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Malloy: Cut State Aid For Building New Local Schools

Would Cut Reimbursements For Magnet, New Public Schools

Christopher Keating

February 12, 2011

Gov. Dannel P. Malloy will propose sweeping changes Wednesday in the state's school construction program — reducing reimbursements for magnet schools and new public schools.

School construction is a key part of the budget as one of the state's most expensive programs, costing an average of $690 million per year in bonding over the past six years. School construction accounts for more than half of all bonding projects statewide.

Since it often takes years to design and build a school, there will be no immediate savings in the two-year budget, state budget director Ben Barnes told The Courant. But the proposals would save money in the long term if the Democratic-controlled legislature approves the changes.

The school construction cuts will be just one aspect of a state budget proposal that is expected to include tax increases and spending cuts to close a projected deficit of $3.7 billion in the fiscal year that starts July 1.

Malloy will outline his budget plan in a speech to legislators in the historic Hall of the House at the state Capitol on Wednesday. So far, he has avoided providing details about the expected tax increases, including possible hikes in the income tax.

"There's a lot of changes in this budget, and this is one of them,'' Barnes said of school construction.

Prompted by the Sheff v. O'Neill school desegregation ruling, the state now pays 95 percent of the costs of building a new magnet school for virtually all towns. Malloy is seeking to reduce that reimbursement level to 80 percent. In Hartford, by court order, the reimbursement rate by the state is 100 percent for magnet schools.

In addition, he would reduce the reimbursement rate for new school construction. That rate is now set on a sliding scale from 20 percent to 80 percent. The state pays 20 percent of the costs for a new school in wealthy towns like Greenwich and 80 percent of the costs in poor communities like Hartford and Bridgeport. Malloy is proposing to reduce that sliding scale to 15 percent to 65 percent for new construction.

The rate for school renovations would remain at 20 percent to 80 percent — providing an incentive for renovation instead of new construction.

Many superintendents, principals and others like the construction program just the way it is, and the changes are expected to draw opposition.

"I'm sure we'll get some push-back on this,'' Barnes said Saturday, adding that the changes are designed "to make the program work better.''

In his budget proposal, Malloy also will call for changing the way school construction proposals are selected for reimbursement and placed on the state's priority list, Barnes said. In addition, Malloy will propose removing the construction program from its longtime home in the Department of Education and switching it to a newly created Department of Construction Services.

Many school projects across the state are still on the drawing boards, in the planning stages or awaiting reimbursement. Under Malloy's plan, any school projects that have not broken ground by April 1, 2012, would be subject to the new rules. Communities would need to resubmit applications for those projects to the state.

As a former official in both Bridgeport and Stamford, Barnes has been heavily involved in school construction and financing from the municipal side. Now, he and Malloy are looking to change the system from the state side.

For weeks, Malloy has been preparing Connecticut citizens for the budget pain with his motto of "shared sacrifice'' — a sacrifice some are interpreting as tax increases for all. Malloy has disclosed selected details about the spending side of his budget but has avoided talking in detail about tax increases.

The shared sacrifice is so comprehensive that Malloy's senior adviser, Roy Occhiogrosso, said the budget will impact every person in the state.

"Yes, no question,'' Occhiogrosso said in an interview. "Everyone will be impacted in some way. That's the only way that you can prevent any one group from being impacted too much.''

One of those groups is Fairfield County millionaires, who are expected to see increases in the state income tax. But Malloy has hinted that he will not increase the top tax rate above the current levels in New York and New Jersey, where many other Wall Street high-fliers live.

"He believes in progressive taxation, but he doesn't believe in punishing people just because they're wealthy,'' Occhiogrosso said.

Like Govs. John G. Rowland and M. Jodi Rell before him, Malloy has released positive proposals in the budget in advance of releasing the entire document Wednesday. Budget cuts are rarely highlighted in press conferences, and bad news is often buried deep in the budget. Not so the positive messages. Malloy announced, for example, that he would not be cutting the critically important education cost-sharing money that provides about $2 billion annually to cities and towns across the state.

One key aspect of the budget proposal will be a series of mergers and consolidations, announced last week, to reduce 81 agencies to 57, and to consolidate the state's multi-pronged higher education system. Any such merger requires the approval of the House and Senate.

"Get ready. We're going to do a lot of consolidating — at least I'm going to be recommending a lot of consolidating,'' Malloy told reporters.

House Republican leader Larry Cafero of Norwalk said he is happy with the proposed mergers, coming from a Democrat at a time when the Democratic-controlled legislature has repeatedly rejected similar mergers over the past 15 years that were offered by the past two Republican governors. With a Democratic-controlled legislature, Malloy clearly has a better chance of gaining approval of the mergers, which had been ignored by the legislature under Rowland and Rell. Even before the budget is formally announced, Malloy has shifted the emphasis among Democrats at the Capitol.

"It's like Nixon going to China,'' Cafero said. "It's a sea change in attitude. It's very healthy.''

At the same time, Cafero was surprised that all the consolidations will save only $10 million in the first year while the state's budget deficit is projected at $3.7 billion. He was dumbfounded when he heard the news in advance from Occhiogrosso.

