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02/08/2017

Governor Dannel P. Malloy's Fiscal Year 2018 - 2019 Biennial Budget Address

Hall of the House of Representatives, State Capitol

February 8, 2017



Mr. Speaker, Mr. President, distinguished members of the General Assembly, thank you for inviting me once again into the people’s house to address you.

I want to recognize and thank my trusted friend and advisor, the best Lt. Governor in the United States, Nancy Wyman.

I'd like to thank my wife Cathy and my son Dannel for being here today, and for their love and support.

And as always let us thank and honor the brave men and women of Connecticut serving in our Armed Forces around the globe.

INTRODUCTION

One of the basic principles of our country is that if you’re willing to work hard, you should have the opportunity to succeed. You should be able to buy a house, afford health care, or send your children to college.

It’s a fundamental promise that has come to be known as the American Dream. It’s why people from around the world – the huddled masses yearning to breathe free – brave the journey in the hope of a better life here in America.

At all levels of government, so much of what we do is really about delivering on that fundamental promise. While we can disagree strongly on policy or politics, we collectively judge ourselves by how many of our constituents have the opportunity for success.

That concept – the opportunity for success – is what I want to talk to you about today. But not just the opportunity for individual state residents. Rather, I want to speak about the opportunity that we provide to our towns and cities as well, so that they also can succeed.

The truth is that, for too long, we’ve allowed certain communities to be disproportionately impacted by the state’s fiscal challenges. While we’ve made advancements in recent years to address this inequity, I don’t believe that we’ve gone far enough.

Disparities have persisted and grown over the years, creating large pockets of concentrated poverty where communities sometimes sacrifice education for services – or services for education – or both.

It’s a vicious cycle that began decades ago, one that hinders poorer, urban communities, leaving them with the highest tax burdens, troubled educational systems, and substantially fewer city services… causing them to be even poorer still. In turn, suburban towns feel as though they’re shouldering too much of the burden of neighboring cities. And all the while, rural communities feel forgotten altogether.

The result is a broken, disparate system where towns are pitted against one another, constantly fighting for limited state dollars.

As towns have been forced into this race to the bottom, their state government has yet to build the kind of world-class education system necessary for growing a new generation of workers. We’ve yet to build a modern transportation system that efficiently moves people or products from place to place. And we’ve yet to build enough thriving, vibrant city centers – with lower tax rates – where industry and businesses want to grow.

The truth is, other states have had the foresight to make necessary investments in these areas, and as a result they’ve gained a competitive advantage on us.

But it’s not too late.

The opportunity is before us to turn the tide this year so that we can compete nationally and internationally in our own right.

To do it, we’ll need to continue building a better, fairer system for supporting town services and local schools. We’ll need to continue investing in a modern transportation infrastructure that meets the needs of both our residents and our businesses. And we’ll need to continue growing vibrant city centers – communities that are more than just great places to work, but also great places to live and raise a family.

This biennium budget lays the foundation for that kind of progress. Progress that doesn’t just help our big cities, but that bolsters all of Connecticut.

We are a small state, and our towns are interconnected.

Growth in Hartford means growth in Bloomfield and Windsor.

More jobs in Waterbury means more jobs in Cheshire and Beacon Falls.

A more vibrant New London means a more vibrant Ledyard and Montville.

We can rise together; or we can fall together. We can lift one another up; or we can drag one another down. Our future depends on the decisions we make today.

This session.

This year.

CONTINUED SAVINGS IN STATE GOVERNMENT

The budget I present to you contains a total of $18 billion in General Fund spending.

This keeps us within the spending cap and growing at a pace well below inflation. More importantly, it does it while making required increased contributions to our pension systems of more than $357 million in the first year.

If we enact a budget that spends only the amount I’ve proposed, the result would be an eight-year period where Connecticut’s general fund budget grew an average of only two percent. That is substantially less than the rate of growth in the prior eight years. And unlike those prior eight years, we’re keeping spending in check while also fully-funding our pensions.

