September 6, 2017

The CT General Assembly ended its Regular Session on June 3, 3017 without completing its primary job, to pass a state budget for the two-year period through June 30, 2019. With the state budget standoff nearing three months, Democrats and Republican legislative leaders are still working on budget proposals. Ten proposals have failed to achieve enough support to be called for a vote.

The latest proposal from House Democrats’ — who hold the majority — contains unpalatable sales tax and various fee increases, including boosting the sales tax from 6.35 to 6.85 percent, and imposing 1 percent surcharges on hotel and restaurant transactions.

The Governor’s budget proposals to-date would force cities and towns to carry their own teacher retirement benefit obligations, costing municipalities a total of about $400 million annually. This cut essentially shifts a financial burden onto small cities and towns in an immediate and somewhat brutal fashion, while largely increasing funding to cities. In some cases, towns will lose all state aid, and in most cases, the state reductions to local aid will directly translate into property tax increases.

GOP leaders in the House and Senate initially focused on blocking a labor concessions agreement negotiated by the Governor with state employee unions, which will result in $700 million in savings annually, with an aim of achieving greater savings from the state’s payroll . The legislature voted to narrowly approve the agreement in June — separate from the rest of the budget, which sent Republicans back to the drawing board. New proposals are expected any day now, but is unclear if House and Senate Republicans will propose a joint budget or separate budgets for consideration.

Democrats, who hold a 79-72 edge in the House, could pass their budget on September 14, 2017, the next scheduled session day. But given the proposal’s tax increases, there does not appear to be enough support from moderate and conservative Democrats to do so. Even if House approves that budget, it is conceivable that the Senate Democrats would not bring it for a vote or that the Governor would veto it.

While there is no budget for the current year, the Governor has increased pressure on the legislature by announcing that he will cut education payments to towns and cities in October by 28 percent, which he can do without it being included in a budget. In addition, other key grants that support non-education programs in cities and towns, such as road maintenance and capital improvements, will be dramatically reduced or not distributed at all if a new budget is not approved soon.

If the standoff continues into October, cities and towns would have received more than $500 million less in state assistance than they received during the first four months of the 2016-17 fiscal year.

Including the savings from the new concessions deal, the deficits still leave big gaps of $1.6 billion in the first fiscal year and $1.9 billion in the second.

There is no absolute deadline for a budget and it is conceivable that Connecticut could enter the holiday season without a budget in place. Each month without a budget makes the deficit increase as well as the pressure on cities and towns, non-profits, and other service providers dependent on state payments. In October, the Governor will be forced to hold back payments to ensure continuing cash flow.

By any measure, the four legislative caucuses and the Governor are far apart presently, anywhere from $500 million to $1 billion. It is unlikely that such wide gap can be overcome in a matter of weeks, but more likely that the fall chill will hit Connecticut well before the two-year budget is resolved.