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Hartford — Gov. Dannel P. Malloy and the Democratic leadership announced budget proposal revisions Friday that include delaying previously proposed tax breaks and eliminating anticipated revenue from keno.
The $19 billion budget proposal, which is in response to a collapse in surplus projections from $505 million to $43.4 million, includes tax cut delays and fund transfers to balance the budget while increasing funding for municipalities and educational programs. Malloy on Friday announced that he planned to maintain funding for pre-kindergarten education in needy school districts.
“The bottom line is that the budget will be balanced,” Malloy said. “It puts surplus into the rainy day fund and makes real necessary investments in Connecticut’s families. ...We are taking a balanced approach that moves our state forward and leaves no one behind.”
Following a press conference on the budget revisions, Republicans said they had more questions than comments because the governor’s budget proposal lacked detail.
“I think what we witnessed today was, how do I get to November without the people of Connecticut knowing what’s really going on?” said state Sen. John McKinney, R-Fairfield, a gubernatorial candidate. “That’s what this budget is really about.”
For the time being, this year’s budget and next year’s budget appear to be balanced, but the nonpartisan Office of Fiscal Analysis has projected a $1.4 billion budget deficit for the fiscal year after Election Day, which Republicans say will be left for whoever wins the 2014 election. Malloy said on Friday that he wasn’t concerned about the future budget deficit projection. But budget revisions, including delaying tax exemptions on clothing and footwear, non-prescription medication and teachers’ pensions, could make balancing the budget more difficult in the future.
“I don’t care about that number because we are not going to have a tax increase and we are going to live within the budget,” Malloy said. He said he expects revenues to continue to grow and that there would be small spending increases such as the ones he produced four years in a row.
Surplus estimates came in $461 million short for this year and $282 million short for next year. The administration said it used conservative estimates but that much of the revenue decline was due to investors claiming large capital gains in 2012 before the expiration of the George W. Bush-era tax cuts and likely claiming less when federal taxes rose in 2013. Republicans disagreed and said the January to April revenue decline, which included drops in sales and corporation tax revenue, were due to a lagging economy. What is left of the surplus will go to the state’s rainy day fund, Malloy said.
To address next year’s shortfall, Democrats pushed back the sales tax exemption on clothing and footwear under $50 back a month, to July 1, 2014, thereby moving the exemption forward to the next fiscal year.
Democrats also delayed the tax exemption on nonprescription drugs by nine months, to kick in April 1, 2015. The income tax cut for retired teachers’ pensions was also delayed until tax year 2015 instead of tax year 2014. The income tax cut would be phased in over time and start at 10 percent, Malloy’s budget chief Benjamin Barnes said, rather than the previously proposed 25 percent.
Few spending cuts were mentioned, but Barnes said the budget relied on $10 million in savings from a “soft” hiring freeze — not rehiring for positions when staff leave —and $10 million is savings from non-personnel reductions such as purchasing less equipment and supplies.
Democrats also chipped away at several programs that were proposed when revenue expectations were higher. For instance, the Appropriations Committee had proposed spending about $4.4 million more to help provide for the 3,532 people with disabilities who are on a wait list for state services. The revised budget would provide $4 million more in order to provide services to 100 people now on the wait list.
“We found a way to do it a little cheaper,” Barnes said.
House Republican Leader Larry Cafero said the Democrats might not have liked their revised budget, which they proposed Thursday, “but at least we showed you every single line item or where we got what we got.”
The budget proposal provided to the media only included the two major funds, the General Fund and the Special Transportation Fund, so it is unclear how much spending has increased. The Malloy administration said spending has increase by only 1.6 percent year over year.
Meanwhile, the implementation of keno, which was to occur in 2014-15, has been removed from the budget as a revenue-generator, Malloy said. The state was anticipating at least $19 million in annual revenue from the game of chance. “There will be no keno in the next fiscal year,” Malloy said.
The governor’s proposal to add 1,020 pre-kindergarten seats next year “is largely intact,” Barnes said, though there have been some minor adjustments.
Other Malloy initiatives from February that remained in the budget plan include $125.5 million to upgrade the state’s community colleges and four state universities and the CHET Baby Scholars program that offers new parents $250 to start a tax-free college savings account.
"I actually feel pretty good, there will be no increase in the future, we will not overspend, we have a pretty consistent rate of increased spending. which was about 2.8 percent (over three years)," Malloy said.
The budget also gives municipalities an $80 million bump in aid.
Municipalities would get $48 million more in Education Cost Sharing grants next year compared to this year, $10 million more in Payment in Lieu of Taxes for state-owned property and $10 million more in PILOT funds for nonprofit colleges and hospitals.
“We have come a long way in Connecticut as far as fiscal soundness, and this governor has led that effort,” said House Speaker Brendan Sharkey, D-Hamden. “There are seeds that we planted in the depths of the recession that are now bearing fruit.”