Dan Haar: New reports show Lamont will need budget magic

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, without depleting the state’s rainy-day fund and without squeezing more blood from the public employee unions that helped him to victory.

That was the message Wednesday from Jim Smith and Robert Patricelli, co-chairmen of the fiscal meltdown commission, as I call it — the commission on fiscal sustainability and economic growth.

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, accounting and legal services for consumers, nonprescription drugs, renovations and repairs to residential property, parking, dry cleaning, newspapers, veterinary services and, get this — a 2 percent levy on groceries, which alone would raise $148 million.

The panel 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-chairmen pointed out, in fact, that more than 70 percent of Connecticut’s infamous unfunded liability — perhaps $75 billion, 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.

Still, they believe the state can’t afford the next two years of employee raises, 3.5 percent per year, even though that was a deal that followed three years of no raises (albeit with step increases and a $2,000 bonus). And they believe current retirees should have to pay more for health care, as retiree health is up to about $700 million a year and rising.

Speaking of retirees, on Tuesday we heard from the budget offices of the governor and the General Assembly, presenting 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 baby boomers retire.

“Connecticut will see the age 45 to 64 cohort shrink 9 percent between 2020 and 2030. As people in the age 45 to 64 group typically pay the most in state and local taxes, this demographic shift is likely to result in lower revenues for the state,” the legislative report said.

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.

“We’re back at it, but this time I think the timing is good,” Patricelli said, with a new governor and General Assembly and elections behind us.

My takeaway is not about 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 two-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.

That message: Yes, we’ve started on the path to recovery a lower tiers of state emoloyee benefits in 2011 and 2017. Yes, we’ve seen higher tax collections and, finally this year, healthy job gains and economic growth. But the hole from prior sins is still too deep.

“People don’t understand the depth of the problems that have to do with fixed costs,” said Patricelli, a former entrepreneur and executive in health care, most recently CEO of Avon-based Women’s Health USA. “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, retired CEO of the parent of Webster Bank, downplayed the party labels Wednesday. But both came under fire from reporters for strongly backing Republicans in the recent elections (Smith briefly explored a run for governor as a Republican), only to return with a plan they dubbed nonpartisan. That’s the nature of life at the Capitol; 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; 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, along with the sales tax extentions.

He was also talking about the commission’s view that state employee raises are unaffordable. The trouble is, it’s unclear what the state can offer the unions in exchange for more givebacks. There is little political will to extend their benefits agreement again, after last year’s controversial, 5-year extension from 2022 to 2027; and they already have two more years of layoff protection.

The details are many, and will air in this space and elsewhere in the next seven months. The point is this: Gov. Lamont wants to make this plane fly without squeezing unions, raising tax rates or spending down the rainy-day fund. 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.