No more gimmicks – well okay, one more, but then no more after that!

Cross-posted from Pelto’s Point (New Haven Advocate)

The gubernatorial campaign of 2010 was marked by a universal condemnation of the budget gimmicks and irresponsible fiscal maneuvering that got Connecticut into its present fiscal disaster.

Candidate Malloy was probably the most outspoken critic of the fiscal shenanigans that had become the norm in Connecticut state government and earned praise across the board for his commitment to put an end to governance by gimmick.

So although many were shocked by the magnitude of Governor Malloy’s proposed tax increases and budget cuts, newspaper editorial writers have showered the Governor with accolades for having the courage and conviction to put an end to fiscal gimmicks and finally provide the state with a balanced budget.

And the new Governor’s commitment to balancing the budget is, indeed, impressive but there is one huge problem with the picture.

Although Malloy’s budget contains hundreds of millions in new income taxes and hundreds of millions in program cuts, the single biggest change in the entire state budget is his decision to include $1 billion dollars in concessions by Connecticut’s state employees. 

The number the Malloy Administration has used to “balance” the budget is not achievable and everyone “in the know” knows that. 

Without this faulty number, the Governor’s proposed budget is more than a half a billion out of balance.  To address that massive hole up front would have required even more taxes and program cuts.  From the anger and frustration that is presently sweeping Connecticut as a result of the size of the taxes increases and program cuts he did propose, one can certainly understand why the Governor and his people would do everything possible to postpone the understanding that even more taxes and cuts will be needed.

So instead of providing a true balanced budget, Governor Malloy made it very clear.  If the state employees fail to provide $1,000,000,000 this year – and another $1 billion next year – he would be forced to shred the state’s human and social service safety net and lay off thousands of people.

So a billion dollars from the state employees or else all Hell breaks loose.  Let’s examine the facts:

The economy is bad, most people aren’t getting increases or bonuses (unless you work on Wall Street) so let’s start by cutting out the money that would be needed to give state employees a raise of 3% or so.  Easy to defend, easy to do and saves the State $160 million dollars. 

Next, furlough days are another good way to save money.  Many states and even some private employers are using them.  Employees are told to stay home a certain number of days and that way the employer doesn’t have to pay them for that day. For each furlough day, Connecticut saves $14 million dollars.  Each of the past two years state employees have been given 3 ½ furlough days for a savings of about $48 million a year.  Let’s double or triple or even quadruple the number of furlough days.  We’ll tell state employees to stay home 1 day each month.  True some critical work may not get done, but budget cuts are needed and the net effect of 12 furlough days is cutting pay by 5%.  The good news is we save another $168 million. 

 So we’ve frozen pay and effectively cut wages by 5% with furlough days and we have saved a grand total of $328 million.  We only have $672 million to go to meet the $1 billion dollar mark.

We can increase the amount of money that state employees must contribute to their pensions.  Over the long run that will help put the State Employee Retirement System (SERS) on better footing but unfortunately it will have not save the taxpayers any money now.  Why? Because when Governor Rell and the Democrats decided not to make the required payments to the Pension Fund over the last three years, the fund became so underfunded that we now have to make those payments just to ensure the Fund stays afloat.  That said, if we require state employees to contribute 3% more of their salary, it will get an extra $96 million into the Fund.  A worthy step perhaps but doesn’t count toward the $1 billion Malloy has demanded.

Connecticut state pensions, like Social Security and most other public pension funds have a Cost of Living Adjustment that is tied to inflation.  That said, Connecticut could cap or even eliminate COLAs for future Tier II and Tier IIA retirees.  Again, it wouldn’t save any tax money now but would save the Pension Fund almost $50 million a year going forward.

There has also been talk of basing a retiree’s pension on their average salary over a five-year period rather than the present 3 year system.  This change would make “gaming” the system more difficult.  Again, it wouldn’t save taxpayers now but would mean a savings to the Pension Fund of about $22 million a year going forward.

Finally, increasing medical premiums for active state employees is definitely an option.  Increasing employee premiums by $350 might save as much as $18 million.  If we really want to dump on state employees, lets demand something really outlandish and see if we can jack up their premiums by $1,000.  That will teach them and at that level we might even save $60 million a year.

