Two new reports give more information about the potential budget difficulties ahead for the state of Connecticut.
The Malloy administration, along with the legislature, must begin to craft a new two-year budget early next year. But the challenge ahead of them only seems to get bigger.
The Office of Policy and Management and the legislatures’s Office of Fiscal Analysis both issued fiscal accountability reports this week.
The reports have changed format in recent months, and do not directly forecast projected deficits or surpluses. But they do outline how fixed costs will rise sharply next year.
The OPM report says contributions to pensions, retiree health care, and debt service for state borrowing will rise by a combined $820 million. In addition, the state will have to find $276 million more for Medicaid and federal entitlements.
While costs rise, revenues are projected to fall by almost $200 million.
Combined, those issues could add up to more than a billion-dollar budget hole.
Governor Dannel Malloy conceded the state faces what he termed “gigantic challenges.”
He also hinted at potential tax changes in the budget that he will propose, although he said large tax hikes are off the table.
"I think there are tax changes that I would like to see, that are beneficial to the business climate of the state," he told a news conference Tuesday. "But if you’re asking: am I leading with the expectation that we’re going to raise a lot of additional dollars? The answer is no."
Malloy emphasized that the state is currently paying the price of a failure of the state in past decades to fully fund its pension and other obligations.
"If you look at the budget as a whole picture, and specifically zero in on pension and post-employment benefits, that’s where all the growth is," he said. "And it’s all there because people found it convenient not to pay the bill when it should have been paid."
But Malloy admitted that it's difficult to get that message across when people see continuing budget deficits and cuts to services.
“I think most people out there think that I’ve increased spending dramatically for what they would otherwise consider to be optional expenditures, and nothing could be further from the truth,” he said.
Senate Republican Leader Len Fasano called the reports “devastating.”
“Our state is facing a death spiral, and we must start talking about fixing it today,” Fasano said in a statement. “Connecticut cannot even keep up with its most basic everyday expenses.”
And Fasano disputed Malloy’s claim that previous administrations are to blame for the fiscal woes of the state today.
“Bonded indebtedness has grown by over $4 billion under the current administration,” Fasano's statement went on. “And it was Governor Malloy and Democrats who extended the state’s pension deal, locking us in for another five years.”
Fasano can expect to take a fuller role in budget negotiations next year, as his caucus is currently tied with Democrats in the Senate, leaving no party in a majority.