Malloy will propose $2 billion in spending cuts to balance the state's budget

Gov. Dannel P. Malloy has insisted for weeks that closing the state's huge budget deficit will require both spending cuts and tax hikes. Tuesday he made it clear that the former should play the larger role.

During an afternoon meeting with departmental commissioners, Malloy announced his budget proposal for the next two fiscal years would cut $2 billion from the projected annual cost of maintaining current services.

Gov. Dannel Malloy, flanked by Tim Bannon and Lt. Gov. Nancy Wyman.

Based upon the $3.67 billion shortfall projected for the 2011-12 fiscal year, by the legislature's nonpartisan Office of Fiscal Analysis, nearly 55 percent of the shortfall would be eliminated with spending cuts.

And since Malloy also reaffirmed his position Tuesday that the deficit should not be closed with borrowing, that leaves nearly $1.7 billion to be raised in new revenue.

"What I'm trying to do is move this state into position where it can compete with other states, and where (the recovery) is sustainable," Malloy told Capitol reporters after the meeting.

The $2 billion cut from the projected cost of maintaining current services "is my best estimate of... what our needs are and what we need to do to live within our means," Malloy said.

Lt. Gov. Nancy Wyman, the former state comptroller and one of the key administration officials helping to develop the budget plan Malloy must submit to the legislature on Feb. 16, said that cut effectively would freeze General Fund spending at current levels.

The General Fund represents the bulk of spending within the overall $19.01 billion state budget. A $17.7 billion General Fund was approved for this year, though the state is on pace to spend closer to $17.9 billion.

In his meeting with the commissioners and other top appointees, Malloy laid out four principles of his approach to taming the deficit.

"I want to share them with you, because I am going to ask you to do extraordinary work," he said, before listing the principles:

• No borrowing for current expenses. "We will not go to the bond market to raise money to pay our salaries."
• Fund pension obligations. "We will absolutely fund our pension obligations next year - and all years."
• No early retirement incentive programs. "I am very serious about that."
• State government will live within current budget. "We need to change our state in a profound way," he added.

Malloy's pledge to rely foremost upon spending cuts could put him at odds with his fellow Democrats, who hold majorities in both the House and Senate.

Those Democrats approved nearly $2 billion in borrowing between June 2009 and last May to help prop up state spending over each of the past two years--one of the primary factors that has contributed to the current deficit, a gap that equals nearly one-fifth of current spending.

When asked whether he would veto any budget legislation that included borrowing to cover operating costs, Malloy didn't use the term "veto," but said "I will not support a budget that does that."

The co-chairwomen of the budget-writing Appropriations Committee, Sen. Toni Harp and Rep. Toni Walker, both New Haven Democrats, were cautious about Malloy's $2 billion target for spending cuts.

"No one said it would be easy" to close the deficit, said Harp, who didn't dismiss Malloy's target. "It's going to be difficult, but it can be done."

Walker, though, was less confident. "I look forward to seeing where exactly those reductions will come from," she said. "We have nothing concrete yet."

But Walker did add that she expects her committee will offer plenty of suggestions to reduce spending during the legislative session. "It's going to be up to us to determine if this is doable," she said.

Malloy didn't offer many hints about what tax increases or other revenue enhancements he would recommend.

A new revenue forecast issued jointly earlier this month by his budget office and by legislative analysts projected General Fund revenues would grow by $119 million beyond the level estimated in October for the upcoming fiscal year.

That would leave more than $1.5 billion in new revenue for the governor to find primarily through tax and fee increases.

Malloy stated several times during the fall campaign that state government should revisit more than $5.3 billion worth of tax credits, exemptions and other breaks on its books, including more than $3 billion tied to the sales tax alone.

A hard-to-miss slogan for the GOP.

The governor said Tuesday that his budget staff is analyzing a possible broadening of the sales tax base, but he offered no other details.

As Malloy was meeting with his commissioners, minority Republicans in the House and Senate were unveiled their own legislative agenda, calling for a wide array of wage, benefit and other concessions from state employees, new restrictions on borrowing, consolidating 43 agencies down to 11, and placing a heavy emphasis on spending cuts rather than tax hikes to alleviate the deficit.

"Our legislative proposals will fundamentally transform the way government functions, making it smaller and more efficient through agency consolidations and employee-benefit givebacks, from payroll to pension," House Minority Leader Lawrence F. Cafero, R-Norwalk, said.

"We need to reduce the size and scope of state government and we will work with Governor Malloy on these reforms," Senate Minority Leader John McKinney, R-Fairfield, said. "Make no mistake, these reforms and spending cuts are necessary. Democratic governors in neighboring New York and Masachusetts are making them and Connecticut needs to follow suit.

Republicans danced around the some sensitive areas in what was largely seen as a political message.

Though they called for spending cuts, they recommended none in the $2.9 billion package of grants offered annually to cities and towns--effectively ignoring 15 percent of the overall budget.

Republicans also called for a task force to study ways to repay more than $530 million that Connecticut has borrowed from the federal government to prop up its unemployment compensation fund.

The Connecticut Business and Industry Association, the state's chief business lobby, has acknowledged that the likely options for restoring that fund either are an increased levy on businesses, or with more state borrowing -- both options that Republicans weren't talking about on Tuesday.

But state employee union spokesman Larry Dorman said "Connecticut Republicans have created a template that's useful for protecting multi-millionaires and Wall Street speculators, but would translate into more loss and more hardship for the state's working families."

Dorman added that "Republican leadership continues to show a lack of willingness to support the vital public structures that are critical to jump-starting the economy, creating jobs and growing the middle class."