So where does that leave us.  No pay increase, a dozen furlough days and blowing their co-pays through the roof and we save taxpayers a total of about $388 million next year. 

It’s an impressive amount.  The problem is, if the Malloy Administration is successful in actually bringing state employees to their knees and wins all of those concessions, the budget will still have a $612 million deficit.

And that, in turn, brings us back to Malloy’s pronouncement that if the state employees fail to provide $1 billion in savings, the budget will be out of balance and the fault will lie squarely with the state employees and no one else.

Saying the budget is balanced when it is not is, in short, a gimmick to beat all gimmicks. 

Malloy gets the credit for proposing a balanced budget despite knowing that it isn’t balanced and when Connecticut discovers the budget isn’t balanced after all, the fault is not the Governor’s but those good–for-nothing state employees.

The very state employees, who, as we all know, are already public enemy #1. 

It is a brilliant strategy. 

The Malloy Administration and the state employee unions engage in hard negotiations.  The state employees know that if they don’t give enough they will be laid off.  Then, when they do give, the Administration is “forced” to regrettably announce that the budget is fatally in deficit and the Governor has no choice but to make additional cuts and propose additional tax increases (but at no fault of his own).

 So the era of budget gimmicks is over – just as soon as we get through this last one.

Think of “Shared Sacrifice” more as a term of art…

Cross-posted from Pelto’s Point (New Haven Advocate)

As more detailed analysis of Governor Malloy’s income tax proposal takes place, the public is learning that some may consider his pledge of “shared sacrifice” as a bit more rhetoric than reality. 

If adopted as is, the public will learn that the plan isn’t quite as “fair” a distribution of burden as middle-income families might have hoped.

The Malloy Plan shifts the state income tax from 3 to 8 progressive tax brackets, eliminates the property tax credit and changes (phases out) the amount of income that is taxed at the lowest 3 percent rate.

The net impact is that those making between about $50,000 and $120,000 will be surprised to learn that their income taxes will be going up by a much higher percent than those who make $120,000 to $250,000.

It’s complex to be sure, but when all the various calculations are made the impact for a the average Connecticut couple is as follows;

Amount           Percent Increase in Taxes

$60,000           38% increase in their income tax

$80,000           18% increase

$100,000         12.5%

$120,000         10.9%

$150,000         10.2%

$175,000         9.6%

$200,000         9.4%

$250,000         10.5%

$500,000         13.8%

$1,000,000      20.0%

2,000,000        10.4%

Keith Phaneuf at the CTMirror has a lengthy story on the complicated changes the Malloy has proposed.  The Legislature’s Office of Fiscal Analysis has also done some preliminary work on the impact Malloy’s plan will have on Connecticut households.

Take a look at Phaneuf’s article to learn more: http://www.ctmirror.org/story/11598/malloy-hopes-cut-through-confusing-tax-math.  His story also includes some great charts that provide addition examples of the impact Malloy’s Plan would have.

As we learn more about the proposed state budget (2-18-11 edition)

Cross posted from Pelto’s Point at New Haven Advocate

As the details of Governor Malloy’s proposed budget are better understood; the positive and negative elements of the budget plan will continue to surface.

Overall, Malloy’s General Fund budget only increases the level of state spending by 1.8 percent, an extraordinary achievement considering the many pressures and challenges that face the state.  The budget also includes some major transportation initiatives that mean when the Transportation Fund portion of the budget is added in to the total the overall state budget is proposed to grow by 2.4 percent.

Malloy resolves the $3.4 billion dollar hole in next year’s budget with about $1.9 billion in new net revenue (including additional federal aid), $420 million in net budget cuts and $1 billion in state employee concessions.

Putting aside the very real problems associated with trying to cut $1 billion from what the state spends on its employees (without massive layoffs), some portions of the proposed budget are increased while others face relatively minor to major cuts.

Over the coming weeks more of these increases and decreases will be highlighted but here are a few of the more interesting additions and cuts.

