Connecticut governor unveils $17.9 billion budget, same size

NEW YORK (Reuters) - Connecticut Governor Dannel Malloy on Wednesday unveiled a $17.9 billion budget plan for the new fiscal year -- about the same size as the current accord -- and called on public employees and taxpayers to share in the pain of closing a $3.2 billion deficit.

The new budget, which starts on July 1, includes $1 billion to improve and repair roads and bridges, offers the first 5 companies that apply special incentives for creating at least 200 jobs, and spares schools and some of the most vulnerable residents, including addicts, cuts in aid programs.

Malloy will have to close a $3 billion deficit in the following 2013 fiscal year, when he is only proposing to raise spending by $500 million to $18.4 billion.

His determination not to cut school aid is unusual in this era of shrinking state and local revenue, a legacy of the recession. New Jersey Republican Governor Chris Christie, for example, wants to slash aid for education, as does New York Democratic Governor Andrew Cuomo.

Malloy, the former mayor of Stamford who took office in January, wants the Democratic-led legislature to approve a broad array of tax increases but says Connecticut will still be competitive with New York and New Jersey though their governors have ruled out raising taxes despite their huge deficits.

"I do not believe that we should punish success or wealth; that's why taxes will rise on incomes over $1 million by two-tenths of one percent," he said in a speech.

Any rise in property taxes -- a hot issue in many states -- would be curbed in Connecticut, Malloy says, because cities and towns would share in the extra revenue raised by adding one quarter of a percentage point to the sales tax.

The sales tax also should be applied more evenly, he said, noting that yoga studios now are exempt but pilates studios are not.

Like many Democratic and Republican governors, Malloy says the state cannot afford the public workers' "current wage, health care and pension benefit levels."

So he wants state workers to accept $2 billion of cost savings over two years, achieved by freezing their wages and longevity payments, raising their retirement ages and medical co-pays, and switching their health plan to one that mirrors the federal government's.

"The alternative to that $2 billion figure would require us to completely shred the safety net and lay off thousands of state workers," Malloy said.

Like a number of other politicians, including New York City Mayor Michael Bloomberg and New Jersey's Christie, Malloy wants teachers to give up seniority and is a fan of charter schools, proposing to add 747 charter school seats.

Malloy, who said his budget has no gimmicks, frowned on the $700 million plan to securitize utility charges that he inherited, saying this year's $43 million surplus would be spent reducing that deal.

A total of $758 million of spending reductions were proposed and the state's bureaucracy -- which now includes seven entities that deal with energy -- would be streamlined, compressing 82 agencies down to 52, he said.

To save $80 million a year, Malloy would convert the Medicaid program to a self-insured model. In addition to providing more dollars for rising caseloads, he said: "We've resisted eliminating optional services, like dentistry or eyeglasses, that too many states are embracing in this difficult environment."

(Reporting by Joan Gralla)