No state budget deal in sight

Connecticut might be the last state to be without a budget, but plenty of areas around the country struggled with failed revenue projections, the lingering effects of the 2008 recession and changing political dynamics.

With the state now in its fourth month without a tax-and-spending package, there’s no end in sight at the Capitol, where lawmakers meet nearly every day to look for bipartisan agreement, only to fall short of a compromise deal, yet again.

Without a new budget, Gov. Dannel P. Malloy’s executive order has excluded 85 of the state’s wealthiest towns from receiving their first-quarter school aid that went out to most school districts last week.

That underscores the growing division between the rich and poor in what is the fifth-wealthiest state in the country.

Malloy stresses that the halt of aid is temporary and payments will likely be restored when a final budget compromise is hammered out. But for now, the state’s bigger cities, including Bridgeport, New Haven, Hartford, Waterbury and Danbury, are benefiting at the expense of higher-income communities with accumulated savings, such as Greenwich, Westport, Fairfield, Milford, Ridgefield and Shelton.

10 late states

Kathleen Quinn, a research analyst with the National Conference of State Legislatures, said that 10 states had late budgets this year. Massachusetts, Illinois, Delaware and Pennsylvania faced growing deficits similar to Connecticut. Others, such as Rhode Island, Wisconsin, New Jersey and Maine, had small pieces of their budgets — political and procedural issues — rather than shortfalls that held them up.

“Connecticut has been dealing with some fiscal problems for multiple years,” Quinn said.

Even a $1.5 billion concession agreement with state unions has left a projected deficit of more than $3.5 billion.

“Plus, there is a close divide in the Legislature,” she said.

There is an 18-18 tie in the Senate and a slight Democratic majority — 79-72 — in the House.

Peter Gioia, chief economist for the Connecticut Business & Industry Association, says that he saw a stalemate coming before the legislative election last November.

“This time last year, when people asked me when I thought they might have a budget, I said it would take until at least October, and people were looking at me like I was crazy,” Gioia said recently.

In an unusual move, last month three Democratic senators and five House Democrats sided with a Republican budget that squeaked through the Legislature, but was vetoed by Malloy. House Republicans then balked at a potential override vote last Tuesday, with hopes they might be able to eventually gather the 101 votes needed.

Bad blood brewing

“Now what? They’re trying to float some modification of the Democrats’ budget, which might happen, but there’s really some bad blood brewing,” Gioia said, stressing that while Democratic leaders are calling for a vote on another budget on Friday the 13th, it seems unlikely. At least $322 million in spending cuts or revenue increases seems to be paralyzing lawmakers, he said.

“I think we’re going into November with the executive order,” Gioia said. “I don’t see it coming together easily, and the votes may not be there for even a moderate-sized tax increase. We may end up in the next legislative session before this sucker gets done.

“The chances of it going all the way to next February are about the same as coming to an agreement 13th, Gioia said. “Both sides are going to have to give a lot from what their original ideology was, to come to an agreement.”

Fred Carstensen, a professor of finance at the University of Connecticut and director of its Connecticut Center for Economic Analysis, agrees that politics is complicating an already-messy budgeting exercise.

“I understand I think the dynamic that got us here, but both the governor and the Legislature don’t seem to have the ability to chart a path to address the challenges, and I am not even confident they understand why we are in the mess we are in,” he said.

Carstensen said that since 2008, “no one seems to have paid close attention to what was happening in the economy” and the state has neither recovered all the lost jobs nor regained the economic output.

“We had a seven-year recession in real output from 2008 to 2015,” Carstensen said. “We are still probably $10 billion below our output level of 2008. This is consistent with the quality of jobs created, which has been much lower than those lost — and thus the income tax base has actually shrunk. And that means that the increase in rates has generated only moderate increases in income tax revenue.”

The 100-day impasse, dysfunction

Carstensen said the 20-year deal with unionized public employees made by then-Gov. John G. Rowland in 1997 compounded the mistakes made by lawmakers who continually deferred investing into state pension funds, and that multiple early retirement proposals increased Connecticut’s unfunded liabilities while stripping the government workforce of experienced workers.

Malloy, during his nearly seven years in office, has declined to offer early retirement incentives. He said last week that the now 100-day budget impasse is hindering the state’s ability to attract business.

“We have been told by companies that they don’t want to talk about that prospect until a budget is reached,” Malloy told reporters. “So that means they’re talking to other people about bringing those jobs to other states, while they’re unwilling to talk with us about that because we don’t have a budget. We’re talking about thousands and thousands of jobs.”

The legislative deadlock, along with the dubious distinction of being the last state without a budget, is taking its toll, he said.

“I think there’s a concern about a dysfunction, that a reality that presents itself — and has for months and months and months — (and) people are finding a way to ignore it,” Malloy said. “I think that’s the heart of the matter. I don’t think it’s about that the state of Connecticut is going to close up shop.”

Gioia, the CBIA economist, said that sooner or later, rank-and-file lawmakers are going to have to make some tough decisions and voter reaction might go against those from towns that don’t get as much municipal aid as they’re used to.

“I don’t think you pull those votes together in a short amount of time,” he said. “We put ourselves in this position by years and years of ignoring serious long-term issues.”

Gioia warned that $200 million to $300 million annual revenue shortfalls could become routine.

“We’ve taxed the rich, forgetting that the rich have feet, and a lot more will be moving for the next tax year,” he said.