Although most municipal aid is preserved at present levels, the budget cuts $48 million by eliminating the Payment –in-Lieu of Taxes (PILOT) for Manufacturing Machinery and Equipment.  This funding was provided  to towns to reimburse them for a portion of the taxes they lose since businesses don’t have to pay property tax on certain machinery and equipment.  It is a relatively small hit but does shift the cost of subsidizing the investment in manufacturing from the state to the local property tax payers in those towns with manufacturing companies.

At the same time, the budget adds $15 million for Tourism marketing for the state.

Among the cuts is $6 million due to the anticipated consolidation of campus settings at Southbury Training School and the closure of 5 public group homes for the developmentally disabled.

One cut that is likely to generate a lot of agitation is a proposal to cut $2 million from the monthly personal needs allowance for Medicaid residents of nursing homes, chronic disease hospitals and long term care facilities.  As the law now applies, all social security payments and pension payments must be turned over to pay for their care except for $69 a month so that they can buy necessary items.  The Malloy budget would change the law so that residents and patients can keep no more than $60.

Eliminating non-emergency dental services and reducing vision care services for poor adults (those who receive Medicaid) would save another $12 million

While Public Higher Education gets cut for about $70 million dollars in cuts, funding for primary and secondary education expands including $3 million more to expand enrollment at charter schools and $42 million to expand enrollment at magnet schools.

A number of changes are also made to the prison system including what appears to be the closure of another prison and an interesting $10 million reduction that the Governor’s budget describes as resulting from an “unspecified schedule change for Correction Officers and Correctional Lieutenants.”

A good detailed budget summary can be found at the Office of Fiscal Analysis – Malloy Budget Proposal.

In addition, for an alternative view of budget issues, check out a new blog by Heath Fahle at The Wonk Blog.

If you have specific questions about the budget plan, please send them along or post them in the comment section.

Challenging the “Prescribed Path” is not disloyalty

The importance of debate:  Even (no especially) in times of great strife and turmoil

Following the extension of the Bush Tax Cuts, President Obama this week released his $3.7 Trillion dollar Federal budget, a budget that lowers domestic spending to Eisenhower levels by cutting hundreds of vital programs;  basically maintains defense spending unaltered and includes a $1.7 Trillion dollar deficit.

Republicans reacted by blasting him and the Democrats as “big spenders” – despite the fact that while their proposals cut different programs had virtually the exact same bottom line.  Watch last night’s Daily Show for a funny, yet shockingly accurate assessment of the Republican’s reaction. (http://www.thedailyshow.com/#tool_tip_1)

Meanwhile, here in Connecticut Governor Malloy proposes a budget that has the deepest budgets in Connecticut history, along with an unattainable demand from Connecticut’s public employees and record tax increases.

 The response:   Republicans react by blasting him and the Democrats as big spenders – but in this case they don’t even have the willingness to put forward any ideas except to complain that more taxes are not the answer.

Meanwhile, both in Washington and here at home, the response from the Democrats has ranged from accolades for the courage to cut spending, acceptance of the inevitability that we are headed into an extended or permanent period in which we recognize “government is the enemy” or quiet desperation that the political environment gives the Democrats no other options.

There is no question that reasonable people can certainly disagree on the best course of action for the nation and state, as well as, what will or won’t work when it comes to re-energizing the economy.  However, I fundamentally reject the notion that the path laid out by President Obama or Governor Malloy is necessarily the best path and I’m even more certain that raising questions, concerns and objections is not only allowable but a healthy and necessary part of the process.

In some ways, the reaction to the concerns and objections that I and others have raised is even more surprising than the path our leaders have laid out for their respective jurisdictions.  One Courant columnist opined that Malloy must be on the right path because “liberals” like myself were unhappy with some of his proposals.  On a more micro-level, my Facebook posts on the budget have generated numerous responses that suggest we Democrats should give the new Governor our support by refraining from being critical.  Some have even suggested that my complaints and concerns are not only disloyal but serve to undermine the Governor and the good work he is doing and will lead to even further damage to the programs that we care so deeply about.

