the company, which had been headquartered in Fairfield for more than 40 years, was reasonable.

Joe Brennan, president and CEO of the Connecticut Business and Industry Association, said all the business community wants is “predictability and stability.” He said he’s taking Malloy at his word that it’s how he plans to proceed this year in terms of closing the budget gap.

Malloy won’t look to finalize his budget proposal for another four weeks, which gives him an opportunity to look at how tax revenues are performing on January 15. He said he hasn’t decided yet to ask lawmakers for more time.

But balancing the approximately $20 billion budget will be a little tougher this year with an evenly divided Senate for the first time since 1893 and a House in which Democrats hold a slim six-seat majority over Republicans.

“I got Democrats last year to cut $850 million out of the budget,” Malloy said. “I’ll take my record.”

Malloy maintained that he’s willing to work with the General Assembly and he said he was being realistic during his state-of-the-state speech last week when he said what he proposes in February likely will be changed by the legislature by May. However, he said he remains optimistic.

“I think we can accomplish a lot because we need to accomplish a lot,” Malloy said.

“You all know that I am substantially more fiscally conservative than a lot of my Democrat and some of my Republican colleagues,” Malloy said.

He said when they negotiate the budget he’s going to be having “spending-driven” discussions and not “revenue-driven” discussions.

Part of those spending discussions will involve municipal aid, which accounts for $5.1 billion of the state’s budget, and state employee compensation.

Malloy said that in his travels around the state talking to residents and business leaders, one of the biggest fears expressed was the unfunded pension liability and the obligations the state would face as a result.

“We seized upon an opportunity to bring some certainty, some predictability to that discussion,” Malloy said of his agreement with state labor unions to level the state’s contribution to the state pension fund. The legislature still has the authority to vote on the agreement, which has received praise from state officials and Wall Street analysts.

In the meantime, Malloy said he’s at the table with labor and hopeful that those discussions “come to fruition.” However, labor has not agreed to open negotiations over the health and pension benefits that don’t expire until 2022.

It’s unclear if Malloy can convince labor to open discussions and what happens if he can’t. Last year, Malloy laid off more than 1,600 employees when labor refused to open those discussions. This year may bring even more layoffs.

Malloy was criticized by the Connecticut Working Families Party, which once endorsed him.

“Cuts alone cannot balance a budget. We need smart solutions that actually invest in our economy,” Lindsay Farrell, executive director of the Connecticut Working Families Party, said last week. “We cannot continue to ask those who can least afford it to make more sacrifices, while those who are able to afford it get by without paying their fair share.”

Malloy will give his budget address in February.