Ben Barnes, the state budget czar, brought a pile of ugly numbers to a packed room full of lawmakers Tuesday with a broad message and a statement — “not a pledge” — that Malloy won’t seek more tax hikes.
The state not only faces budget shortfalls of $363 million this year and $1.1 billion in 2013-14, but the spending plan will fall short by nearly $1 billion in each of the next three years if we keep services right where they are. That’s because of rising Medicaid, healthcare and pension costs.
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.
Gov. Dannel P. Malloy “will NOT propose tax increases as a solution to these challenges,” Barnes’ document said. Whether he means for that promise to hold through 2016 will be up to the voters, of course, but the comment clearly applies to 2013-14, which has the $1.1 billion projected shortfall.
But is it even a promise for next year? Barnes, in an interview later Tuesday, said anti-tax activist Grover Norquist has given the words “pledge” and “no new taxes” a loaded meaning, and he will not go there. “It’s a statement, not a pledge,” he said.
That brings us to Barnes’ broad message, which was the title of slide No. 9 in a 45-slide presentation. “Policy changes are needed.”
That means not only that the state has to cut spending, it must reform how it operates.
“We can’t support current services spending,” Barnes told the lawmakers. Later, he said of any cuts, “We’re working very hard to identify what those are…if they were easy we would have already done them.”
This means painful choices, and Barnes made it clear Malloy will not back away from investments in job-creation and education.
We’ve heard all this before, including the reform bit and the tough choices. 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, so 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, borrowing and shorting the pension funds are also right out, for the same reasons. The bond rating agencies have spoken.
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.
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, 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 whether this crisis is worse than the $3.5 billion hole he and Malloy inherited in 2011. It’s not as big but the best cards have been played.
“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.”
The takeaway: This is not a 1-year crisis, it’s an era of slogging.