Nearly Five Months Late, Connecticut Passes a Budget -- Update

By Joseph De Avila Features Dow Jones Newswires

After a monthslong impasse, Connecticut finally produced a budget Thursday.

Continue Reading Below

A bipartisan coalition of Connecticut lawmakers passed a veto-proof budget that will spend $41.24 billion over two years starting this past July, in an agreement that largely excluded Gov. Dannel Malloy.

"In the darkest of days I think for anyone up here, we found a way to pull through," said House Majority Leader Matt Ritter, a Democrat. "It always wasn't pretty. We were often times about ready to leave that room. But we found compromise."

The two-year budget plan closes a $3.5 billion deficit by raising fees on motor-vehicle registrations, increasing cigarette taxes and raising taxes on hospitals, which will be reimbursed by Medicaid. The budget also requires teachers to contribute more to their pensions and cuts funding for the University of Connecticut by $134 million.

Lawmakers agreed to provide assistance to the capital city of Hartford, which has said it could seek authority to file for bankruptcy as early as November without additional aid from the state. The plan would provide Hartford with an additional $40 million and creates a new board to oversee the city's finances. In exchange for the assistance, the city would be prohibited from filing for bankruptcy.

Mr. Malloy, a Democrat who has said he would not seek reelection in 2018, vetoed a Republican budget in September, prompting the GOP and Democratic lawmakers to collaborate on a new agreement where the governor didn't participate in the negotiations. Mr. Malloy hasn't said whether he will veto this latest budget package. Lawmakers passed the budget plan with enough votes to overcome a veto if the governor decides to do that.

Continue Reading Below

"Staff will continue to analyze the bill, weighing its merits and faults, so that the Governor can arrive at an informed and carefully considered decision regarding his support," a spokeswoman for Mr. Malloy said.

The protracted budget process comes as Connecticut has been in the midst of growing fiscal challenges fueled by increasing costs in pension obligations, health-care expenses and debt servicing that will continue to expand. Income-tax increases passed in 2011 and 2015 have failed to put state revenues on stable footing.

The state has also been plagued by a sluggish economic recovery and has posted three straight months of job losses. S&P Global Ratings estimates the state will add only 15,000 jobs, less than 1% growth, through 2019.

Major employers such as General Electric Co. and Aetna Inc. have opted to leave the state for major metro areas in Boston and New York to hunt for young talent. The state has also been losing residents for three straight years through July 2016, the third-highest rate of population loss of any state during that period.

The new budget agreement does little to address the state's long-term fiscal challenges. The state again will have to fill budget holes of $1.9 billion in fiscal year 2020, $2.6 billion in 2021 and $3.1 billion in 2022, according to estimates from the state's nonpartisan budget office.

It sets a maximum limit for issuing bonds at $1.9 billion annually, limits the amount of debt the state can take on and it also establishes a cap on annual spending by the legislature.

"Does it do everything we need it to do? No way," said Republican House Minority Leader Themis Klarides. "But this budget is a start."

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

After a monthslong impasse, Connecticut finally produced a budget Thursday.

A bipartisan coalition of Connecticut lawmakers passed a veto-proof budget that will spend $41.24 billion over two years starting this past July, in an agreement that largely excluded Gov. Dannel Malloy.

"In the darkest of days I think for anyone up here, we found a way to pull through," said House Majority Leader Matt Ritter, a Democrat. "It always wasn't pretty. We were often times about ready to leave that room. But we found compromise."

The two-year budget plan closes a $3.5 billion deficit by raising fees on motor-vehicle registrations, increasing cigarette taxes and raising taxes on hospitals, which will be reimbursed by Medicaid. The budget also requires teachers to contribute more to their pensions and cuts funding for the University of Connecticut by $134 million.

Lawmakers agreed to provide assistance to the capital city of Hartford, which has said it could seek authority to file for bankruptcy as early as November without additional aid from the state. The plan would provide Hartford with an additional $40 million and creates a new board to oversee the city's finances. In exchange for the assistance, the city would be prohibited from filing for bankruptcy.

Prices on some Hartford bonds jumped more than 10% following the news of the budget agreement, with some general obligation debt trading at around 90 cents on the dollar, compared with around 80 cents on the dollar in previous weeks. City officials also welcomed the news.

In a joint news release, Hartford Mayor Luke Bronin and other city officials said, "We cautioned against a short-term fix or Band-Aid, and our legislative leaders agreed, providing tools that make a sustainable solution possible."

Mr. Malloy, a Democrat who has said he would not seek reelection in 2018, vetoed a Republican budget in September, prompting the GOP and Democratic lawmakers to collaborate on a new agreement where the governor didn't participate in the negotiations. Mr. Malloy hasn't said whether he will veto this latest budget package. Lawmakers passed the budget plan with enough votes to overcome a veto if the governor decides to do that.

"Staff will continue to analyze the bill, weighing its merits and faults, so that the Governor can arrive at an informed and carefully considered decision regarding his support," a spokeswoman for Mr. Malloy said.

Connecticut was one of the few remaining states in the U.S. without a budget. Pennsylvania on Thursday passed a revenue package for its $32 billion budget nearly four months late. A spokesman for Gov. Tom Wolf said the governor is reviewing the package.

The protracted budget process comes as Connecticut has been in the midst of growing fiscal challenges fueled by increasing costs in pension obligations, health-care expenses and debt servicing that will continue to expand. Income-tax increases passed in 2011 and 2015 have failed to put state revenues on stable footing.

The state has also been plagued by a sluggish economic recovery and has posted three straight months of job losses. S&P Global Ratings estimates the state will add only 15,000 jobs, less than 1% growth, through 2019.

Major employers such as General Electric Co. and Aetna Inc. have opted to leave the state for major metro areas in Boston and New York to hunt for young talent. The state has also been losing residents for three straight years through July 2016, the third-highest rate of population loss of any state during that period.

This new budget doesn't include Mr. Malloy's proposal to shift about $282 million in teacher pension costs from the state to cities and towns over two years. He has warned that the state eventually will be unable to cover these expenses.

Local officials lobbied state legislators to nix that proposal from the budget.

"Lawmakers recognized that this would have imposed a crushing burden on Connecticut's towns and cities," said Leo Paul, first selectman of Litchfield, Conn.

The new budget agreement does little to address the state's long-term fiscal challenges. The state again will have to fill budget holes of $1.9 billion in fiscal year 2020, $2.6 billion in 2021 and $3.1 billion in 2022, according to estimates from the state's nonpartisan budget office.

It sets a maximum limit for issuing bonds at $1.9 billion annually, limits the amount of debt the state can take on and it also establishes a cap on annual spending by the legislature.

"Does it do everything we need it to do? No way," said Republican House Minority Leader Themis Klarides. "But this budget is a start."

Heather Gillers contributed to this article.

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

(END) Dow Jones Newswires

October 26, 2017 17:48 ET (21:48 GMT)