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Lamont will need budget magic

November 29, 2018

A few more harsh realities became clear Tuesday and Wednesday as Gov.-elect Ned Lamont lurches toward Inauguration Day, Jan. 9, and more important, the revelation of his first budget on Feb. 6.

Revelation, a mystical word, on purpose. To do what Lamont has suggested will take a miracle: balance the budget and set the state on a sustainable course without raising tax rates and without squeezing more blood from the public employee unions that helped him to victory.

A balanced budget — filling a projected $1.6 billion shortfall, more or less — is hard enough, but it’s not enough. That was the message Wednesday from Jim Smith and Robert Patricelli, co-chairmen of the fiscal meltdown commission.

That group, formerly a public body, now a band of influential private citizens, released its second set of recommendations at the state Capitol complex. The document calls for modestly lower taxes on the rich — not the broad-based state income tax cut the commission called for in March — along with lower taxes on business.

To make up for the loss of some $700 million in revenue, the group called for a broadening of the state sales tax to include dental services and, get this — a 2 percent levy on groceries, raising $148 million.

The panel, officially the commission on fiscal sustainability and economic growth, also called for a new round of givebacks by public employee unions, which are among the higher paid state workers in the United States. “The focus has to turn to state employee benefits and wages,” Patricelli said, but he added, “We’re not blaming state employees.”

The co-chairs pointed out, in fact, that more than 70 percent of Connecticut’s infamous unfunded liability — perhaps $75 million, depending on how we count it — is not due to current benefit costs, but rather to decades of negligence when it came to paying into the pension funds and setting aside money for health.

The commission chiefs even went as far as to say, again, that the latest tier of state employees, so-called Tier 4, hired after July 31, 2017, have benefits that are too low. Repeat: too low to attract the people the state needs to replace retiring workers.

Speaking of retiring workers, also this week we heard from the budget offices of the governor and the General Assembly, with their every-two-years fiscal accountability reports. No space here for the details, but they included a scare that Connecticut isn’t poised to replace the income we will lose when the baby boomers retire.

Oh, and they, like many of us, expect to see a recession sometime in the next few years.

Back to the commission; it’s proposing six big ideas, pared from some 35 when it issued its final report as a public body in March. They include cutting $1 billion from the budget — not overnight, but eventually — and moving cash-earning assets such as the lottery revenues into the teachers’ pension fund, to shore up that fund.

My takeaway is not the nature of this or that specific proposal — all of that will come up for debate starting in February and ending, we hope, in early June with a 2-year spending and taxing plan. Rather, it’s the overall message contained in the commission’s report, and in the fiscal accountability reports released on Nov. 15 by the budget offices of the governor and the legislature.

That message: Yes, we’ve started on the path to recovery with state employee givebacks on 2017, higher tax collections and, finally this year, healthy job gains and economic growth. But the hole from prior sins is too deep.

“People don’t understand the depth of the problems that have to do with liabilities,” said Patricelli, a former entrepreneur and executive in health care. “We can’t get there by right-sizing benefits. ...We’re in a bind collectively and we’ve got to face up to it, Republicans and Democrats alike.”

“It’s not sustainable.”

Patricelli and Smith downplayed the party labels Wednesday but both came under fire from reporters for strongly backing Republicans in the recent elections, only to return with a plan dubbed as nonpartisan. That’s the nature of life at the Capitol but in the end, the ideas are the ideas. Most of the commission members are formally or informally working with Lamont on the transition.

Among those ideas are an expansion of the earned income tax credit for working poor families; endorsement of an increase in the minimum wage to $15 an hour, gradually; and abandonment of the commission’s previous recommendation that the state end collective bargaining for employees’ health and retirement benefits.

Despite all that, the plan didn’t go over well with union leaders in the room, notably Sal Luciano, who takes over as president of the state AFL-CIO on Friday, when Lori Pelletier exits for a job in Washington, D.C.

“The ‘Let Them Eat Cake Commission’ strikes again,” Luciano said afterward. “They just continue to comfort the comfortable.”

He was referring to a cut in the top state personal income tax rate from 6.99 percent to 6.7 percent, the recommended end to state gift and estate taxes and lower business taxes.

And he was talking about the commission’s view that raises of 3.5 percent in each of the next two fiscal years are unaffordable. Those increases were part of a 5-year deal in which unionized state workers took zero raises for three years. Yes, they did collect a $2,000 signing bonus and many received so-called step increases, but the trouble is, it’s unclear what the state can offer the unions in exchange for outright givebacks.

The details are many, and will air in this space and elsewhere in the next seven months. The point is this: If Gov. Lamont wants to make this plane fly without squeezing unions or raising tax rates, he’s going to need more magic than his excellent ability to bring 450 very differently minded people together in a room, as he did on Tuesday.

dhaar@hearstmediact.com

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