As Malloy’s top deputies faced the media to explain $170 million in state budget cuts Wednesday, a pattern emerged.
Yes, the cuts were hard to make, budget czar Ben Barnes and top advisor Roy Occhiogrosso said as reporters asked about the highlights in the 10-page list. But no, these reductions are not, in large part, an assault on the services taxpayers have come to expect.
That will happen later. Make no mistake, the $362 million gap for this fiscal year, and the projected shortfall of $1.1 billion for 2013-14, are not a one-shot crisis. They are part of a years-long slog with flareups and periods of calm, much like a patient fighting a cancer that has spread.
Gov. Dannel P. Malloy is in a jam here, not because the crisis of the moment is bigger than the one he inherited when he took office two years ago; it isn’t. But he’s already played the best cards — a tax hike and a deal with state employees.
Many of these first cuts fall in the category of management: Spending reductions that the state commissioners — more powerful under Malloy than under the two previous governors — can work around by doing things faster, better.
Of the $170 million, $47 million represents cuts that were going to happen anyway, so-called lapses, money the commissioners were not going to spend. Even with those lapses, Malloy is less than halfway toward solving this year’s problem, and his plan for the next fiscal year is due in a few short weeks.
Next will come program cuts, probably made through the legislature — deeper reductions that reduce what the state does in a more painful way. Looking ahead, Malloy and lawmakers will have to make policy cuts, as Barnes warned on Tuesday — broad changes in the promises the state makes to its citizens, such as who is entitled to Medicaid and what services are available to homeless people.
That includes the closing of facilities, and not just prisons, Barnes warned Wednesday.
This is not to say the first round of cuts will be painless, rather that the idea is to manage the state’s agencies more efficiently to buffer the pain.
“People will feel the impact in a way that makes none of us happy,” Occhiogrosso said. But he noted, “To look at any one of these cuts in isolation misses the larger point.”
The larger point is that the budget shortfalls — caused by a slower than expected economic recovery and sharp rises in Medicaid costs and pension payments — stretch out for years, averaging just under $1 billion a year through 2016.
Worse still, the state government would have to slice spending by an average of $1.7 billion in each of the next three years just to stay withing the mandatory spending cap, as defined by overall income and economic growth.
And those scary numbers are all based on the personal income tax growing at 7.2 percent a year in each of the coming three years — up from an average of 4.6 percent gains in 2011 through 2013. Oh, and federal grants would have to leap by 30 percent to $4.9 billion, for the hole to be only as large as projected.
We’ve heard all this before, including the need for deep reforms. But this time it seems different for four reasons. First, this isn’t a recession like 1991, 2001 or 2008, so we don’t necessarily have better times to look forward to.
Second, Malloy has already raised taxes by $1.5 billion in the last go-around, and he says he won’t seek new tax hikes. There’s not much room for that trick even if it could work. The cigarette tax, for example, is starting to show reverse results as smoking declines, and corporations have developed an appetite for more tax credits that they’ll get here, or move elsewhere.
Third, financial engineering such as borrowing and shorting the pension funds will be last resorts only, for the same reasons. The bond rating agencies have spoken clearly. That said, Occhiogrosso would not say borrowing is off the table.
And fourth, the state employee payroll is already down by 3,700, more than 12 percent, since 2008 — and employees are overdue for raises totaling $112 million and $152 million over the next two years. Malloy has already promised no layoffs through 2015, so he shouldn’t look there for more wiggle room.
After Wednesday’s relatively easy round of cuts, there’s nowhere to run to, nowhere to hide.
Well, almost nowhere. The state’s Medicaid budget, $5.1 billion this fiscal year, is projected to grow to $6.2 billion in three years as federal health reform kicks in and the number of eligible adults rises sharply. The good news is that federal Medicaid reimbursement will rise even faster, which is why overall federal grants will surpass the state sales and use tax by 2015.
And in a glimmer of hope noted optimistically by retiring Sen. Edith Prague, who didn’t seek her old seat but has no shortage of energy to finish out her term, there are ways to reverse Medicaid spending trends. Barnes said Tuesday, for example, that the state could hope to persuade federal Medicaid officials to allow Connecticut to keep elderly people out of skilled nursing homes, in less community care — at least in some instances.
“I have no idea how successful we will be,” Barnes said, but the savings “could potentially be hundreds of millions of dollars a year.”
I asked Barnes to compare this crisis with the one in 2011, when he presided over the filling of a $3.5 billion hole.
“I like to think I’m a little smarter today than I was back then,” Barnes said. “It’s a challenge but we have the benefit of a group of commissioners who have had an opportunity to understand…what’s driving their costs.”
They’ll need that skill because even though Democrats are in power, government will remain a sector under siege for a long time.
For example, in response to a question about $19 million in cuts to community programs for people with mental retardation — less than 3 percent of those line items — Barnes said, “a significant portion can be achieved without a cut in services.”
In the next round, that won’t be true.