Hartford — The state Senate is expected to vote today on the $44 billion, two-year state budget that the House of Representatives passed early Sunday morning.

"As our economy continues to recover, it is critical that we balance our state budget with no new taxes, maximize Connecticut taxpayer dollars that come back from Washington, avoid cuts to our cities and towns, and maintain the safety net for our most vulnerable residents — this budget accomplishes all of these important goals," House Speaker Brendan Sharkey, D-Hamden, said after the House spent the weekend on the budget before passing it about 5:15 a.m. Sunday by a vote of 95-48.

Much of the state funds for cities and towns that Gov. Dannel P. Malloy had proposed cutting or shifting from operational funds to education funds over the next two years were restored.

"The new state budget is a clear win for towns and cities and their local property taxpayers," said Jim Finley, executive director and CEO of the Connecticut Conferences of Municipalities.

The two-year budget includes some new revenue sources such as expanding keno and continues some temporary taxes.

Under the old rules, the state would spend roughly $44 billion over two years, according to the budget bill. However, the Appropriations Committee proposed moving about $6.4 billion in federal reimbursements for Medicaid and other federal reimbursements out of the state's upcoming two-year budget. The state normally counts these funds as part of its revenue and spending, but this method, which is called net appropriation, would allow the state to put these funds "off budget."

"Ladies and gentlemen we have before us … a budget, which seems to completely change the way that we treat our spending cap as it pertains to federal revenues tied to Medicaid," said Sean Williams, R-Watertown, who voted against the amendment to the bill. "Something as we just heard has never been done before, something that is simply a way to get out of doing what we should be doing, which is taking a good hard look at the budget the way that the voters in the state of Connecticut in 1991 asked us to look at the budget."

A statutory spending cap was put in place by the General Assembly in 1991 to tie the growth of the state's budget to personal income growth or the rate of inflation. In 1992, voters passed spending-cap requirements, and the 28th Amendment was added to the state constitution.

But instead of voting to change the definition of the state's spending cap as Malloy proposed, the Appropriations Committee proposed moving some federal reimbursements out of the budget. Proponents of this move say increased Medicaid costs are a huge part of the state's spending increase and that this would free up state spending.

Budget would have grown

Rep. Patricia Widlitz, D-Guilford, said last week they were looking at putting some federal reimbursements "off budget" because they didn't have the votes to change the definition of the spending cap as Malloy had proposed.

Without placing $6.4 billion over two years "off budget," the state's budget would have increased by about 4.8 percent in fiscal year 2014 from fiscal year 2013 and by 9.8 percent in fiscal year 2015 from fiscal year 2013. State spending was about $20.5 billion in fiscal year 2013.

Instead, by taking $6.4 billion "off budget" the state can report a decrease in spending. The state would spend $18.6 billion in fiscal year 2014 and $19 billion in fiscal year 2015.

State Sen. Andrea Stillman, D-Waterford, said she supported putting the Medicaid reimbursement off budget.

"Forty-nine other states do it and many of them have spending caps," Stillman said. "Just because we haven't done something that way … doesn't mean we shouldn't change."

During the finance committee meeting, Stillman thanked the finance committee co-chairs for living up to their commitment to energy generation companies.

The state would still collect about $17.5 million in taxes during the first quarter of fiscal year 2014, but this is much less than Malloy proposed, which was to extend the temporary tax for the entire year and collect about $70 million.

Keno would be expanded

Other temporary taxes such as the corporate income tax and the cap on tax credits for insurance premiums were continued, which would bring in $118.4 million over two years and $54 million over two years, respectively.

The finance portion of the budget proposed authorizing the Connecticut Lottery to introduce keno, a game of chance that has been exclusively the domain of the tribally owned casinos Mohegan Sun and Foxwoods.

"I am disappointed that we are using another opportunity for gambling in this state," Stillman said. "Everybody knows how I feel about it, but for the record I wanted to express my disappointment."

She said she would be proposing that the Appropriations Committee assign some funds for addiction services to recognize that activities such as these can bring out addictive behaviors.

Expanding keno is expected to bring in $3.8 million in fiscal year 2014 and $27 million in fiscal year 2015. The revenue would be low in the first year because it would take time to roll out, Sharkey said. The bill also authorizes the Office of Policy and Management to reach an agreement with the Mashantucket Pequot and Mohegan tribes to share Keno revenue. OPM would be able to enter into agreements in which each tribe received up to 12.5 percent of the gross keno revenues.

Also during the finance committee meeting, state Sen. Toni Boucher, R-Wilton, said she was concerned about taking money out of the Special Transportation Fund to put in the General Fund. The budget includes a one-time revenue transfer from the transportation fund to the General Fund of $76.5 million.

"It is unfortunate that fund is regularly used to transfer out of transportation means into the operating fund when we have such a problem with aging infrastructure," Boucher said.

The state also cut back on the Earned Income Tax Credit (EITC) for the working poor to increase revenue.

For tax year 2012, the state provided an EITC that was 30 percent of the federal credit. For tax year 2013, the bill reduces EITC to 25 percent and in tax year 2014 brings the EITC up to 27.5 percent of the federal EITC.

The budget bill also reduces some of the taxes on boats. The boat luxury tax was removed. For boats costing more than $100,000 the sales and use tax rate was reduced to 6.35 percent from 7 percent. The bill also exempts the sales and use tax on boats docked in Connecticut for 60 days or less.

Payment in lieu of taxes on state-owned property were restored to $73 million in each year. PILOT funds for colleges and hospitals were restored to $115 million and the Pequot-Mohegan fund from slot machine revenue was restored to $62 million.

The budget bill also expands the uses for Local Capital Improvement Program municipal grants. Grants or bonds issued to municipalities for capital improvement can include projects such as bikeways, technology upgrades and making land available for public use.

Some education spending that was restored includes school transportation funds, which were restored to $25 million in each year. The state will also increase the Education Cost Sharing fund by $50 million in fiscal year 2014 and $100 million in fiscal year 2015, as proposed by the governor.

Funding for the Commissioner's Network schools, or lowest performing schools, was also increased from the amount proposed by the Appropriations Committee in April. Funding for Network schools would be $10 million in fiscal year 2014 and $17.5 million in fiscal year 2015, which was increased from $7.5 million in fiscal year 2013. Talent development funding or funding for teacher evaluations and training was increased to $5 million in fiscal year 2014 and $5 million in 2015, which was increased from $3.5 million in fiscal year 2013.

Funding for school-based health centers would be about $12.7 million in fiscal year 2014 and in 2015, which is more than the governor proposed and less than the Appropriations Committee proposed.

Hospitals were not as lucky as municipalities and towns. Aid from the state that went in part toward hospital's care for the uninsured and underinsured will be cut by about $500 million over two years. However, at-risk hospitals that receive large amounts of Medicaid patients would get some reimbursement from the state.

The budget is expected to create a surplus of $5.3 million in fiscal year 2014 and $4.1 million in fiscal year 2015.

j.somers@theday.com