By Hilary Russ

By Hilary Russ

(Reuters) - Connecticut Governor Dannel Malloy on Wednesday proposed nearly $1.4 billion of spending cuts, including big savings from negotiations with labor unions, to help close a $1.7 billion budget hole in fiscal 2018.

In his $18 billion general fund spending plan for 2018, Malloy also proposed roughly $320 million of revenue generators to close the gap, including the elimination of property tax credits on personal income taxes.

In the following year of the two-year budget proposal, another $1.64 billion in cuts would be required to close a bigger deficit of $1.9 billion, according to budget documents released in conjunction with the Democratic governor's address to lawmakers. (


"These cuts are not made lightly," Malloy said. "They include things that I myself strongly support."

Including all funds, his biennial budget is $40.6 billion for the next two years combined. The proposal, if adopted, would result in an eight-year period in which the state general fund budget grew only 2 percent on average, he said.

Connecticut has been daunted by slow revenue growth as fixed costs, including for public pensions hit by poor investment returns, continue to balloon.

Malloy proposed shifting a third of the costs of the state teachers' pension fund - or about $408 million in fiscal 2018 - to local governments, which currently pay nothing into the Teachers Retirement System despite retaining local control of school staffing levels.

The biggest portion of savings next year would come from $700 million of concessions, mostly on pension and health benefits, from the 15 unions that make up the State Employees Bargaining Agent Coalition (SEBAC).

In 2019, those concessions would add up to another $868 million in taxpayer savings. The state's contract with SEBAC does not expire until 2022, so it is seeking voluntary changes from the unions.

If there is no deal, Malloy's budget calls for layoffs of up to 4,200 state employees in order to save the money, though he said in his address that he is a "staunch, lifelong advocate for the right to organize."

As expected, Malloy also proposed an expansion of the state's system for municipal intervention to help avert a crisis in cities struggling with fiscal problems.

"It is in our collective best interest that no town be brought to the brink of bankruptcy," Malloy said.

Additional measures to generate revenue include hiking tobacco taxes and lowering the state's Earned Income Tax Credit, used by low- and moderate-income families, by 2.5 percentage points to 25 percent of the federal benefit level.

(Reporting by Hilary Russ in New York; Editing by Lisa Shumaker)