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Malloy Offers Tax-Raising Budget, Tells Unions To Give Up More Or Face Big Layoffs

Christopher Keating

February 16, 2011

Fulfilling his promise of offering shared sacrifice, Gov. Dannel P. Malloy unveiled a $19.7 billion budget Wednesday that spreads the pain among constituency groups and generated criticism from businesses, senior citizens and Republicans.

Fiscal conservatives said that Malloy's budget taxes too much — an additional $1.5 billion in the first year — and cuts spending too little in an overall package that would increase spending by 2.4 percent in each of the next two years.

The plan is balanced partly by assuming that the state will receive $1 billion annually in savings from state employee unions. If no deal is reached, Malloy warned in his budget address that there could be layoffs of thousands of state employees.

Democrats expressed cautious optimism over various aspects of the proposal. They credited Malloy for preserving funding for public education and balancing the budget in a difficult economic environment without borrowing money for operating expenses. They said that Malloy accomplished a balancing act by preserving the state's safety net and avoiding large cuts in state aid to cities and towns.

During a 36-minute speech that was interrupted by polite applause 37 times, Malloy called for creating jobs, increasing pre-kindergarten programs, reforming teacher tenure, increasing spending for magnet schools, allowing cities and towns to keep more tax money from hotels and rental cars in their municipalities, and consolidating 81 state agencies into 57.

Anticipating the complaints that have already started on tax increases and spending cuts, Malloy said he believes that the general public will eventually support his ideas to close a projected budget deficit in the fiscal year that starts in July. To spread that message, he will embark next week on a 17-town tour of public meetings with citizens.

"I believe they are willing to make sacrifices, if they understand why they're being asked to do so, and if they believe that Connecticut is serious about fixing what's wrong,'' Malloy told legislators and a television audience in the historic Hall of the House at the state Capitol.

But numerous constituencies — from the AARP to the Connecticut Business and Industry Association, the state's largest business lobby — said they could not support the budget as presented. Some legislators said they supported selected aspects of the fiscal plan and might eventually support the entire package if it was tweaked to their liking.

The AARP, with nearly 600,000 members in Connecticut, said in a statement that, other than the expansion of a federally funded program regarding home care, "there is nothing but sacrifice in this budget for seniors.''

Malloy's top adviser, Roy Occhiogrosso, responded that the budget helps senior citizens by providing billions of dollars to cities and towns, thus easing the pressure to raise property taxes, which are especially burdensome to senior citizens.

The largest placeholder in the budget is $2 billion over two years in savings from the unions, yet to be negotiated. Malloy outlined a series of ways to achieve savings through a two-year wage freeze, unpaid furlough days and health care changes.

"I don't make these suggestions to be antagonistic. Just realistic," Malloy said in his speech. "The alternative to the $2 billion figure would require us to completely shred the safety net and lay off thousands of state workers. Which is to say there's no alternative. We have to get it done. And I'm confident we will get it done."

Wage freezes have become common in the private sector, and the general public will not view Malloy's proposals to the unions as draconian, said John Rathgeber, the president of CBIA.

"We're concerned about the overall size of the tax increases,'' Rathgeber said. "We're pushing for further [spending] reductions in the budget.''

Political Realities

Because the Democratic governor is from the same political party that controls both the House of Representatives and the Senate, there is a chance that a budget deal can be reached faster than in the days when Republican Govs. M. Jodi Rell and John G. Rowland battled Democratic legislatures. In recent years, the Democrats have needed a two-thirds majority to override Rell, a difficult task that led to long fights over the budget, including the longest battle in state history.

Malloy needs only 76 votes in the House and 19 votes in the Senate to pass his budget — and Democrats have more than that in each chamber.

Senate Majority Leader Martin Looney, D-New Haven, said there is a strong chance that the budget can be passed before the legislature's regular session adjourns June 8.

The key swing voters on the budget in recent years have been fiscally moderate Democrats in the state Senate who opposed large tax increases. A group of about five Democrats was at odds with the majority of its caucus at various times on raising the state income tax and other taxes.

One of those Democrats, Sen. Paul Doyle of Wethersfield, would not commit Wednesday when asked if he would support the tax increases in Malloy's budget.

"To be honest, I've got to scrutinize it all,'' Doyle said minutes after Malloy's speech ended.

Another key swing voter, Sen. Bob Duff, D-Norwalk, said that Malloy's proposal of "shared sacrifice'' is different from the tax packages that he has seen recently.

"My beef over the last few years with tax packages is they had a bull's-eye on Fairfield County,'' Duff said. "At least in this revenue picture, it touches every corner of the state. … So there is shared sacrifice. I still think the legislature can tweak it.''

