HARTFORD, CT—Office of Policy and Management Secretary Ben Barnes defended Gov. Dannel P. Malloy’s proposed budget Friday stating the administration “tried to remain true to the bipartisan (2018) budget passed over the governor’s objection.”
Barnes appeared before the legislature’s Appropriations Committee Friday, and gave a lengthy presentation on the 2019 budget presented earlier in the week by Malloy.
Barnes said the administration “tried to take a light touch to the adopted budget.”
Legislative leaders kicked Malloy out of budget negotiations in last fall and decided to find an agreement on their own.
“We built on the bipartisan budget framework,” Barnes told the committee. “We’ve recommended revenues to protect infrastructure improvements and potential self inflicted wounds in out years. We tried not to make future promises that we couldn’t keep.”
The General Assembly doesn’t have to adjust the budget before they adjourn on May 9 because they adopted a two-year budget last October. The last time they decided not to adjust the second year of a biennium budget was back in 2008.
Transportation
Rep. Mitch Bolinsky, R- Newtown, asked Barnes about the history of sweeping money from the special transportation fund that was meant for roads and highways.
“I’m not looking for a witch hunt here,” Bolinsky said, “but my constituents are concerned about the special transportation fund and where that money has been going.”
Barnes said while he didn’t have all the data in front of him that “it was a myth” that all the money slated for transportation has been swept to pay other state bills.
He said, for example that a half-cent of the state’s sales tax is directed each year towards transportation funding – or $350 million. Barnes repeated the “myth” that that the funds have been swept “just hasn’t happened. It is at odds with the facts.”
But that’s not to say they haven’t chipped away at the fund over the years. The last time the legislature swept money from the special transportation fund was in 2016.
Over the years they’ve taken as much as $1.5 billion from the fund to use to help balance the general budget.
The 2019 budget adjustment unveiled Monday by Malloy recommends a $20.73 billion budget, which is a $70.5 million increase or 0.3 percent. The budget, according to Barnes, reduces the forecasted deficits in 2020-22 by cutting them almost in half.
That would leave Malloy’s successor with an $844.1 million deficit in 2020 and $1.5 billion deficit in 2021. Malloy inherited a two-year, $6.72 billion budget deficit when he first took office in 2011.
Barnes told the committee that the budget seeks to resolve the $165 million shortfall in 2019.
Unfunded pension liabilities
The state has unfunded liabilities of nearly $33.4 billion — about $20.3 billion for the State Employees Retirement System and $13.1 billion for the Teachers’ Retirement System.
Malloy’s administration has fully funded the actuarially required amount of the pensions and pushed out the amortization schedule of the state employees pension plan to help avoid a balloon payment in 2032. However, the Teachers’ Retirement System is still challenging.
As it currently stands, the state would be obligated to pay off the $13.1 billion in the Teachers’ Retirement System by 2023. Malloy has proposed lowering the assumed rate of return from 8 percent to 6.9 percent and adopting a new amortization schedule to avoid the cliff. However, that’s complicated by language in a bond covenant adopted in 2008 that requires the state to make its contributions to the fund.
Barnes was asked about the bond covenant by several committee members and repeatedly told the committee he was “confident” that lowering the rate of return was within the state’s rights – if legislation was passed stating so in the current session.
State Treasurer Denise Nappier is at odds with Malloy’s proposal.
“His idea to restructure payments, by essentially moving the goal post farther down the field, will violate an important bond covenant and trigger a technical default of the State’s promise to bondholders,” Nappier said. “This technical default would need to be included in bond disclosure documents, which could lead to less interest in the market for our bonds and increase the overall cost of borrowing.”
Budget mitigation
The 2019 budget deficit isn’t the only one weighing on lawmakers minds as they race toward their re-election.
Legislative leaders met last week to discuss how to close the $244.6 million budget deficit for this fiscal year. But it’s unclear how long the bipartisan spirit will last as they race toward their re-election campaigns.
Republican legislative leaders have been opposed to any tax increases and Democratic legislative leaders have been trying to spare social service programs and higher education.
Malloy put forward a number of ideas for closing the 2018 budget deficit in December and dozens more as part of the document he released Monday, including:
• Increasing the 6.35 percent sales tax rate
• Allowing grocery stores to sell wine
• Increasing excise taxes on liquor and beer
• Reducing hospital Medicaid rate
• Re-closing Care 4 Kids
• Reducing services for behavioral health care
• Eliminating the renters rebate program
• Requiring towns to contribute to the Teachers’ Retirement System
• Further reducing municipal aid, and;
• Legalizing and taxing the recreational use of marijuana.