Gov. Malloy’s 2018-19 Budget: The Good, the Bad and the Unknown

“We are in this together,” was the message Gov. Dannel P. Malloy asked state residents to take away from the budget he introduced Wednesday.

But what we’re in together doesn’t look very pretty – a massive $3.6 billion deficit out a $36 billion two-year budget.

Because of a series of poor decisions, Connecticut is stuck in a boom and bust cycle that has no booms. While other states have long since recovered from the 2008 recession, Connecticut lags far behind.

Over the past six years, Malloy has raised taxes by $4 billion to solve budget problems. What did we get for those tax increases? More budget deficits and almost no new jobs.

It’s time to find a way out of this man-made disaster.

Good Ideas

There are some good ideas in the budget.

Malloy did not suggest a major increase of the income, sales, or corporate tax, as he has in the past, although some will see their income tax payments go up with the elimination of the property tax deduction.

Other good ideas include:

• Reducing the estate tax. The governor has proposed changing the state threshold so it matches the federal threshold – which would move it from $2 million up to at least $5.5 million – over the next three years.
• Greater state oversight of cities near bankruptcy. A state board would have the power to intervene in contract negotiations and borrowing decisions for cities like Hartford that are near bankruptcy.
• Local mandate relief. The governor proposed mandate relief for cities and towns, including raising the prevailing wage threshold.
• Medicaid cut backs. Cuts to Medicaid would bring Connecticut’s program more in line with those in other states.
• Proposal for the spending cap. A bill will be introduced to suggest definitions for the full implementation of the constitutional spending cap.

Bad Ideas

There are winners and losers in this budget – and the ultimate losers may be many of Connecticut’s property taxpayers.

The budget would make “winners” of cities like Hartford, Waterbury, Bridgeport and New Haven, which would see millions in new state aid. Meanwhile, other municipalities would be “losers,” including wealthy towns like Greenwich and Westport, and more middle class towns like Windsor and East Haddam. (For a complete list of changes affecting municipalities click here.)

All cities and towns would be asked to pay for a portion of teacher pension costs. But if Malloy really thinks property taxes should pay for teachers’ pensions, he needs to make his case more directly. And if municipalities are going to pay for teacher pensions, then shouldn’t they get a say in what the pension benefits look like?

Meanwhile, Malloy says municipalities can save money if they “regionalize.” It is a myth that regionalization is a panacea for our budget woes. This would only be true if consolidation led to fewer public workers.

But here’s an important fact you should know: Connecticut has about 211 public workers per every 10,000 state residents – which is below the national average of 232 workers.

It isn’t the number of workers that’s the problem in Connecticut, it’s the cost per worker. Census data shows the state’s cost per public worker is second highest in the nation, behind only California. State workers in Connecticut earn an average of $10,000 more than their counterparts in Massachusetts, and $5,000 more than New York and New Jersey.

So let’s stop having the discussion about regionalization and start having the discussion about labor reform, which is the real long-term solution to Connecticut’s problems.

Other bad ideas include:

• A flawed school funding formula. Malloy’s proposed school funding formula continues to treat children differently depending on what type of school they go to.
• More taxes, more fees. The budget proposes $321 million in new taxes and fees, including ending the property tax deduction for state income taxpayers; higher tobacco taxes; and higher permit fees for pistol owners.
• Spending cap gimmicks. The proposed definition includes a carve-out for much of the state’s pension payments.
• No word on pension reform.

The Unknown – Union Power
Malloy built $700 million in savings from “labor concessions” into his budget. This led state AFL-CIO President Lori Pelletier to call the budget “dead on arrival.”

If unions won’t give up the $700 million at the bargaining table, Malloy said that would mean the loss of 4,200 state jobs, but few believe he could meet that benchmark in one year.

And there’s the potential that the concessions could come at a steep cost: Another extension of the state employee benefits contract. This contract has already existed for 20 years, and is locked up for another five. Contracts this long are unheard of in other states.

What Comes Next

The budget is now in the legislature’s hands. What they do with it will largely depend on the actions of a few key players, including House Speaker Joe Aresimowicz, who’s works full time as a government union employee. On the flipside, there is hope that a more evenly divided Senate will lead to better outcomes for Connecticut taxpayers.

This much is clear: It’s time to stop the bust and bust cycle for good. The governor’s right about this much – we are all in this together, whether we like it or not.

We at the Yankee Institute have a plan to dig us out, which includes:

• Pension reform
• Public sector salary and benefit realignment
• Priority based budgeting
• Fully enact the spending cap
• Freeze borrowing.

That’s how you fix Connecticut for good.