Connecticut got a clearer picture of the painful cuts in the new state budget Friday when Gov. Dannel P. Malloy imposed more than $880 million in spending cuts mandated by the General Assembly.
Labor cost-cutting moves, as required under last summer’s concessions deal with unionized state employees, account for the biggest chunk of those savings.
Malloy technically assigned most of the remaining cuts to social service programs, municipal aid and higher education.
Contractual obligations and other factors actually left him little flexibility to do anything else and still meet the legislature’s directive.
The $880 million in reductions, commonly referred to as “holdbacks,” represent a 4.5 percent cut to gross spending in the new state budget for this fiscal year.
“These holdbacks represent real, difficult decisions that the bipartisan budget agreement requires state government to make,” Office of Policy and Management Secretary Ben Barnes, Malloy’s budget director, said. “But they’re also necessary in order to give taxpayers, businesses, and bondholders the stability they need and deserve.”
Town aid cuts spark angry response
More than half of the $91 million in savings assigned to municipal aid would involve reductions to Education Cost Sharing (ECS) program payments to local school districts. But the plan also reduces a number of smaller property tax relief and other non-education grants. The ECS grants represent the state’s major vehicle for aid to local education. The state also pays for the public contribution to the teacher pension plan.
The average cut to all municipal grants was 2.5 percent.
“It’s certainly frustrating for towns to hear that — just a few weeks after the state budget was finalized — they are facing additional cuts,” said Betsy Gara, executive director of the Connecticut Council of Small Towns. “Now they are wondering what is next.”
“New additional cuts approaching $100 million must be absorbed – through service reductions or local tax hikes – nearly half way through the fiscal year,” the Connecticut Conference of Municipalities wrote in a statement. “Municipal governments will have increasing difficulty trying to managing their current year spending, having to again just for a short fall in revenues less than a month after being told to count on a defined level of state aid.”
“I understand the governor has the responsibility to manage the budget to keep it in balance, but his decision to again put a quick target on our towns and public schools is misguided,” said House Speaker Joe Aresimowicz, D-Berlin.
Most human services program grants were reduced, on average, by 2 percent, to comply with the legislature’s directives.
The holdbacks include $16.7 million from the state’s share of the budgets for the University of Connecticut and its health center – a 5.2 percent cut to the $321.7 million the state budget initially provided. Cuts to the Board of Regents – which oversees the state’s dozen community colleges, four regional state universities and online college – total $13.8 million, which is a 4.5 percent cut to the operating block grants provided initially in the new state budget.
These cuts come on top of the sizable cuts already made in the adopted state budget for the state’s public universities.
Lawmakers order unprecedented savings
Lawmakers built unprecedented savings targets into the $41.3 billion, two-year plan they adopted late last month — targets that were to be achieved by the governor after the budget went into force.
In other words, legislators ordered the total amount of reductions, Malloy had to work out many of the details.
Many legislators from both parties praised the new budget for averting a major projected deficit without increasing income and sales tax rates.
But to close that shortfall they ordered Malloy to find about $880 million in General Fund savings this fiscal year and a whopping $1.09 billion in 2018-19 to make everything balance.
That means the appropriations assigned to most agencies and departments in the budget bill don’t reflect what they actually get to spend. Most of those amounts must be reduced to help meet the savings targets.
The General Fund savings target last fiscal year was just over $209 million.
Malloy had few options for cuts
At first glance, Malloy has another important tool to help him hit the much-larger target.
The state employee concessions plan ratified last summer calls for wage freezes, furlough days and increased worker contributions toward health care and retirement benefits.
Not surprisingly, the bulk of the savings targets — $700 million out of $880 million in the first year and $868 million out of $1.09 billion in the second — is expected to come from labor savings.
But the administration is expected to take complementary steps — freezing hiring, reducing overtime — just to hit the labor-savings benchmarks.
So how does it achieve the rest, roughly $180 million this fiscal year and $219 million in the next?
Normally it would ask agencies to freeze hiring, reduce overtime and take other labor cost-cutting moves. But those ideas already will be used up, in large part.
There are several other places in the budget, but many are off-limits for other reasons.
Payments on bonded debt are locked in by contract. The governor can’t change Medicaid program eligibility rules without agreement from the legislature and the federal government. Most payments to hospitals are exempt from these savings targets.
Largely that leaves non-Medicaid-funded health care programs, social services, town aid and higher education.
Agencies’ “other expenses” accounts, which are used to fund studies, private legal assistance and other consulting services, already were reduced significantly in the adopted budget. The governor reduced them, on average, by an additional 5 percent to help meet the savings targets.