Connecticut governor: Boost my budget-cutting power

NEW YORK Wed Jun 29, 2011 5:57pm EDT

NEW YORK (Reuters) - Connecticut Governor Dannel Malloy wants the state Legislature to give him more power to cut the budget and privatize state services, according to a plan issued on Wednesday.

The Democratic governor must close a $1.6 billion gap in his newly enacted two-year $40 billion budget. The deficit was caused by his failure to persuade unionized state workers to accept concessions instead of more than 5,000 layoffs.

The Democrat-led Legislature, which was recalled for a special session starting on Thursday, will also be asked to save money by reducing the earned income tax credit to 25 percent from 30 percent for single and married tax filers -- a change that would be made retroactive to January 1.

Malloy included an income-tax hike for the wealthy in his new budget, and he has repeatedly said all state residents must share in the sacrifice needed to make up for the damage inflicted by the recession.

On Tuesday, Moody's Investors Services cut Connecticut's outlook to "negative," saying it burned through reserves during the recession and had some of the country's most underfunded pension systems.

The twin problems Moody's cited are bedeviling states and cities around the nation because revenues linger below pre-recession levels and the financial crisis dented pension investment returns.

FROM BOOM TO BROKE

During the previous boom, some politicians raised pension benefits for public workers, which has made this problem worse in some areas. New York City Mayor Michael Bloomberg, for example, estimates that the state added $7 billion or so to the city's pension contributions in the last decade.

The Connecticut governor, who took office in January, wants the extra budget-cutting ability to slice 10 percent of any fund or $45 million of any line item, during the next two years. Aid for municipalities could be cut up to 3 percent.

Rules governing privatization under the state contracting standards board would be suspended during the new two-year budget. That board helps oversee state procurements.

Malloy also wants to be able to transfer funds between line items in agency budgets "to address adjustments in resource needs caused by reductions in staff resources and/or shifting demand for services," partly so that he can close the locations of some agencies.

In addition to his layoff plan, Malloy will leave about 1,000 positions vacant.

If the State Employee Bargaining Agent Coalition, the umbrella labor group that spurned his deal for a two-year wage freeze, reverses course and accepts Malloy's deal, the Legislature could act on the contract as late as August 31.

To wring more savings out of the workforce, Malloy proposed freezing "longevity payments" and barring such pay hikes from labor contracts entered into on or after July 1. Similarly, all state employees would be limited to accruing only 10 sick days.

One difficulty politicians face in cutting pension benefits is that they often are stipulated in state constitutions, statutes or contracts. Malloy proposed that overtime, longevity and any fees be excluded from benefit calculations, starting in 2017, when a pension agreement expires.

(Reporting by Joan Gralla; Editing by Jan Paschal)

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