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Malloy, GOP Clash Over Latest Budget Deal

By CHRISTOPHER KEATING and DANIELA ALTIMARI

May 28, 2013

HARTFORD— Democrats and Republicans argued Tuesday over whether the legislature is planning to blow through the state's mandated spending cap in order to balance next year's budget.

Republicans say it's clear that Gov. Dannel P. Malloy and leaders of the Democratic-controlled legislature are trying to skate around the statutory budget cap by moving $500 million "off budget'' in a fiscal maneuver to close the deficit. They would not count that money toward the state's spending limit.

"If that isn't a gimmick, I don't know what is,'' said House Republican leader Larry Cafero of Norwalk. "That is the most clear definition of a gimmick.''

But Malloy on Tuesday defended the tentative budget deal struck by his administration and Democratic legislative leaders over the weekend.

All sides agree that the proposed budget would exempt from the spending cap $500 million in Medicaid reimbursements that the state will receive from the federal government under President Obama's health care law. The state had not expected to receive the influx of money, which would be reimbursed at 100 percent, and Democrats say the new money should be counted in a separate category.

"I think there's this question out there [that] some people have not spoken honestly about, and that is that we expect to get about $500 million more from the federal government for insurance and Medicaid," Malloy said Tuesday. "I made this challenge. I'll make it again. Find me one person from the 1991 [state income tax] debate that said that if the federal government was to suddenly give us $500 million that meant we had to cut education spending or aid to municipalities by an equal amount."

Malloy called the criticism a false argument that makes no sense.

"It's a bunch of people trying to score cheap political points," he said.

Connecticut has had a spending cap for more than 20 years, crafted as part of a package deal when the state income tax was created in 1991 by then-Gov. Lowell P. Weicker Jr. and the legislature.

Malloy called for changing the definition of the cap in February, but that would require a three-fifths vote in the House and Senate. He was unable to reach that level after several fiscally conservative Democrats, including Sen. Joan Hartley of Waterbury and Sen. Paul Doyle of Wethersfield, balked at changing the cap.

Doyle said he was still analyzing the changes in the latest budget version Tuesday, but added, "I can sleep at night.''

Malloy and Republicans also cannot agree on whether the new budget raises taxes. Malloy says it doesn't, but Republicans say it does.

Three taxes originally scheduled to expire this year are now being extended under Malloy's plan:

• A 20 percent surcharge on corporate profits that has been opposed by the 10,000-member Connecticut Business and Industry Association, the state's largest business lobby. It could be extended for two years.

•A tax on electricity generators that was scheduled to expire on June 30. Legislators are looking to extend the tax, but the details are still being worked out. The tax generates about $76 million, but a new version could be reduced to generate about $30 million.

•A reduction in tax credits for insurance companies that was expected to expire on June 30.

Rep. Patricia Widlitz, the Democratic co-chairwoman of the tax-writing finance committee, declined to comment Tuesday on any of the tax proposals.

Republicans have been sharply critical of Malloy's budget strategy, saying he is relying on gimmicks to craft a spending plan. But Malloy rejected those charges, and says he has made some of the tough decisions that his Republican predecessors deferred.

"I think we have taken a very different approach," he said. "We're fully funding pensions. My predecessors never did that. We're not paying people to retire. My predecessors did that.''

"And, by the way," he added, "Republicans in this building … didn't have the guts to put out a budget themselves."

Lawmakers in both chambers are also rejecting Malloy's plans to remove minimum bottle pricing, marking a victory for the state's package stores after they lost a battle last year over opening their shops on Sundays. The minimum pricing law prevents large stores from buying in such volume that they could drive down prices and hurt business in smaller stores.

The latest numbers Tuesday show that the state has a surplus of $220 million in the current fiscal year, and lawmakers expect to use at least some of that money to close the budget deficit next year.

House Speaker Brendan Sharkey said: "If we don't do this [off-budget switch], the result will be that we will leave hundreds of millions of dollars in Washington that the taxpayers of Connecticut expect us to bring back home. This is a method of accounting that no other state in the country does — the way we've done it thus far.''

When asked why Connecticut uses Medicaid accounting that is unlike any other state with a spending cap, Sharkey said: "I don't know why. I can't answer that. To be honest with you, this is the way it's been.''

Malloy's budget moves have captured attention around the country, including from an organization called State Budget Solutions, which monitors fiscal matters.

"Gov. Malloy is not living up to his campaign promise to end budget gimmicks,'' said Bob Williams, a former Republican legislator in Washington state who is the organization's president. "The governor's current proposed budget exceeds the spending cap and proposes taking $500 million in federal Medicaid funding off budget. These are textbook budget gimmicks, plain and simple.''

Lawmakers are racing to finish voting on the budget before the legislature's regular session ends at midnight on June 5.