The importance of teamwork should never be denigrated and facing the reality of the situation Connecticut faces is of paramount importance, but criticism, concern,  and debate is not, in and of itself, an act of disloyalty.  In fact, I would argue that it is exactly the opposite.

Neither the President nor the Governor has cornered the market on determining what is the best course of action.  In this case, the President was wrong to support the Bush Tax Cuts and the Governor is wrong to back off the need to get Connecticut’s wealthy to pay their fair share.

In addition, some of the proposed cuts in Washington and Harford should be rejected flat out and others modified to reduce some of the negative consequences.

The time has come – in Washington and in Hartford – to face the ramifications of failed tax and spending policies.  A new age is upon us that requires a significant transformation in the way government works and what government should and should not do. 

But only through real, fact-based and sometimes difficult and uncomfortable discussion can we hope to find the best paths forward.

Pointing out where the President and the Governor are going wrong is not an act of disloyalty, but exactly the opposite.

Priority #1 – Telling the Truth – Budget Cuts Have Impacts

One more look at the new budget and higher education;

As the state of Connecticut finally steps up to deal with the financial crisis that threatens to derail it, one of the most serious challenges is to discern the difference between truth and political spin.

As we all know, all too often political spin has replaced virtually all honest dialogue about governmental issues at the Federal, state and local level. Here in Connecticut, the “political spin” began even before Governor Malloy delivered his Budget Address as the Governor and his team expertly created and maintained the mantra of “Shared Sacrifice”, along with a pledge to maintain funding for municipalities and not to destroy Connecticut’s Safety Net.

The importance of speaking honestly with the people of Connecticut about the reality of tax increases and budget cuts is perhaps nowhere more evident than when it comes to the reality facing those who attend or seek to attend one of Connecticut’s public institutions of higher education.

Despite the rhetoric, the undisputed truth is that as Connecticut state government makes cuts to its public colleges and universities, the cost of providing a high quality education is shifted more and more to students and their families.

That is not to say that our colleges should be exempt from cuts or that, like the rest of government, greater efficiency and effectiveness should not be demanded, but the truth is, it costs a lot of money to provide the type of education students need to succeed in the 21st Century.

In Connecticut, the overall level of state support has been decreasing over the past two decades.

For example, in 1991 the state provided 50 percent of the costs of running the University of Connecticut, today that percentage is below one third. As the overall budgets for UConn, Connecticut State University and the Community Colleges grew by well over 200% over the past two decades, the level of funding from state government increased by only about 80% Since funding for higher education comes from primarily two sources, the state and the students, without adequate increases in state funding, tuition and fees have been forced up in increasing amounts.

At UConn, tuition over the past two decades has gone up 284 percent, and well over 350 percent at CSU. The data are clear, the evidence is profound, the truth is that as the state makes cuts, costs are shifted to students and their families.

As a direct result of the state’s decision to remove money from UConn’s Operating Fund, tuition is already scheduled to jump 7%.

Yesterday, Governor Malloy proposed cutting Connecticut’s public colleges by about $70 million.

Malloy’s Secretary of the Office of Policy and Management, Ben Barnes said the 10 percent cut was really 2 to 3 percent cut because the schools have “significant resources beyond their general fund block grants,”

When asked about the impact, Malloy’s Commissioner of Higher Education, Mike Meotti said “We just can’t project what this is going to mean on tuition yet…But you can’t really say ‘Ahhha, this is going to lead to tuition increases.

Ben Barnes and Mike Meotti are two the smartest, most capable people in state government or, for that matter, anywhere.

The fact is, the previously approved 7% tuition increase (needed to make up for last year’s cut) will mean an increase of about $700 for every student.

Cutting $21 million more, as Governor Malloy proposes will force tuition up even further. Can reductions and efficiencies reduce UConn’s need to come up with the $21 million?

Of course, savings can and will be found, but considering the primary costs of a university are faculty and staff, as well as energy and other necessary expenditures, the vast amount of the cut will need to be made up.  That is the simple truth.  Why?  Because higher education is an expensive endeavor to provide and a variety of factors including the by-laws and contracts that Connecticut’s public institutions must legally follow make it impossible for these institutions to cut $21 million in a single year.

