Lawmakers wary of allowing governor to cut town aid

State legislators have cooperated with Gov. Dannel P. Malloy for the most part in solving one of the largest budget deficits in Connecticut history.

But lawmakers remain wary of giving Malloy the unilateral authority to reduce municipal aid if the state's finances turn bad.

Leaders of the Democrat-controlled legislature said their reluctance isn't tied to the new governor, but rather reflects their beliefs about separation of powers between the Executive and Legislative branches.

"I think we've had a certain dance all legislative session in which we try to identify the relative roles of the two branches of government as we deal with this deficit," House Majority Leader J. Brendan Sharkey, D-Hamden, said referring to a projected shortfall that once stood at $3.67 billion for the coming year. "I think many people believe certain authority should rest with the legislature and I think this falls into that category."

"I don't care who's sitting in the governor's office," said Sen. Edith G. Prague, D-Columbia, a veteran member of the Appropriations Committee. "Once the legislature decides what the town aid is going to be, that's it. The towns count on those numbers."

Since the enactment of the state income tax, the legislature has granted the governor limited authority to unilaterally reduce many budget accounts, though municipal aid cannot be touched. The governor has proposed ending the exemption for municipal aid.

Malloy, a Democrat, took considerable political risk in proposing $1.5 billion in annual state tax hikes and seeking $1 billion more per year in union concessions. He got lawmakers to approve the taxes, and the administration and state employee unions announced a tentative concession deal last Friday worth a reported $700 million in 2011-12 and $900 million in 2012-13.

The $40.11 billion biennial budget that legislators adopted in early May also is designed to run an unprecedented $1 billion in surplus over the next two fiscal years combined.

Even if $400 million of that fiscal cushion is whittled away to fill the gaps between the union concession deal and the larger labor savings target Malloy had set, that still leaves about $600 million for fiscal contingencies.

But Malloy's budget director, Office of Policy and Management Secretary Benjamin Barnes, said that potential surplus is more than offset by several other larger fiscal challenges, including:

• The concession deal is not ratified. Though union leaders said this week they are hopeful that rank-and-file members would approve the agreement, pension and health care givebacks would be nullified if even two of the state's 15 unions reject them. And though the 34 bargaining units within those 15 unions decide separately whether to accept the two-year wage freeze called for in the tentative deal, that also is not a foregone conclusion. Two bargaining units involving Correction Department workers rejected a one-year wage freeze in 2009.
• The state's emergency reserve, commonly known as the Rainy Day Fund, was depleted under the administration of former Gov. M. Jodi Rell.
• The state employee pension fund is in its worst fiscal shape since state government began saving for pension obligations in the mid-1980s. An actuarial report last November showed the account held less than 45 percent of the funds needed to meet its obligations.
• State government hasn't even saved 1 percent of its $26.6 billion obligation to fund retirement health care for its current workers.
• And the planned conversion to generally accepted accounting principles will mean between $1 billion and $1.5 billion would have to be added gradually to the state budget in future years to close deficits not recognized under the existing accounting system.

"We're really operating without a net," Barnes said. "We don't have a Rainy Day Fund and we still have significant long-term liabilities. We don't have a whole lot of flexibility."

The governor's proposal regarding municipal aid would add some flexibility.

Municipal grants total about $2.8 billion, or about 14 percent of next fiscal year's budget. Were the governor allowed to reduce them by as much as 10 percent, that would allow Malloy to cut $280 million from one segment of the budget alone.

But James Finley, executive director of the Connecticut Conference of Municipalities, said it also would cripple local governments statewide because they have few options to adjust mid-year to reductions in state aid.

"To pull the rug out from them mid-year would only leave painful fiscal choices," such as layoffs, program cuts or supplemental property tax bills, Finley added.

Rep. Patricia Dillon, D-New Haven, a 27-year veteran of the House of Representatives, recalled when the current rescission language was enacted, noting that legislators--already fearing public backlash for adopting the state income tax--didn't want to be the "bad guys" if significant mid-year budget cuts had to be made. So they placed that responsibility on then-Gov. Lowell P. Weicker Jr.

Though that statute has gained its supporters and critics since then, Dillon said the reluctance of many legislators to expand that power doesn't have anything to do with either Malloy or his predecessors.

"It's about the separation of powers," she said. "The most important thing the legislature does it adopt the budget."

Barnes noted that lawmakers did grant a temporary expansion of rescissionary powers in the past. The 2002 General Assembly empowered then Gov. John G. Rowland to reduce, if necessary, some municipal grants by up to 5 percent. But the administration was barred from touching the two largest programs: the Education Cost Sharing grant and the Payment In Lieu Of Taxes, or PILOT grants, which reimburse towns for lost revenues tied to properties exempted from municipal taxation.

Barnes said the administration would be willing to discuss a temporary extension of authority with legislators.

Rep. Pamela Z. Sawyer, R-Bolton, another member of the Appropriations Committee, said a limited extension might get a better reception, but warned the many legislators from both parties simply feel that adopting the annual budget is their biggest responsibility. "We need to do our job," she said.