"What am I missing here?'' Cafero said he asked. "It's a whole lot of words and pages and activity for 10 million bucks.''

Behind the sound and fury and bells and whistles, some insiders say, Malloy's merger of state agencies is largely symbolic as it represents only a tiny percentage of the state's projected deficit.

But state Rep. Lonnie Reed, a Branford Democrat who serves as the vice chairwoman of the legislature's energy committee, said she believes the time is right for the Democratic-controlled legislature to make the long-delayed moves on consolidations. Reed favors the creation of the new Department of Energy and Environmental Protection and attended the announcement of the proposed agency's new commissioner, Daniel Esty.

"The fire of crisis actually allows for opportunity,'' said Reed. "This is a perfect example of how to do it.''

Taxes

The multimillion-dollar question about the governor's plan is: Which taxes will Malloy want to raise? He has steadfastly declined to give any details about an expected hike in the state income tax and the rates that would be charged on various incomes.

If the mergers yield only $10 million in the first year, then the gap needs to be closed with large chunks of money from either spending cuts or tax hikes.

Haircuts, carwashes, boat repairs, winter boat storage and certain other goods and services have been exempt from the sales tax. Cutting all of the sales-tax exemptions alone could provide $3 billion, but lawmakers say there is little chance that the state would start charging sales tax on prescription drugs. Overall, the total package of exemptions and credits is more than $5 billion.

If Malloy supports tax increases, he will have huge support from a coalition of nearly 50 liberal organizations, including unions, known as Better Choices For Connecticut.

Led by the Connecticut Citizen Action Group, New Haven-based Connecticut Voices for Children, and the SEBAC coalition of state employee unions, the group is offering a menu of nearly $5 billion in tax increases. While the coalition concedes that the amount is larger than the deficit, they say it gives legislators options.

Better Choices proposes that state officials raise state income taxes to take in an additional $1.4 billion, including a temporary surtax on the state's wealthiest residents, who, Better Choices argues, gained a huge windfall from the Bush-era tax cuts.

The lion's share of the tax hikes in the group's proposal would be on the rich and businesses through changes to the corporate income tax and the estate tax. The group supports reducing the tax expenditures and business subsidies, a reduction that could generate as much as $1.7 billion for the state's coffers.

As Malloy rolled out certain proposals in the week before the budget address, opposition has erupted from some quarters. Common Cause, an advocacy group that often supports Democratic-inspired ideas, spoke harshly against Malloy's proposed merger of the state's major good-government agencies: the Freedom of Information Commission, the State Elections Enforcement Commission, the Office of State Ethics, and others. The group argues that the agencies enforce completely different laws and have little duplication of services — and thus little savings from a consolidation.

"A proposal to merge the 'watchdog agencies' hearkens back to the Rowland days,'' Common Cause said. "It was a bad idea when Rowland proposed it, and it is a bad idea now. … It is unlikely that the new commission would bring ethics charges against itself, and this watchdog agency would undermine the public's confidence and become a national joke.''

But Occhiogrosso, Malloy's adviser, doesn't see it that way.

"With all due respect to Common Cause, that's a little over the top,'' he said. "You can maintain the watchdog functions of each of those agencies'' even with consolidation.

In the same way, Cafero is criticizing Malloy's proposal to move the Department of Public Utility Control, traditionally an independent, regulatory authority, into the Department of Energy and Environmental Protection.

"I think we should have done away with the DPUC, as it currently exists, years ago when we went to a de-regulated model,'' Malloy said. "What we did was left in place a regulatory model for an industry we de-regulated and de-coupled.''

"This is a guy, with all due respect to Mr. Cafero, if I remember correctly, he told me I should combine 47 departments into 11,'' Malloy said. "Just put that into your story for me.''

While the General Assembly has been in session since opening day Jan. 5, lawmakers say that the real work will begin once Malloy's fiscal proposals are unveiled. His budget director is expected to brief reporters on Wednesday morning, and then Malloy will deliver his budget address to the legislature.

After Malloy unveils the budget, the legislature will analyze it and make its own judgments. Rep. Stephen Dargan, a West Haven Democrat who is the longest-serving committee chairman in the House of Representatives, predicted that many liberal Democrats will not agree with various proposals by the moderate Malloy.

"There will be a lot of things in his budget that Democrats won't go for,'' Dargan predicted. "The bottom line is with $2 billion in cuts [to the current services budget] that he says that he's going to do and the other $1.5 billion in taxes that he increases, it's a fair assumption that nobody is going to be happy. There is going to be equal pain to go around, whether you're way to the right or way to the left. There's going to be a lot of pain, and there will be a lot of people crying – along with state agencies, nonprofits, municipalities. There will be enough for everyone.''

He added, "It's going to be painful, just like this cold winter has been painful. There will be some frostbite in this budget that people won't like. We'll see what happens. In difficult times, people have to step up. Whether it's the governor or the legislature, we have to do that. When you have to make responsible decisions, people sometimes aren't happy.''