HARTFORD, CT — With no fanfare Democratic Gov. Dannel P. Malloy’s budget office handed off what’s called a “transition budget” to Gov.-elect Ned Lamont’s team Thursday.
It’s required under Section 4-79 of the Connecticut General Statutes and helps guarantee the smooth transition of government.
The narrative in the document, which was written by Office of Policy and Management Secretary Ben Barnes, is straightforward and blunt.
It lays out specific areas of the state budget where the new governor might be able to find savings, but it does not identify methods for closing the projected gaps. Ultimately it will be up to the new governor and General Assembly to propose and adopt policy approaches that result in structural budget balance in the upcoming biennium and beyond.
The deficit Lamont will inherit for fiscal year 2020 is estimated at $1.73 billion and the shortfall grows to $2.37 billion in 2021. That’s in addition to the fact that spending in 2020 is $200 million over the constitutional spending cap.
The good news for the new Lamont administration is that revenue growth is outperforming projections, but not enough to erase the large deficits.
“Unless some unexpected event causes the economy to enter a sudden downturn, I believe that revenue will grow more quickly than our current consensus forecast,” Barnes wrote. “Our strong economy and growing revenue will likely be wind at your back as the budget process unfolds in the coming months.”
But challenges remain and Barnes believes some of those were created by the bipartisan budget passed in October 2017.
Some of the problems stem from the use of one-time revenues to balance the 2019 budget and promises of tax and other revenue cuts affecting 2020 and beyond.
“In many ways, these strategies for ‘balancing’ the FY 2019 budget revisions pushed the hard work of finding real savings or real revenues into the future, which is now upon you,” Barnes wrote.
Some of the immediate challenges “include the use of $448 million in one-time federal reimbursements related to delayed hospital payments in FY 2019 (those revenues will not be available to help balance FY 2020), as well as future tax cuts which were promised without regard to the impact on balancing budgets in FY 2020 and FY 2021 and succeeding biennia, amounting to over $200 million per year,” Barnes wrote.
While there are things that will make Lamont’s job harder, Barnes said the Malloy administration has also made it easier in some ways.
Barnes said they’ve held state spending to an average of 2.6 percent.
The Rainy Day Fund, which Lamont has said he doesn’t want to use, will have at least $2 billion in it by the end of June. The Rainy Day Fund was depleted when Malloy took office in January 2011.
Earlier in the day at a press conference in New Haven where he announced 19 members of a steering committee, Lamont reiterated his stance on the Rainy Day Fund.
“It’s a bit of a stretch to rely on the rainy day fund,” he said. “This is not a rainy day.”
He added: “We’re in a Goldilocks economy … I want a real fix.”
It’s unclear what that fix might include. Lamont won’t have to propose his first budget until February.
As far as budgetary accomplishments are concerned, Barnes mentioned the two agreements the administration reached with labor, a restructured state employee pension system that avoids massive balloon payments, a Medicaid program that is controlling cost trends and reducing per person spending, and an executive branch, excluding higher education, that employees 3,300 fewer workers than it did in 2011.
“Building on that progress, I strongly urge you to consider a budget strategy that focuses not on one-time gimmicks, but rather recurring revenue and cost savings; that undoes irresponsible promises and refrains from making new promises that cannot be kept; that remains steadfast in addressing long-term liabilities in a responsible way; that provides compassionate government services within the constitutional requirement for a balanced budget; and that preserves the state’s replenished Rainy Day Fund,” Barnes wrote.
He suggested canceling new tax cuts promised in the budget adopted earlier this year by the General Assembly, transferring part of the Teacher’s Retirement System to municipalities, reducing the flow of money under the volatility cap to the Rainy Day Fund, reducing rates paid to certain Medicaid providers, and “reducing Municipal Aid where appropriate.”
Barnes also suggested lowering eligibility for the Medicare Savings Program and changing eligibility for Husky A adults to 138 percent of the federal poverty level. Both those proposals were rescinded by the General Assembly earlier this year.
Lamont would have similar trouble getting any of those proposal through the legislature.
“These options would be difficult, and would involve real sacrifice by various constituencies; the Malloy administration did not repeatedly put hard choices like these on the table without significant forethought, knowing that many in the legislature may have preferred to take a different approach including more revenue,” Barnes wrote. “But if the General Assembly is willing to work with you on a combination of such ideas, closing the FY 2020 shortfall without a tax rate increase is achievable.”
There’s also several revenue options Lamont could begin to explore from any newly authorized activities such as online sports gambling, recreational marijuana sales, or relaxation of Connecticut’s antiquated blue laws.
“The state could also consider implementing tolls in some form,” Barnes added. “There is considerable lead time required to design and install tolling systems, so obtaining legislative approval soon will enable the state to begin to expand its infrastructure investments over the coming five years.”
Lamont has expressed a desire to allow for online sports gambling and is supportive of tolls on out-of-state trucks. He also seems open to recreational marijuana.
Lamont is enroute to Colorado where he will meet with other newly elected governors and Malloy at the National Governors Association. He said he would take the document under advisement.
“Governor Malloy is required by statute to prepare this tentative budget, and I appreciate the work that went into preparing it and all of the work his team has done to ensure a smooth transition,” Lamont said. “My team and I will review it as we prepare a new, balanced budget that prioritizes economic growth.”