This year, we can build on our record of fiscal responsibility. To do it, my plan contains $1.36 billion in new spending reductions. These cuts are not made lightly, and I know they will include things that people in this chamber strongly support. Let me assure you, they include things that I myself strongly support.

But our economic reality demands that we re-envision state government. Together, we need to provide essential, core services and we need to find ways to do it at less cost to taxpayers.

The truth is, we’re getting pretty good at doing exactly that. Last year, we cut $850 million in spending from the adopted budget. Those reductions were not easy. They are a credit to all of you who took a hard vote in support of our state’s fiscal health, and I thank you for that.

This year, while you review my budget, it’s natural to focus on what we’re cutting back. But I encourage you to also recognize the many, many important things we preserve.

For example, even as we cut spending, we are still putting millions of dollars toward helping Connecticut’s chronically unemployed get back to work and back on their feet.

We’re still providing the necessary investment to match every single chronically homeless person to permanent housing—making Connecticut the first state in the nation to do it.

We’re still funding new technology for law enforcement that will help keep crime at historic lows.

We’re still fully funding our critical arts and tourism awards.

We’re still redeveloping brownfields in every corner of this state, turning blighted properties into economic opportunities.

We’re still committed to supporting people with intellectual disabilities – we do it with millions of dollars in new funding in my proposed budget.

And finally, even as we cut back, we’re still going to keep Connecticut’s beautiful state parks open and available to all our constituents.

We’re doing all these things, and so much more in this budget.

Of course in order to preserve these core functions, we need to guarantee that spending remains in check.

To that end, I am once again proposing a strong constitutional spending cap, and I hope you'll join me in making it a reality this year.

PARTNERING WITH STATE EMPLOYEES

Of course, as we continue to make reductions to state agencies, we also need to redefine the relationship between state government and state employees.

As I said last month, my administration is engaged in productive conversations with state employee representatives. Those discussions can and will continue to play out in good faith, and I’m hopeful that we will reach a positive conclusion in the weeks ahead.

At the same time, I have an obligation to submit a balanced budget to this General Assembly. It’s only appropriate that I reflect my goals for labor savings. To that end, to help close the $1.7 billion hole we face, the budget before you assumes approximately $700 million in state employee labor savings.

The budget also details how these savings could be achieved should we fail to reach an agreement with our employees, because presenting a budget without planning for this contingency would be irresponsible.

Now, while I will not betray the confidence of my administration’s conversations with labor thus far, I do want to say a few things about the potential for a new labor agreement.

First, I want to once again acknowledge and commend our state employees for what they’ve already sacrificed to help balance our budget. And more importantly, I’d like to thank them for the hard work they put in each and every day serving the people of Connecticut.

Public service is a calling, and an honorable one at that. I’m proud to be a staunch, lifelong advocate for the right to organize and the right to collectively bargain. I respect public employees, and it is my sincerest hope that asking for their partnership this year should not diminish the good work and real savings we’ve already achieved together.

Here’s something else I want to recognize, and it’s something I would like everyone in this chamber to keep in mind in the coming weeks. State employees have an existing contract, one that was originally negotiated 20 years ago by a former governor – John Rowland.

In other words, we are not starting from scratch when we revisit the SEBAC contract. While it is fair for us to ask for savings, it’s equally fair for our employees to also ask for changes as long as the end result is a more affordable and more sustainable labor agreement.

Finally on this topic, let me say that I am very hopeful we can achieve a positive conclusion and meet the labor savings target laid out in my budget. It won’t be easy, and that’s fine. I think we’re up to the challenge.

If we stay at the table, if we treat one another with respect, and if we recognize that we all want what’s best for our state, then we can – and will – get this done.

A FAIRER SYSTEM FOR TOWN AID

Here’s the final topic I want to discuss with you today.

As I said to you from this podium last month, we cannot talk about more cuts in services, and we cannot talk about labor savings, without discussing town aid.

At more than $5 billion, municipal aid accounts for our single largest state expenditure. And addressing town aid also means that we are addressing educational aid, which amounts to $4.1 billion – or 81 percent – of all municipal funding from the state.

