Connecticut Governor Releases Fourth Budget Proposal -- Update

By Joseph De Avila Features Dow Jones Newswires

Connecticut Gov. Dannel Malloy is hoping the fourth time's a charm.

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Nearly four months after the start of the fiscal year in July, Mr. Malloy on Monday released a new budget proposal, his fourth for this fiscal year, amid protracted negotiations with state lawmakers on how to eliminate a two-year, $3.5 billion shortfall and amid threats of further credit rating downgrades.

The governor's latest proposal includes spending cuts on education, municipal aid and social-service programs. It also eliminates some surcharges and new taxes on seasonal homes that Democrats had proposed earlier this year.

"Folks, it is a slimmed down budget," Mr. Malloy, a Democrat, said at a news conference Monday. "I'm trying to meet people where I can meet them, where I think it's legally plausible to meet them."

Credit-ratings firms are keeping a close eye on the budget standoff. S&P Global Ratings said Friday the state could be headed for another credit downgrade as the budget impasse continues to drag on. The ratings firm knocked the state's rating from AA- to A+ in May.

Connecticut's budget challenges "include revenue weakness because of slow economic growth and recent population decline and reduced revenue-raising flexibility after substantial tax increases were instituted in the last two biennium budgets," S&P Global Ratings said.

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Mr. Malloy signed an executive order at the start of the fiscal year on July 1 to keep state operations running until a full budget agreement passes.

Monday's budget proposal is the governor's first counteroffer after he vetoed a budget plan passed by the legislature in September. The governor said that the budget from state lawmakers was filled with gimmicks and would invite legal challenges from public-sector unions for making changes to the pension systems for teachers and state employees.

In his latest budget, Mr. Malloy has kept one of his most controversial proposals in his latest proposal: shifting $281.6 million in teacher pension costs from the state to municipalities over the next two years. The governor says it is unsustainable for the state to continue to pay for teacher pensions while cities and towns pay nothing. Mr. Malloy said municipalities will be able to make budget changes to absorb the new costs.

The new budget immediately drew fire from the governor's political opponents.

"It is obvious that the governor's proposal, including his devastating cuts to certain core services and shifting of state expenses onto towns and cities, would not pass the legislature in its current form," said state Sen. Len Fasano, the Senate's top-ranking Republican.

State Sen. Martin Looney, the Senate's top-ranking Democrat, said he would review the governor's budget proposal. As budget negotiations continue, GOP and Democratic leaders have told their members to be available the week of Oct. 23. to possibly vote on a plan.

Municipalities across the state also came out in opposition to the plan.

"The budget leaves towns with very few options but to increase property taxes," said Betsy Gara, executive director of the Connecticut Council of Small Towns.

Mr. Malloy's proposed budget also provides the cash-strapped city of Hartford with an additional $46 million and creates a review board to oversee the capital city's finances. City officials have said Hartford could declare bankruptcy by November without more help from the state.

Write to Joseph De Avila at joseph.deavila@wsj.com

Connecticut Gov. Dannel Malloy is hoping the fourth time's a charm.

Nearly four months after the start of the fiscal year in July, Mr. Malloy on Monday released a new budget proposal, his fourth for this fiscal year. It comes amid protracted negotiations with lawmakers on how to eliminate a two-year, $3.5 billion shortfall and as the state faces threats of further credit rating downgrades.

The governor's latest proposal includes spending cuts for education, municipal aid and social-service programs. It also eliminates some surcharges and new taxes on seasonal homes that Democrats had proposed earlier this year.

"Folks, it is a slimmed down budget," Mr. Malloy, a Democrat, said at a news conference Monday. "I'm trying to meet people where I can meet them, where I think it's legally plausible to meet them."

Credit-ratings firms are keeping a close eye on the budget standoff. S&P Global Ratings said Friday the state could be headed for another credit downgrade as the budget impasse continues to drag on. The firm lowered the state's rating from AA- to A+ in May.

Moody's Investors Service said Monday it placed 26 Connecticut towns and cities under review for downgrades, citing the prolonged budget impasse. It also assigned negative outlooks to ratings for an additional 25 municipalities.

Mr. Malloy signed an executive order at the start of the fiscal year on July 1 to keep state operations running until a full budget agreement passes.

Monday's budgetproposal is the governor's first counteroffer after he vetoed a budget plan passed by the legislature in September.

The governor said that the budget from state lawmakers was filled with gimmicks and would invite legal challenges from public-sector unions for making changes to the pension systems for teachers and state employees.

In his latest budget,Mr. Malloy has kept one of his most controversial proposals in his latest proposal: shifting $281.6 million in teacher pension costs from the state to municipalities over the next two years. The governor says it is unsustainable for the state to continue to pay for teacher pensions while cities and towns pay nothing. Mr. Malloy said municipalities will be able to make budget changes to absorb the new costs.

The new budget immediately drew fire from the governor's political opponents.

"It is obvious that the governor's proposal, including his devastating cuts to certain core services and shifting of state expenses onto towns and cities, would not pass the legislature in its current form," said state Sen. Len Fasano, the Senate's top-ranking Republican.

State Sen. Martin Looney, the Senate's top-ranking Democrat, said he would review the governor's budget proposal. As budget negotiations continue, GOP and Democratic leaders have told their members to be available the week of Oct. 23. to possibly vote on a plan.

Municipalities across the state also came out in opposition to the plan.

"The budget leaves towns with very few options but to increase property taxes," said Betsy Gara, executive director of the Connecticut Council of Small Towns.

Mr. Malloy's proposed budget also provides the cash-strapped city of Hartford with an additional $46 million and creates a review board to oversee the capital city's finances. City officials have said Hartford could declare bankruptcy by November without more help from the state.

Write to Joseph De Avila at joseph.deavila@wsj.com

(END) Dow Jones Newswires

October 16, 2017 17:35 ET (21:35 GMT)