The Commissioner of Higher Education knows that, the Secretary of the Office and Policy Management knows that and Governor knows that.

Spin is no replacement for the facts.

To make up for this additional cut, UConn would need to raise tuition by a total of 17 percent or about $1,700 per student. Equally significant impacts will be felt at Connecticut State University and the Community Colleges. To suggest otherwise is simply not being honest about the impact budget cuts have.

And if Connecticut is to successfully deal with this financial crisis, real, direct honesty on the part of our elected officials must be the number one priority.

Its Budget Day in Connecticut! Malloy to speak at noon

The debate will rest on the definition of “shared sacrifice” and “preserving the safety net”

Since Monday, Gov. Dannel Malloy’s strategy on raising taxes has become clear. Yes to building some degree of progressivity into the state’s income tax system by creating more tax (8 instead of three)brackets and adding an Earned Income Tax Credit for low-income working families.

Connecticut’s 10,000 millionaires, who won big after President Obama’s extended President Bush’s tax cuts, will be taxed at a rate of 6.7 percent, a modest rise of about 3 percent from the former top rate of 6.5 percent of income.

The Malloy administration’s argument is that if Connecticut taxes the wealthy any more, they will sell their homes, pull their kids out of school, turn their backs on their communities and move out of state.

The Malloy budget also eliminates the all-important local property-tax credit, a big hit for middle-class families who will also be burdened with an income tax hike.

As for state employees, they are now listed as Public Enemy No. 1.  The governor calls for $2 billion in concessions (starting with $1 billion this coming year.).  As noted, Malloy’s demand is for a “give-back” that is five times the amount Governor Rell got two years ago.

The single most incredible development in the entire process is the OPM official within the Malloy administration’s who threatened that if the state employees don’t roll over and provide the $1 billion in give-backs, the “alternate route to a balanced budget” will be far deeper spending cuts that will leave the social service safety net in “tatters and core services decimated.”

Thus, if services are decimated, it’s the state employee’s fault.

Meanwhile today, Malloy will be calling for $750 million in spending cuts – the vast majority hitting higher education and social services.

While Malloy pledged during the campaign to “preserve the state’s social service safety net,” his new budget leaves Medicaid $176 million short of what is needed to maintain the current level of services and nothing new to address the growing demand for services. 

Among his proposed cuts is to phase out prescription drug subsidies for the elderly and reduce dental and vision services for the poor.

He will also be laying out an agency consolidation plan that won’t save money this coming year, but will in the future.

The new budget will also attract more federal aid by creating a new “health care provider fee” that will be charged every time one gets health care – the benefit is that the federal government will reimburse 50 percent of that tax for the poor.  (It is a rather complex way of getting additional revenue, but it has certainly worked in the past.).

Overall, the governor will be proposing a $19.74 billion budget for the coming year – an increase of 2.4 percent.

Wait, What? A Tax Plan That Would Make a Republican Governor Proud?

The CTMirror has posted a copy of Malloy’s tax plan: http://ctmirror.org/sites/default/files/documents/tax%20proposal.pdf and a corresponding story http://ctmirror.org/story/11505/malloy

More analysis to come in the coming days – but if you go outside – you’ll probably hear Connecticut’s wealthy popping the champagne bottles and toasting this tax proposal.

An new income tax rate of only 6.7% for those making over a $1 million while eliminating the all important property tax credit  — which is probably the single most important tax policy for middle-income families?

I suppose the good news is that since the top income tax rate will remain so much lower than New York and New Jersey – let alone – New York City that we can rest assured that our super wealthy won’t be selling their homes, pulling their kids out of school and heading to safe havens…

While the Administration will argue that the plan builds some “progressivity” into the income tax, it is limited at best and because it removes the all important property tax credit from the income tax it is a major hit to Connecticut’s middle income taxpayers.

Even in the worst of the previous two recessions the property tax credit was never reduced below $300 – now he is proposing eliminating it – a shocking hit to every middle class homeowner.