Here’s a simple truth I know you all agree with: education is economic development.

A pipeline of skilled and prepared workers is essential for thriving industries and growing businesses.

It’s why we value our state’s public education system. It’s why we’ve put so much effort into improving how our children are educated. And it’s why we’ve raised the bar for our students in recent years.

And to be sure, they are rising to that challenge. Test scores are up, and graduation rates are at an all-time high.

But the system for how state aid is delivered to their schools is still not where it needs to be. A recent court decision deemed our school funding formula to be irrational and unfair. I agree that we are not meeting our constitutional requirement of a fair and equitable public education system – one that guarantees every student the opportunity for success.

Real reform must begin with our educational cost sharing formula, or ECS. I believe the updated ECS formula in my budget is more equitable, more transparent, and more fair.

For the first time in more than a decade, the formula counts current enrollment. We will stop reimbursing communities for students that they no longer have. By recognizing shifting demographics in small towns and growing cities, state funding can change with time to reflect changing communities.

The new formula also uses a more accurate measure of wealth by using the equalized net grand list as well as a better measure of student poverty, allowing the state to direct support to communities with higher concentrations of poverty.

By considering a given communities’ ability to pay, we can adjust to what taxpayers can actually afford. Because let’s be honest – if a city has a mil rate over 40, not only is that city failing its residents, but Connecticut is failing that city.

This proposed formula is fair and it is honest. It is predictable and it is sustainable. Let’s make it a reality together.

Of course, you can’t talk about education funding without talking about Special Education.

For the last quarter century, Connecticut has combined Special Education dollars into ECS. The result is that we’ve unfairly obscured the real cost of Special Education in our communities.

It isn’t fair to local leaders trying to balance their budget, and it certainly isn’t fair to students with disabilities and their families.

In my proposed budget, Special Education is now a separate formula grant from ECS, and Special Education funding is increased by $10 million.

School systems will also be required to seek Medicaid reimbursement where available, ensuring that no community leaves federal dollars on the table.

Of course, as we work to make ECS and Special Education funding more fair and more equitable, we also have to grapple with how we fund this new system.

As I’ve already said today, part of the way we do it is by continuing to reduce spending in our state agencies and by working to find savings with state employees. Making those changes helps free up more dollars for town aid, but we need to do even more.

There’s a very large portion of education aid that’s almost always left out of the conversation. I’m talking about how we pay for teacher pensions.

This year, state government is set to pay $1.2 billion for a system that supports 86,000 active and retired teachers and administrators. So you see, when we talk about funding for education, we have to include the state contribution to teachers’ pensions as part of that conversation.

Now I want to be very clear – the teachers’ retirement program is a sustainable, well-organized system, and hardworking teachers make a six percent contribution to it. I am not proposing that teachers’ benefits be limited or cut back.

Teachers retirement pension system has always been funded without any contribution from towns or cities. My budget does not propose that we demolish that system or shift the entire costs to towns.

But this year, as we continue making cuts to state services, and as we ask state employees to find saving, we need towns to begin sharing the cost of their employees’ pensions. After all, teachers are municipal employees. The state doesn’t pay the pensions of policemen, or firemen, or anyone else.

As such, my budget asks our towns and cities – all of them – to contribute one-third of the cost toward their teacher pensions.

It isn’t just about saving the state money, I believe this is sensible policy. After all, this funding is not distributed based on student need or relative town wealth. Rather, it’s based entirely on local decisions about how much towns decide to pay their local educators, and how many teachers and administrators they employ.

Under my proposal, towns maintain that control but they do it with some skin in the game.

Let me illustrate for you the disparity that this current system has created in communities across the state.

In the current fiscal year, the state is spending $24 million to cover the pension costs of teachers and administrators in our most affluent municipality, Greenwich – a school district that enrolls 8,800 students.

Compare that to the City of New Britain – a city with a higher concentration of poverty – which enrolls 10,000 students, where the state will provide only $18 million to cover pension costs for teachers.

That’s 25 percent less funding for a system with 14 percent more students.

