Governor Dannel P. Malloy presented the legislature with his budget proposal for Fiscal Year 2018-2019 carrying the fundamental message of “fairness”. This budget proposes General Fund expenditures of $18.3 billion for FY 2018 and $18.3 billion in FY 2019, the grand total for the biennium would reach an estimated $40.6 billion. The Governors proposed budget is balanced, eliminating the $1.7 billion deficit facing FY 2018 and maintaining balance for FY 2019 that currently faces an estimated gap of $1.9 billion. In order to erase the deficit, this proposed budget calls for $321 million in revenue adjustments and $1.4 billion in expenditure reductions. In order to obtain this precarious balance, the Governor’s budget proposal requires several challenges to be met, many of which may require significant sacrifices.
The proposed spending reduction of $1.4 billion in FY 2018 and $1.9 billion in FY 2019 would require major cuts to be made to agency budgets. Included in this reduction for FY 2018 are; Collective Bargaining Savings by $700 million, Municipal Contribution for Teachers’ Retirement by $408 million, and Agency Reductions by $256 million. More than 50 agencies would be impacted by these reductions, however, according to the Office of Policy Management, the proposed cuts would not necessarily require large scale layoffs.
The largest spending-cut in the Governor’s proposed budget is centered on the reduction of employee-related costs. The budget outlines savings of $700 million from labor in FY 2018 and $868 million in FY 2019. In order to obtain these savings, the state is hoping to reach an agreement with SEBAC (State Employees Collective Bargaining Coalition) on pension and health benefits along with addressing wages and other terms with bargaining units. Since the current SEBAC agreement with the state does not expire until 2022, the state would require a voluntary agreement to change any conditions. However, reaching unilateral concessions that require large reductions to employee-related costs may be difficult for the state to obtain. In the instance that an agreement cannot be reached, the budget proposal would require the state to take a different approach to obtain these savings--including potential layoffs of up to 4,200 employees. This option presents an array of additional problems because many statutory changes must also take place. IE; mandatory minimum staffing levels for various agency responsibilities.
The Governor’s budget proposal plans to establish a new relationship between the State and local governments. Significant changes are being proposed for state aid that is granted to local governments accompanied by an increase in local government responsibility. In this proposal, municipalities are being called on to contribute one-third of the cost of teacher pensions to the Teachers’ Retirement Fund. Municipalities would be responsible for delivering a contribution of $408 million in FY 2018 and $421 million in FY 2019. This system would most likely impact wealthier districts more heavily where teacher salaries and retiree pensions are highest. Municipalities will be held to higher accountability standards under a new system that will establish the Municipal Accountability Review Board (MARB). The proposed four tier system will help determine the level financial stress that a municipality is facing and prevent cities and towns from slipping into severe fiscal trouble. This system will also place certain municipalities under greater review based on their condition and help determine where state aid is most needed.
The municipal aid system would be facing significant adjustments under Malloy’s objective to create a fairer system of distribution. This proposal addresses the need for a “wholesale reform” of the current aid system for local governments, focusing on areas of greatest need and appealing to the less needy communities for understanding that they may need to receive less. The Education Cost Sharing Grant (ECS), the largest program for local school aid in the state, would be facing a drastic revision—removing Special Education funding to be reallocated to a separate grant. The new Special Education grant would be funded on a sliding scale relative to a town’s wealth. Approximately $448 million from the ECS funding will be redirected to this new grant program with the additional reallocation of $140 million from the Excess Cost grant. This budget also proposes an additional $10 million in new funding for Special Education to create a balance of $598 million in the Special Education grant. The ECS grant would maintain approximately $1.59 billion after the reallocation of Special Education funds. The Governor is proposing an updated formula for ECS that would now measure poverty using data from HUSKY A enrollment instead of Free and Reduced Lunch data. These changes would shift greater resources to poor communities.
Governor Malloy also addressed potential revenue initiatives in his budget proposal that could help address the budgetary shortfall. According to the Office of Policy Management, “these include eliminating the property tax credit on the Personal Income Tax, lowering the Earned Income Tax Credit to 25 percent of the federal level, increasing various tobacco-related taxes, and modifying minimum bottle pricing under the state’s alcoholic beverage laws.” For FY 2018, it is expected these initiatives could raise $195.7 million however, that number decreases slightly to $190.1 million for FY 2019. In addition, Malloy wants to give municipalities the option to levy local property taxes on hospitals by eliminating the real property tax exemption. To address potential tax loss, the state would provide $250.3 million in supplemental Medicaid payments to hospitals. It is estimated that the implementation of the local option could raise $212.2 million in property tax revenue.
The Governors recommended budget serves as a milestone for the state’s budget development process, however, several steps are still required before the execution of a budget can be finalized. The Appropriations Committee will head the next portion of the budget development from February through April, hosting public hearings, subcommittee meetings, providing reports to Chairpersons, and formulating a committee budget. From May to June, budget related legislation will begin to solidify. This legislation will include a budget bill, bills appropriating funds, Implementers (bills to implement the budget), and a Bond Authorization Bill. The State Budget Book will then be complied by OFA from July through August. The state fiscal year runs from July 1st to the following June 30th. It is the responsibility of the Executive branch to administer the budget and the role of the Legislature includes budget oversight, transfers via the Finance Advisory Committee, and deficiency appropriations.