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In An Era of Fiscal Crisis, Malloy Has Few Places To Run

By Dan Haar

December 02, 2012

Connecticut's latest fiscal crisis roared to the forefront this week with patterns that say a lot about what we can expect to see not just this month or even in the coming year, but for the rest of Dannel P. Malloy's term as governor.

The big picture is that the state faces deficits averaging $960 million a year in each of the coming three years, even after it fills a $362 million shortfall for 2012-13, all caused by a rise in Medicaid and other social services, health and pension costs and disappointing tax receipts in a balky economy.

Malloy's budget chief issued a firm statement in writing: "The Governor will NOT propose tax increases as a solution to these challenges."

That assertion's being met with widespread skepticism — and some lawmakers have even launched bids for new ways to raise cash, among them Rep. Tony Guerrera, D-Rocky Hill, who revived his push for tolls on state highways. Still, the pressure to avert any tax increases in 2013 will be enormous.

Knee-jerk anti-government rhetoric aside, there's no responsible way to cut 5 percent of state spending in one fell swoop in 2013. Malloy knows it, lawmakers know it and the Connecticut people know it.

So, the governor is in a jam even though this deficit is smaller than the $3.5 billion debt he inherited in 2011. He already played the best cards in 2011 — a tax hike and a deal with state employees. After a relatively easy round of cuts, there's nowhere to run to, nowhere to hide.

Another pattern is subtler but even more troubling than the tax increases roaring down the busway: We saw a 10-page list of cuts Wednesday totaling $170 million, which came with a promise of more cuts, which followed a statement by budget czar Ben Barnes that we need to make long-term "policy changes," not just cuts.

Clear conclusion: This is not a one-shot crisis. It's part of a yearslong slog with flare-ups and periods of calm. The crisis of the moment is really the crisis of this era, closely connected with the decline of U.S. economic might around the world.

"The economy has appeared to be in a new place in Connecticut and the nation," said economist Ron Van Winkle, who has a close stake in the crisis as West Hartford's town manager. "It hasn't got the ability to pick itself up."

The first round of cuts, announced Wednesday by Barnes and top Malloy adviser Roy Occhiogrosso, fell basically in the category of management. It orders spending reductions that the state commissioners — who are more powerful under Malloy than under the two previous governors — can work around by doing things faster, better.

The deficit shrinks by only $123 million, because $47 million of the cuts were already built into the budget when it became clear that the state wouldn't spend that money.

Next will come program cuts, probably made through the legislature — deeper reductions that pare what the state does in a more painful way. Looking ahead, Malloy and lawmakers will have to make those policy changes that Barnes warned about — broad pullbacks in the promises that the state makes to its citizens, such as who is entitled to Medicaid and what services are available to homeless people.

That includes the closing of facilities, and not just prisons, Barnes warned.

"To look at any one of these cuts in isolation misses the larger point," Occhiogrosso said.

The larger point is that the budget shortfalls are linked to an era of more social demands and slower growth, just as the federal budget crisis will not abate when President Barack Obama and Republicans eke out a patch to avert the so-called fiscal cliff later this month.

Complicating the picture, Malloy and lawmakers would have to slice state spending by an average of $1.7 billion in each of the next three years (out of a more than $20 billion state budget), not just $1 billion, just to stay within the mandatory spending cap — which is based on overall income and economic growth. Lawmakers can and will amass the votes needed to blow through the cap, but it's not just a legal maneuver. It means we're conceding that state government is outpacing the growth of the state's economy.

Not Your Father's Crisis

As scary as it looks, the $2.8 billion in shortfalls for fiscal years 2014-2016 are all based on personal income tax revenues growing at 7.2 percent a year — up from an average of 4.6 percent gains in 2011 through 2013. Oh, and federal grants would have to leap by 30 percent to $4.9 billion for the hole to be only as large as projected.

"It's going to take us more time to climb out of this hole than any of us would like," Occhiogrosso said.

We've heard all this before, the need for patience with deep reforms. But this time it seems different for four reasons.