What Happens If Labor Deal Is Toast?

From the CT Mirror:

For the past five months, Gov. Dannel P. Malloy has put a scare in municipal governments and social service providers, warning they could well face deep cuts in aid if unionized state employees refuse concessions.

But while those threats may have been effective at mobilizing advocates for these groups to press state workers for givebacks, it remained unclear Wednesday how severely either area might be cut as administration officials discussed what their options might be following what looks like the inevitable defeat of the concession plan.

Municipal aid and social services programs are large targets in the state budget–along with personnel. Layoffs are certain if concessions fail, Malloy adviser Roy Occhiogrosso, said Wednesday, and there will be “significant” reductions in social services spending. And cuts in grants to cities and towns?

“Everything is on the table,” he said, while quickly adding, “there are obvious items [Malloy] would very much like to take off the table.”

The governor said repeatedly during last fall’s campaign that he wanted to close a record-setting state deficit without passing the burden onto municipal property taxpayers or shredding the “safety net” that protects the poor and disabled.

But if the concessions are rejected, the administration will have to fill huge gaps–$700 million in 2011-12 and $901 million in 2012-13–in the budget. And Malloy has pledged to do that without adding to $1.5 billion in tax increases.

“It’s awfully difficult to take big pots of money off the table,” Occhiogrosso added.

Nonetheless, the Democratic governor could run into some political obstacles from within his own party if he tries to cut too deeply in social services or town aid.

House Majority Leader J. Brendan Sharkey, D-Hamden, conceded Wednesday that “it would be very difficult for my caucus to consider any cuts to municipal aid. It would have to be the absolute last resort.”

Majority Democrats in both chambers rejected Malloy’s request during the regular 2011 session for expanded budgetary authority that would have included the power to make emergency reductions in town aid without legislative approval.

Fewer than 10 of the state’s 169 cities and towns have yet to adopt municipal budgets for the next fiscal year. And the executive director of the Connecticut Conference of Municipalities, James Finley, said most communities–particularly poorer urban centers–assumed state aid would not be cut when they approved those plans.

Keeping state aid flat “saved a lot of municipal budgets” from hefty property tax hikes or layoffs, Finley said, adding that state funding for town services has been on the decline.

If Malloy must recommend new budget adjustments they will include “significant” social service cuts that will be felt by some of the most vulnerable state residents, Occhiogrosso said Wednesday.

“They’re not cuts that [Malloy] would want to do,” Occhiogrosso said, adding that the governor has asked, “‘What’s the alternative?'”

Sen. Toni N. Harp, D-New Haven, co-chairwoman of the Appropriations Committee, said the governor could address much of the gap with his existing budget authority, which allows him unilaterally to reduce many non-municipal aid accounts by up to 5 percent.

Among social service programs, Harp said, Medicaid programs are likely to be at less risk because Medicaid is an entitlement and the state must meet certain obligations to receive the federal funding they bring in. But the New Haven lawmaker added that small social service programs and nonprofit private providers are likely to be the most in jeopardy.

“I’m really hoping that he finds other ways to deal with this, because people here are really hurting and are afraid,” she said, adding she is committed to trying to preserve safety net programs that are most needed during difficult economic times.

Malloy’s original budget proposal included several health and social service cuts that legislators later restored. In a list of “Plan B” budget options offered last month as a fallback in case administration and union negotiators did not reach an agreement, Benjamin Barnes, Malloy’s budget director, again suggested cutting them.

Those cuts include:

• More than $3.5 million from community health centers

• $299,250 a year for fetal and infant mortality review

• $320,260 for AIDS services in the upcoming fiscal year and $470,260 in the following fiscal year.

Malloy’s original budget also would have required some Medicaid recipients to pay cost-sharing for medical services and would have reduced food assistance for recent immigrants ineligible for food stamps. Legislators rejected those changes, but they were included in the “Plan B” options.

And while nursing homes traditionally have shared some of the added federal revenues Connecticut receives through a provider tax system launched in 2006, the “Plan B” options included putting all additional federal reimbursement in the state’s coffers.

Sharkey said he believes most House Democrats agree with Malloy that the $1.5 billion in new state taxes adopted for the coming fiscal year is sufficient. “It’s a hard enough pill for our members to swallow,” he said.

But while that would leave savings from layoffs to do most of the budget-balancing work absent a concession deal, and there were signs Wednesday that some of labor’s strongest allies would accept that rather than cuts to municipal aid or social services.

Sen. Edith Prague, D-Columbia, said she was still holding out hope that the deal would be ratified and said she found it hard to believe state employees would turn it down.

“I’m beside myself thinking that they could turn down this deal,” said Prague, the co-chairwoman of the Labor and Public Employees Committee. “If they do, they’ll never get another thing out of me.”

Still, other Democrats noted there are other options to consider.

“If we are back to square one, then square one includes taking a cold hard look at how much money we can expect to come in next year,” Rep. Peter Tercyak, D-New Britain, said. “And if our projections have been a little conservative, if revenue growth is there, we should acknowledge that first before we do anything else.”

The Malloy administration reported Tuesday that General Fund revenues for this fiscal year shot up $53.4 million in the past month alone, with $40 million of that growth tied to the income tax.

Minority Republican lawmakers charged that Malloy and his allies built excessively conservative revenue assumptions into the new budget.

With the latest growth factored in, this year’s General Fund tax revenues are projected at $11.96 billion, $1.04 billion over the level originally budgeted for 2010-11, while next year’s growth–before new revenue from tax hikes is factored in–would be just $286 million, or 2.4 percent.

And the $20.14 billion budget for next fiscal year already was built to run $89 million in the black, even without any further revenue adjustments.

This year’s budget also is on pace to finish $85.5 million in surplus. But that is one-time money and Occhiogrosso warned using it to patch any holes in the state budget was unlikely.

“Technically it is on the table but it is not something [Malloy] is inclined to do,” Occhiogrosso said.