After three months of spending cuts, Gov. Dannel Malloy announced a comprehensive plan Wednesday to balance the state’s budget.
Since he was re-elected to his second term in November, Malloy has aggressively cut spending in most government agencies and announced a hiring freeze for all but critical positions in order to close a budget shortfall of over $100 million.
In his presentation to lawmakers in Hartford yesterday, Malloy presented a $40 billion two-year budget, which includes approximately $900 million in revenue increases and is designed to close the billion-dollar budget deficits projected for each of the next two years. As part of the budget, Malloy has also announced an ambitious three-decade transportation plan that would widen highways, expand rail service and upgrade bridges across the state.
“We need to decide what kind of state we want to be — not just tomorrow, but 10, 20 and 30 years from now,” Malloy said in his speech to the General Assembly. “We carry a sacred obligation to our children and our children’s children to make this state an even better place for our having lived in it.”
Prior to his re-election in November, Malloy promised not to raise taxes, and he said his budget holds true to that pledge. The budget, if passed by the legislature, would go into effect July 1, lowering the sales tax rate from 6.35 percent to 6.2 percent in November. The rate would then drop to 5.95 percent in 2017. However, Malloy would increase the volume of taxable goods, including individual items of clothing priced under $50 that are currently tax exempt.
Malloy would also eliminate the business entity tax, a fixed $250 biannual payment for all businesses. Although this tax cut would cost the state $40 million in lost revenues, Malloy would raise an additional $233.8 million in tax revenue by limiting loopholes used by corporations and hospitals. Additional savings would come from cutting discretionary higher education spending, reducing reimbursements to Medicaid providers and continuing the statewide hiring freeze.
Spending, including revenue deposited into the special transportation fund, would increase by just over 3 percent in both 2016 and 2017.
However, Malloy’s proposals may cause a showdown with Republicans once the budget comes before the General Assembly.
State Rep. Christopher Davis, a Republican representing Ellington, who is the ranking member of the Finance, Revenue and Bonding Committee, told the News that the changes to the sales tax will disproportionately hurt low-income and middle-class families since the flat sales tax would be expanded to affordable clothing items. The change in sales tax, combined with the adjustments to corporate taxes, presents a budget that Republicans are unlikely to support, he said.
State Rep. Bob Godfrey, a Democrat representing Danbury, said in an interview with CT-N Hartford yesterday that the reduction in the sales tax rate will make Connecticut more competitive while also serving as a tax break for middle class consumers.
Malloy further said he plans to expand commuter rail service to suburbs around the state, including North Haven and Hamden, in addition to double-tracking the New Haven-Hartford-Springfield line in an attempt to increase service volume and possibly extend the line to Boston and Montreal.
During his re-election campaign, Malloy announced plans to construct a new Metro-North station in east Bridgeport; he reaffirmed this commitment and his plans for a station in Orange in his speech.
In addition to expanding rail service, Malloy said the budget would allow for work to begin on highway-widening projects across the state, which he described as necessary to reduce congestion and increase safety.
Malloy specifically pointed to proposed projects to widen highways in New London, Middletown, Fairfield County and Waterbury. Projections from the governor’s office say that Malloy’s transportation projects will cost $10 billion over the next five years and $100 billion over the next 30 years.
Malloy’s transportation plan involves creating a “transportation lockbox” — a fund that can only be spent on transportation and infrastructure projects. But the sources of funding for this transportation lockbox remain unclear. Many states have some form of a lockbox, wherein gasoline tax revenue is solely used for transportation projects.
Godfrey said he remains skeptical about the lockbox idea because he doubted whether Malloy will be able to raise sufficient funds for the lockbox. Limiting the lockbox to revenues raised from gasoline taxes would likely leave the lockbox underfunded, he said.
The state has no plans to introduce highway tolls, Office of Public Management Secretary Ben Barnes said in a briefing Wednesday morning. He added that tolls are no “magic bullet,” and have economic downsides.
Malloy also elaborated on the Second Chance Society initiative for criminal justice reform, which he put forth in a speech at the Yale Law School earlier this month. His budget would reduce penalties for simple drug possession from a felony to a misdemeanor and eliminate mandatory minimum sentencing. Based on expected savings resulting from a projected decline in the prison population, the Second Chance Society proposals would save the state a net of $32 million over the next two fiscal years.
Malloy’s budget also includes proposed changes in the state’s education system, especially relating to early childhood education. Malloy said that, if passed, his budget would ensure a full-day kindergarten education for every child in Connecticut by the fall of 2017, and he promised that this would not come at a cost to public education funding.
But for some, Malloy’s education proposals could go further.
Jennifer Alexander, the CEO of the education reform advocacy group ConnCAN, commended Malloy’s investment in early education but criticized the breadth of the budget’s education funding in a statement released after Malloy’s speech.
“We are disappointed that the proposal did not include additional funding for programs that serve our underperforming district schools,” Alexander said. “To protect the future prosperity of our state, our elected leaders must deliver on the promise of an excellent public education for all of Connecticut’s children now.”
In February 2013, Malloy proposed a roughly $44 billion two-year budget.