Although the budget proposal includes nearly $2 billion in cuts in its "current services" component, it also calls for $1.5 billion in first-year tax increases, including hikes in the income, sales, gasoline, cigarette and alcohol taxes. It also assumes $1 billion a year, for the next two years, in savings that still must be negotiated from state employee unions. Officials have been careful to use the phrase "savings'' because all of the savings might not be from concessions.

For example, the two sides have not even started talking about concessions on salaries and benefits. Instead, they have been talking about ideas for savings that the state employees' unions have proposed.

Asked at Wednesday morning's budget briefing if the administration has an alternative to account for the possibility that it can't win $1 billion in annual savings from state employees, Malloy's budget director, Ben Barnes, answered only in general language — but it still sounded blunt: "The spending reductions that the governor has proposed, we intend to accomplish."

Despite much talk about cuts, the proposed all-funds budget will actually increase by 2.4 percent in the first year and by another 2.4 percent in the second year — growing from the current level of $19.28 billion annually to $20.2 billion by the end of the second year. Estimates of the budget deficit have varied through the years, and this year is no different. Malloy's budget office says the deficit is $3.2 billion, while the legislature's nonpartisan fiscal office says it is $3.7 billion.

Among the new budget features that Barnes touched on Wednesday is a job-creation program called "First Five." It would give tax and economic development incentives to the first five companies that create 200 or more new full-time jobs within two years, or somewhat longer if there is "significant capital investment" of at least $25 million. The purpose, he said, is "to begin to create a better job-creation climate in the state."

Even before the official documents were released, a number of citizens, media commentators and legislative Republicans criticized the budget proposal heavily for increasing taxes so much. The proposed tax increases would affect anyone who earns a middle-class salary, smokes cigarettes, drinks beer, drives a car, takes yoga lessons, buys nonprescription drugs, gets a haircut or receives a manicure.

Citing a 20 percent, across-the-board increase in taxes on alcohol, the Distilled Spirits Council of the United States said that a better alternative would be to allow the sale of beer and wine in package stores on Sunday. Currently, Sunday sales have been banned, but the battle to change the law is being waged in a bitter, heavily lobbied fight at the Capitol.

"Now is the worst time to raise taxes on the profit core of the state hospitality industry,'' said Jay Hibbard, vice president of the liquor manufacturers. "Already more than half the price of a typical bottle of spirits bought in Connecticut goes toward taxes. Increasing the alcohol tax by 20 percent will only further punish the hospitality industry — destroying jobs among bartenders, busboys, waiters and waitresses. My question is simple: Wouldn't repealing the outdated ban on Sunday sales be a far better way to generate revenue than raising taxes?''

Malloy says he would sign a bill to allow Sunday sales, but he has vowed not to spend time pushing for the proposal. The Connecticut Package Stores Association is strongly lobbying against Sunday sales, saying that it would not lead to any increased tax revenue or profits because liquor sales would be spread out over seven days instead of six.

Mayors Disagree

One of the largest single chunks of the $40 billion, two-year budget is aid to cities and towns. On Wednesday, Democratic and Republican mayors disagreed over whether Malloy's budget was good or bad.

In one room at the state Capitol complex, Democratic leaders heaped praise on the budget. A few feet away and a half-hour later, Republicans criticized it.

Danbury Mayor Mark Boughton, a Republican who ran for lieutenant governor on the ticket against Malloy, said that Malloy's plan for allowing towns to keep 0.10 percent of the 6.35 percent sales tax on retail purchases would not offset other potential losses.

Torrington Mayor Ryan Bingham, also a Republican, said that Malloy's budget has plenty of pain for the state's residents. "This budget helps ... municipalities, but hurts the residents that live in those towns and cities,'' he said.

At the earlier press conference, the reaction was far more positive. Local leaders affiliated with the Connecticut Conference of Municipalities greeted Malloy's proposal with enthusiasm.

"We heard a lot of difficult choices and difficult proposals today, but one of the things we did hear is a governor who's committed to making towns and cities a priority,'' said Simsbury First Selectman Mary Glassman, a Democrat who ran for both governor and lieutenant governor in 2010. "We're very grateful that we're not going to be balancing the long-term deficit of the state on the backs of local property owners.''

Starting next week, the budget will be scrutinized by the legislature in minute detail as the general public can speak in eight days of hearings that will run day and night concerning every department and agency.

"It has tough cuts, and it has tough taxes,'' said House Speaker Chris Donovan, D-Meriden. "It may be a lean budget, but it doesn't seem to be a mean budget.''

"It's been a long time since I have felt so proud,'' said Sen. Edith Prague, D-Columbia. "I'm not happy with the conditions we have to deal with, but I'm happy with the governor who will deal with them. … He's willing to take the responsibility for leadership on these issues. I'm proud I voted for this man."