Christine Stuart / ctnewsjunkie photo

(Updated 4 p.m.) Gov. Dannel P. Malloy signed the two-year bipartisan budget Tuesday ending what was the longest budget stalemate in state history.

However, Malloy didn’t agree to accept the entire budget package.

The governor line-item vetoed spending in support of a new hospital tax proposal. He cited its unsound legal basis in federal law, and urged lawmakers to pass workable language that his administration provided.

“Let me be very clear: I am not opposed to a new, mutually beneficial relationship with hospitals that realizes additional federal dollars for the state of Connecticut,” Malloy said in a separate letter to legislative leaders. “In fact, my administration has repeatedly offered workable language to that end—language developed by non-partisan, classified attorneys in the executive branch with considerable expertise in this specific area.”

He said the language in the budget was problematic and could make taxpayers responsible for hundreds of millions of dollars.

He said the language will result in a tax rate for inpatient hospital services above the federal safe harbor of 6 percent. He said it would also create “hold-harmless” language making the state responsible for supplemental payments to hospitals regardless of federal reimbursement.

Malloy didn’t cancel the tax. He only canceled the funding the state would reimburse hospitals as a result of the tax because he only has the ability to line-item veto an appropriation.

The tax will still need to be approved by the federal Centers for Medicare and Medicaid Services.

Malloy urged legislative leaders to reconvene and correct the problems. The legislature is still in special session and could reconvene at any time to override his line-item veto or make changes the governor suggested to the budget.

Senate President Martin Looney, D-New Haven, said he appreciates everyone’s patience.

“Reaching a bipartisan agreement was a difficult process but it was the right course for Connecticut to take,” Looney said. “I am confident that now that this budget is law, legislators will be able to work with the governor to make any technical fixes which may be necessary.”

House Speaker Joe Aresimowicz, D-Berlin, said he disagrees with Malloy’s assessment of the hospital tax.

“Though I disagree with his line item vetoes, the legislature is committed to working with the administration on any fix necessary to ensure that taxpayers are protected and our hospitals have the resources to provide residents with quality healthcare,” he said.

Senate Republican Leader Len Fasano, R-North Haven, said he understands the concerns Malloy raised about the hospital tax structure and is uncertain how the legislature will proceed.

Christine Stuart / ctnewsjunkie photo

Fasano said he hasn’t seen the exact language the governor crossed out in the budget.

He said the urgency of the situation is also not clear.

Aside from the hospital tax issue, Fasano said he’s happy Malloy did sign the budget because he thinks it has the structural changes the state needs to move forward.

While Malloy praised the bipartisan budget agreement for funding the pensions and not raising the Rainy Day Fund or the Special Transportation Fund, he also pointed out that it’s not a “perfect document.”

In fact, it’s not a document Malloy would have negotiated if he was in the room.

Read his seven-page message outlining all of his complaints.

Malloy said he doesn’t like the proposed sweeps of clean energy funds, the elimination of the Small Business Express program created on a bipartisan basis in 2011 to help small companies grow, and the reduction of the Manufacturing Assistant Act that was cut by $50 million in the second year of the biennium.

He also expressed concern about how “structurally balanced” the budget actually is, if it exacerbates future deficits.

The Office of Fiscal Analysis found the budget in 2020 will have a $1.9 billion deficit and a $2.7 billion deficit by 2021.

Malloy also pointed out in a seven-page document that the budget could be built on some faulty assumptions.

“The budget includes approximately $80 million in revenue over the biennium that the administration believes could be over-estimated, or which comes from an unspecified source,” Malloy wrote. “Examples include assuming new revenue from $8 million in legal settlements that has already been included in consensus revenue, as well as $50 million in transfers, tax credit reductions, and fees that are not specifically authorized in the implementing legislation.”

He said it also fails to fund an agreement between the state and District 1199 SEIU to cover raises for home health workers. The agreement will be submitted to the legislature for approval in January 2018 and if approved the budget will fall short of the money necessary to pay the contract.