I’m not blaming our wealthy towns for this inequity. It’s not their fault. We need to do a better job. We need to make the system more reasonable.

And to do that, we need towns to partner with their state in fully-funding teachers’ and school administrators’ retirement benefits—not all of the cost, but part of it.

My budget reflects this partnership – a re-envisioning of education funding to meet 21st century challenges.

Now, I know that state assistance is not always about dollars and cents. Sometimes, we help the most when the state gets out of the way.

For our towns to thrive, we must remove bureaucratic red tape that is not producing a discernable benefit for taxpayers.

Last week, I proposed changes to do precisely that. My budget will give municipalities greater flexibility and additional tools for making local government leaner and more cost efficient.

My proposals are designed to increase local control over budgets and contracts, keep down project costs, modernize out-of-date requirements, and remove unnecessary red tape.

This session, if we are going to ask more from our towns, it’s only right that we also free them from unnecessary burdens.

Of course, at the same time we are providing mandate relief, we can also increase transparency for how town aid is utilized.

For communities that would receive additional state dollars in this budget, that support can only come with greater accountability for how taxpayer dollars are being spent – whether that be on education, city services or paying off long term debt.

Directing state aid and oversight to those who need it the most ensures that the collective strength of a region – or a state, for that matter – is that much stronger. It is in our collective best interest that no town is brought to the brink of bankruptcy.

Over the years, our state has had various iterations of state boards to oversee towns experiencing financial distress. My proposal this year builds upon lessons learned from these past experiences. It will create a Municipal Accountability Review Board, chaired by the State Treasurer and the Secretary of OPM.

Ultimately, this board – empowered to review municipal finances – will oversee efforts to restore fiscal stability where warranted.

Through this tiered accountability framework, we can intervene early to help struggling municipalities. And we can position the state to take action well before a city or town needs a bailout.

Surely, our towns and cities will sometimes struggle. It is our responsibility to put these municipalities back on the path to fiscal health.

We can take action to avoid fiscal crises and then remove these communities from enhanced state oversight when appropriate, and when they’re ready.

Those are my ideas for changing town aid and for putting Connecticut on a path to addressing pockets of concentrated poverty in towns and cities across our state.

The details of how we get there are in the budget that is now before you.

As a former mayor, I know the view from town hall. There will be voices in some communities who want to know why their town should receive less funding, while others receive more. I know those voices will be well represented by each of you in this chamber.

In answer, my budget leaves $75 million in year one and $85 million the following year in local aid unallocated.

This is my way of saying to you – the legislature – that I am ready to negotiate. I am ready to hear your ideas on where that unallocated money is needed most.

When we come together and constructively debate our different ideas, the end result is that much stronger.

CONCLUSION

You see, the fact is the wellbeing and quality of life of all our constituents is interconnected, regardless of party, region, or zip code.

From the farmer to the factory worker… the nurse to the mechanic… the teacher to the actuary… all are impacted by the successes and failures of Connecticut as a whole.

Unfortunately, far too many people feel as though the system is rigged against them and their communities. A history of shortsighted state government and a record of half-step policy fixes have left people believing that in order for one person or one community to gain, someone else has to lose.

I reject that notion.

Dignity, opportunity, prosperity – none of these are a zero sum game.

We are all guaranteed access to these fundamental rights.

This session, this year, we must reset the system for ensuring equal opportunity for success.

We must guarantee that no community or family shoulders more burden than they can bear.

We must keep our promise to our students and teachers.

Together let’s ensure that all Connecticut communities see their fair share of success.

Let’s give taxpayers, communities, and businesses more predictability and more sustainability.

Let’s have the courage to collectively tackle the challenge of inequity in town aid.

Let’s do it so that ten years from now, no Connecticut city or town needs to levy a mil rate of 35 or more.

As we negotiate this budget, we should remember that we are in this together.

It’s about more than just how my town or my community or my family did.

It’s also about neighboring towns, neighboring communities, and neighboring families, as well.

We will rise or fall together, as one Connecticut.

And working together, I know we will prevail.

Thank you. May God bless you, and may God bless the great State of Connecticut.

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