May 16, 2017

Voices from the Capitol (XIX): more budget cuts

Roger Senserrich

In today's email:

News:

The Governor’s revised budget proposal

The Connecticut state budget continues to dominate the agenda at the Capitol. After the unexpected news of a large deficit increase two weeks ago, the Governor put forward today his revised budget proposal. The CT Mirror has a good overview. The plan includes additional cuts to services, steep cuts to municipal aid (mainly the Municipal Sharing Account and the Mashantucket Pequot Fund), and very little new revenue.

This is unfortunate. The solution to Connecticut’s budget woes lies not with short-term budget cuts and belt-tightening but with longer-term economic planning grounded in a vision of shared prosperity and equitable opportunity for every child in our state. This requires a balanced approach with reforms on both the expense and revenue side of the ledger. This means new revenue by modernizing sales taxes, closing tax loopholes, and fixing our upside-down tax structure where wealthy taxpayers pay lower tax rates than low-income families. It also means comprehensive, long-term efforts to control fixed costs and long term obligations, as we explained in our recent budget policy brief.

We are currently conducting a close review of the proposal, so expect a detailed analysis in the coming days.

The Governor’s Deficit Mitigation Plan

In addition to presenting a revised budget proposal, Governor Malloy also presented a plan to cover this fiscal year’s deficit (FY17), caused by lower-than-projected tax receipts. You can find the full document here; the CT Mirror and CT News Junkie each provide a good overview. The gap is roughly $390 million, and th Governor proposes to close it by completely emptying the state’s rainy day fund and reducing municipal aid. The complete lack of any budget reserve leaves the state vulnerable to any further revenue erosion or emergencies. The plan relies in part on approval from the legislature, which has expressed reluctance to cut town aid so close to the end of the fiscal year.

Op Ed: Ellen Shemitz at the Hartford Courant

Our Executive Director published an op-ed on May 9th charting a path forward for the state budget:

The solution to Connecticut's budget woes lies with long-term economic planning and a vision of shared prosperity and equitable opportunity for every child in our state, not with short-term budget cuts and belt-tightening.

Over the past few weeks, however, lawmakers and pundits have suggested that the path to state prosperity depends solely upon cutting services and seeking labor concessions. They are calling for yet another austerity budget, following nearly $1 billion dollars in budget cuts last year alone.

We need a new approach: one that reflects an understanding of the choices that led to the current mess and one that considers all of the key budget drivers.

Continue reading here.

Spotlight: Where is the New Budget Gap Coming From?

The big elephant in the room regarding the current fiscal year budget continues to be the unexpected drop in income tax revenue in April compared to previous revenue estimates.

First of all, this drop in revenue is not unique to Connecticut; other states, including Massachusetts, Ohio, and Pennsylvania, are seeing similar shortfalls. These states report an interesting pattern: payroll tax revenue collections (that is, income taxes collected from wages) remain stable or are growing at a modest clip, while self-reported income tax collections have dropped. Self-reported income, especially for high earners, comes from the stock market and other investments; these taxpayers have a good amount of flexibility on when to realize gains. This year, many taxpayers seem to have elected to defer earnings, possibly in anticipation of a tax cut at the federal level (this Boston Globe piece has more), resulting in a big drop in state income tax revenue. For Connecticut, first quarter tax data seems to follow this pattern, but we will not be able to confirm the story until we have the state figures for April.

The most important takeaway relates to the issue of stability. The income tax is inherently unstable. Given the state’s reliance on income tax revenue, we need to prioritize building up a meaningful “rainy day fund” at the same time as we modernize our tax system, rebalancing it so that it meets all of the criteria of a highly efficient tax system: equity, neutrality, adequacy, transparency, simplicity, and predictability.

Bills of Interest

Great news! Conversion Therapy Ban for Youth Signed into Law

One piece of good news: Governor Malloy signed into law a ban on sexual orientation conversion therapy for youth last week. Sexual orientation conversion therapies are ineffective and place vulnerable youth at greater risk of depression and suicide. The bill banning these practices received overwhelming support in both chambers; the CT Mirror has the full story. You can read our testimony in support of the bill here.  

Other bills:

S.B. 894: An Act Establishing the State Oversight Council on Children and Families. This bill would provide independent oversight to the Department of Children and Families through a council comprised of legislators, service providers, youth, parents, medical experts, legal experts, and advocates. It is currently waiting to be called for a vote in the Senate. We testified in support of the bill. Dr. Lauren Ruth, our Youth Policy Fellow, recently published an op-ed in the the New Haven Register on this issue.

H.B. 5442 An Act Concerning the Legal Age to Marriage. This bill raises the legal age to marriage to eighteen, with a few guardian and probate-court controlled exceptions for sixteen and seventeen year olds. The purpose of this bill is to reduce child trafficking that may occur through child marriage. The bill passed the House with overwhelming support, and it is currently waiting for a vote in the Senate.

HUSKY: Take Action Against Cuts

The state budget crisis has put HUSKY A parents’ health insurance coverage at risk. HUSKY A is the state’s Medicaid program that provides health care coverage for low-income parents and their children.

This year’s proposed cut  would impact 9,500 parents with incomes between 138 percent to 155 percent of the federal poverty level. That means that a family of three making just over $2,350 a month will lose coverage. For many of these families, buying private coverage Access Health CT (the state exchange) will be out of reach, even with subsidies.

Even worse, this is only one of many cuts and tax increases that target the same groups of low-income families in the state.

At a time when HUSKY/Medicaid programs are under threat from Washington, DC, we can’t allow the state’s budget crisis to harm families even more. It is time to call your state legislators and tell them NO to HUSKY cuts.

Click here to find your legislator. For more information on the cuts and talking points, click here.

Legislative Arcana: Budget Revisions

If the state's budget gets too out of balance during the year, the Governor is required to issue a "Deficit Mitigation Plan" to close the gap. Deficit Mitigation Plans have a language of their own. Here are some of the most common terms and procedures used in these documents:

  • Holdback: An amount of money retained by the Office of Policy and Management (OPM) from an agency to achieve savings.  
  • Lapse:  Appropriated funds that an agency does not or cannot spend by the end of the fiscal year and that they are not allowed to keep. A lapse may be naturally occurring (the agency used less money than they expected), or may be a “budgeted” lapse, which is programmed by the General Assembly specifically to achieve savings.
  • Rescission: A rescission is a cut that the Governor makes as to close a budget gap in the current fiscal year. The Governor can reduce state agency allotments by up to: (1) 3 percent of the total appropriations from any fund or (2) 5 percent of any appropriations. If the projected deficit is more than 1% of General Fund appropriations, the Governor may seek Finance Advisory Committee approval to reduce total appropriations from any fund by up to 5%.  
  • Transfers: The movement of funds from one funding category to another. This includes moving funds from one state account, like the Transportation Fund, to the General Fund.

Learn more about wonky budget terms here.

What We Are Reading/ Listening to:

Issue Areas:
Budget and Tax, Health