The plan also raises the gas tax – which disproportionately hurts middle class, working families who have no choice but to use their cars to get to work and meet the challenges of daily life. It also increases the sales tax rate and taxes clothing and non-prescription drugs…

But his does not broaden the sales tax to a variety of business services such as advertising.

We’ll know more in the coming days – but as of now – the wealthy in Connecticut pay about 5% of their income in state and local taxes while the rest of us pay about 10% of our income in state and local taxes. This plan does little (if anything) to balance Connecticut’s tax burden on middle income families.

At first blush – at least – it is a plan that would make a Republican governor proud!

Malloy Administration Make More Walk the Plank (according to sources)

The news late today is that  the Malloy Administration has sent another two former Rell people packing.

The latest two are Jeff Litke and Louis Fulinello, both of whom were employees of the Department of Economic Development.  Previously Litke worked as Executive Assistant to Lisa Moody while Fulinello was a staff assistant in Rell’s Office. This brings the total of Rell staffers to be fired to at least 7.

In a post yesterday I raised questions about why the new Administration had fired Nora Duncan.  Duncan, who did work for Rell’s legislative office for two years, is much better known as a leading voice for Connecticut’s nonprofit providers of community services.

In yesterday’s post I questioned who was making these employment decisions and if Malloy or Wyman has authorized Duncan’s firing considering both have been such strong supporters of Connecticut’s nonprofits.

Senators offer Malloy more power to cut budget…

Last week Brian Lockhart of the Stamford Advocate identified a 2011 proposed bill that deserves more attention – followed by a quick defeat.  

Proposed Bill No. 187, sponsored by Senators Bob Duff (Norwalk), Joan Hartley (Waterbury) and Gayle Slossberg (Milford) is called An Act Granting Power to the Governor to Balance the Budget

It is a vehicle for giving the Governor more “budget authority” by allowing him to make even deeper cuts to the state budget without legislative approval.

Our (well-meaning) elected officials would do well to remember the important words of Thomas Jefferson when considering giving the Executive Branch powers that rightfully belong to the Legislative Branch. 

 “If the three powers maintain their mutual independence on each other our Government may last long, but not so if either can assume the authorities of the others.” – Thomas Jefferson

Concepts like the line item veto or granting the governor greater ability to refuse to follow a budget that has been passed and duly signed into law is a bad idea – regardless of who serves as Governor (or President). 

I remember strongly opposing the concept when Bill Clinton asked for and received line item veto authority in 1996.  After watching the Bush years in Washington and the Rowland/Rell years in Connecticut, I’m more convinced than ever that instead of trying to duck the issue of fiscal responsibility, we do better to simply hold legislators accountable if they fail to do their job and fulfill their duties.

I’m very glad to see Governor Malloy is quoted as saying that this legislation is not needed.  The fact is, it is simply not appropriate for the Legislative Branch of Government to grant the Executive Branch this additional authority.

Brain Lockhart’s blog can be found here: http://blog.ctnews.com/politicalcapitol/2011/01/28/senators-offer-malloy-more-power-to-cut-budget/#comment-8044

This proposal mirrors the debate in Washington….where President Obama has actually asked Congress to pass a modified and more extensive line-item veto law.

Here are some other interesting thoughts about the Legislative Branch abdicating its authority by giving the Executive Branch more power (such as through the line item veto or greater rescission authority).

“…[T]he line-item veto is a convenient distraction. The vast bulk of the deficit is not the result of self-aggrandizing line items, infuriating as they are. The deficits [have been] primarily caused by unwillingness to make hard choices on benefit programs or to levy the taxes to pay for the true costs of government.”  USA Today, March 23, 2006

 “Such tools, however, cannot establish fiscal discipline unless there is a political consensus to do so…. In the absence of that consensus, the proposed changes to the rescission process …are unlikely to greatly affect the budget’s bottom line.  –Former CBO Director Donald Marron, Testimony before Congress’s House Rules Committee

 [The line item veto] “would aggravate an imbalance in our constitutional system that has been growing for seven decades: the expansion of executive power at the expense of the legislature.” – George Will, The Washington Post 3/16/06