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Governor Malloy Sends Legislators Compromise Budget Proposal

Published: September 8, 2017

HARTFORD— Governor Dannel P. Malloy released a compromise budget proposal for FY18 and FY19, September 8. The proposal shows structural change geared at stabilizing Connecticut’s finances over the long-term, while also being responsive to concerns voiced in recent months by legislators, town leaders, and recipients of state aid. This is the Governor’s third balanced budget proposal since February.

The Governor stressed the importance of achieving a budget this month. If the legislature fails to act before the end of September, the additional month of delay will equate to a loss of tens of millions of dollars in state revenue compared to the compromise budget.

“We cannot continue down a path of operating the state without an adopted budget — we must meet one another in the middle,” Governor Malloy said. “To reach compromise, I have scaled back some of my proposals, I have adopted some of the best ideas from legislators of both political parties, and I have tried to be responsive to the needs of municipalities within the limited resources the state has at its disposal. This budget represents real, structural change, and it uses new revenues only as a last resort after achieving historic labor concessions and making hundreds of millions of dollars in difficult spending cuts.”

The Governor’s budget compromise is a complete proposal that addresses the most pressing budget issues in a manner intended to reflect the various views of the legislative caucuses to the greatest extent possible given the severe fiscal constraints facing the state. These include:
*Implementing systemic budget reforms, including new spending cap definitions, new limitations on revenue to support future budgets, decreased reliance on the most volatile revenue sources, stress-testing of our pension funding approach, voting on collective bargaining agreements, and more.
*Implementing mandate relief for local governments, including adjustments to prevailing wage thresholds, delaying CHRO oversight of municipal projects, reviewing binding arbitration for local governments, allowing negotiation over employee contributions to MERS, and more.
*Addressing the critical needs of our capital city and others that may struggle in the future with a new municipal accountability framework that will ensure that extraordinary state resources are only available with extraordinary accountability and oversight.
*Establishing the “Passport to Parks” fund to eliminate all parking fees for Connecticut residents at state parks and beaches, and to provide a dedicated revenue source for state parks.
*Restoring many of the reductions to private providers that were implemented under the executive order. Funding for Employment Opportunities and Day Services is $13.5 million more than under the executive order; funding for grants to providers of mental health and substance abuse services is up more than $8.2 million compared to the executive order; and funding for Community Residential Services provided to those with developmental disabilities is $27.5 million higher than the executive order.
*Includes the first steps to address the ongoing crumbling foundation crisis, with funding for an additional staff person to help coordinate the state response, as well as $10 million in bond authorizations each year for six years.

In addition, the Governor’s budget will make the following adjustments to municipal aid:
*Accommodate an increase of more than $850 million in FY18 in various types of municipal aid over the current Executive Order Resource Allocation Plan.
*Phase in a progressive education funding formula that ensures our most struggling school districts receive the resources they need, including holding alliance districts harmless and providing 21 struggling districts additional funding in FY18, and 38 districts additional funding in FY19.
*Ask cities and towns to contribute only the employer share of educator pension payments for their current employees (known as “normal cost”), and phases in those payments over a two-year period.
*Streamlines several town aid grants making it simpler and more transparent and allow the state to bring more resources to bear in struggling towns and school districts. Capital grants (Town Aid Road, LOCIP, and Grants for Municipal Projects) remain separate and are fully funded.

Finally, in recognition that this compromise would achieve significant structural reform, the budget put forth today reflects adjustments to revenue. These compromises include:
*Raising the sales tax rate to 6.5 percent (keeping it lower than New York, New Jersey, and Rhode Island) and raising the sales tax on restaurants to 7 percent statewide. These two changes result in revenue gains of $87 million in FY18 and $133 million in FY19.
*Revising provider tax provisions and increasing the tax rate to generate additional general fund revenue that will support health care investments and garner $250.7 million in FY18 and $219.8 million in FY19 in federal grant revenue, leveraging an additional $47.2 million in FY18 and $113.1 million in FY19. This compromise is responsive to feedback from hospitals and municipalities and represents a shift away from the Governor’s original budget put forward in February, which proposed a local option for taxing hospitals’ real property for municipal revenue and then offsetting that tax with supplemental payments to hospitals. Hospitals will gain approximately $52 million each year compared to FY17, and more than $300 million compared to the executive order budget.

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