Gov. Dannel P. Malloy proposed a $19.87 billion budget Wednesday that cuts most state agencies and previously approved municipal aid, and potentially eliminates "thousands" of jobs, while avoiding tax hikes to close a nearly $570 million deficit.

Malloy’s plan departs dramatically from decades of past practice. Instead of spelling out how much money each department should spend on specific programs, the proposal — in many instances — largely assigns agencies a lump sum.

This approach would shift more control over line-item spending from the legislature to agency heads and the governor’s budget office.

Malloy's proposal would reduce general fund spending 3 percent below the preliminary 2016-17 budget he and the legislature approved last June. It essentially keeps spending flat compared with the current fiscal year, increasing it by a rounding error – 1/12th of 1 percent – and would spend $720 million below the level nonpartisan analysts say is necessary to maintain current services

The Democratic governor’s plan also repeated his earlier calls to restructure the cash-starved pension funds for state employees and public school teachers — which could cost the state more money in the long run — and to craft an enforceable constitutional spending cap.

Though the governor proposed no tax hikes, he did propose eliminating minimum bottle pricing for alcoholic beverages, capping Probate Court estate fees and setting a modest personal property tax exemption for businesses. The governor's budget would also close one prison, but does not identify the facility.

Malloy's plan also avoids tapping the state’s $406 million rainy day fund. Preserving the fund is seen as crucial by some state officials, who argue Connecticut will need it one year from now when it faces a much larger deficit, projected to top $1.7 billion. "We have to adapt even more," Malloy said in his budget address to the General Assembly.

"Connecticut state government must reset our expectations of what we can afford, how we provide services, and how we save for our priorities. It won’t be easy, and it often won’t be politically popular. However, it is absolutely necessary if we want to create a more sustainable and enduring economy."

The governor added that, "This budget is based not on how much we want to spend, but how much money we actually have to spend."

Workforce reduction coming

Malloy's budget doesn't project state employee workforce levels. But his budget director, Benjamin Barnes, said the recommended cuts could eliminate jobs "in the thousands" by attrition and "other means."

The governor's budget calls for each agency and department to face a 5.75 percent cut. And this workforce downsizing will be part of the way they absorb that reduction, Barnes said. But labor-cost-cutting isn't the only thing that will enable agency's to handle that cut. That means department heads and Barnes' office also would have to decide which programs and services might be reduced or eliminated. The budget director acknowledged much of this cut will come from each department's discretionary spending, but couldn't say exactly how the fiscal pain would be spread out.

Department heads offered an indication of potential cuts late last year, though, when they submitted options for spending reductions to Malloy’s budget office. Some of those options submitted by social service and health care agencies suggested that a 5 percent cut could be difficult to achieve or gave a glimpse at the potential consequences.

In an October memo, Miriam Delphin-Rittmon, commissioner of the Department of Mental Health and Addiction Services, identified $11.9 million in potential cuts, but noted that they fell short of the 5 percent Barnes had asked for. She added, “[T]he department sought to identify initiatives that we could realistically achieve and still provide the safety net necessary to the people we serve.”

The Department of Public Health, meanwhile, identified $1.57 million in potential cuts in October in response to Barnes’ request. But the agency suggested that the reductions it identified could, among other things, “increase the rates of children who become lead poisoned;” reduce services provided to pregnant teens at risk of using drugs, alcohol or tobacco; reduce access by school-aged children to primary care, mental health, dental care and health education at school-based health centers; and “significantly impact public health services and programs” by local health departments.

And the state Department on Aging offered the option of a 10 percent cut – $108,983 – in the statewide respite care program for people with dementia, which gives those who care for them a break. But the agency warned that the cut could affect families who don’t have any other means of support, and “will increase the likelihood of costly nursing home placements and certainly increase the probability of negative health outcomes for caregivers.”

But at least one nonprofit social service provider said afterward that the industry can't sustain more cuts.

“We are much worse off than we were a year ago,” said Heather Gates, president and CEO of Community Health Resources, a mental health and substance abuse treatment provider. “Pretty much anything that is about supporting people in the community who don’t have any other options is being attacked.”

The chief lobbying agency for the business community, the Connecticut Business and Industry Association, gave an early, cautious endorsement of the Malloy plan.

CBIA President and CEO Joseph F. Brennan said the group still was reviewing the details, "but I think it's a tough budget. I think the governor has responded to what he has heard from individuals and from businesses. If these spending changes are enacted, it's definitely going to instill greater confidence that Connecticut is becoming a good place to invest in."

Less municipal aid

Overall municipal aid would increase under the governor's budget compared with this fiscal year. But it falls about $50 million below the level built into the preliminary 2016-17 budget. This potentially undercuts the biggest campaign initiative this fiscal year of the legislature's Democratic majority: to bolster property tax relief to cities and towns.

Democratic lawmakers enacted a plan last June that calls for the state to share about $220 million in sales tax receipts with cities and towns next fiscal year, and $290 million in 2017-18.

Municipal leaders and Republican legislators have expressed fears Connecticut will not deliver on this promise because of the major budget deficits projected over the same period -- deficits which outstrip the promised aid.

The Connecticut Conference of Municipalities, the single-largest lobbying group for cities and towns, issued a statement Wednesday warning lawmakers not to believe that a $50 million cut from previously approved town aid would be harmless.

"It is shifting a greater burden back on the 169 Connecticut communities that still must maintain vital basic services," CCM wrote. "As a result, towns and cities of all sizes – and their residential and business property taxpayers – will have to make up the difference in lost revenues the only way the state allows, by increasing the property tax. Remember, the property tax remains the most burdensome and regressive tax paid by residents and businesses across Connecticut."

Less education funding

State funding for public colleges and universities would be cut by at least 5.75 percent, or $13.99 million for UConn and $20.24 million for the Board of Regents.

Additionally, Malloy's proposal would transfer responsibility for the costs of health care, retirement and other fringe benefits for thousands of employees to the state's public colleges and universities – a move college leaders have warned will likely throw their budgets deeply into the red.

The governor's proposed budget would send lump-sum payments to the Connecticut State Universities, the University of Connecticut, community colleges and online Charter Oak State College. Money for medical and other fringe benefits would be included in those allocations.  

The Education Cost Sharing Grant -- the state's largest grant that helps municipalities run their elementary, middle and high schools -- was largely protected. However, a small $7.4 million increase in the $2.1 billion grant that was promised to in the previously approved budget was rescinded.