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Our Fiscal Mess: Is there a way out?



Bob Capazzo

When State Senator John McKinney came to Greenwich for a town hall meeting on the state budget, no one was expecting good news; but his accounting of our fiscal condition and outlook was nothing less than a portrait in red ink.

From the Senate Republican minority whip we might have anticipated a politicized attack on the governor and the Democratic majority. What Senator McKinney presented was a well-balanced recital of indisputable, if disheartening, facts that spoke for themselves.

In spite of Governor Malloy’s tax increases of $1.8 billion over the past two years, the highest in Connecticut’s history, we still face a deficit of $2.5 billion over the next two years. Yet the governor’s proposed biannual budget calls for an increase in spending of $1.6 billion, or 9.6%. This not only exceeds the constitutional spending cap, according to McKinney, but ignores expected declines in federal funds and a possible loss of as much as $900 million from defense industries.

At the end of December, Malloy faced a $356 million current-year deficit. In order to adhere to a constitutionally mandated balanced budget, he had to borrow money and manipulate the budget in ways that he eschewed when running for office, and postpone promised adoption of GAAP accounting standards. There still remains a $128 million deficit that must be covered by the end of fiscal 2013 in June.

In a presumably politically motivated move, he eliminated the personal property automobile tax. However, many mayors, regardless of party, opposed it, since it will require municipalities to increase real estate taxes to compensate for the loss of auto tax revenue. If passed, the general fund of Greenwich, for example, will lose an estimated $7.9 million.

Contrary to campaign promises, Malloy proposes to close the revenue/expense gap with $750 million in bonds, adding more millions of interest expense to our budget. According to Scott Frantz, ranking member of the General Assembly’s Finance, Revenue and Bonding Committee, unwillingness of the governor and the legislature to address the looming $2.5 billion two-year deficit threatens to trigger a further downgrading of our bonds. And, having raided the Transportation Fund and others to cover the operating deficit, the administration has run out of places to turn for money.

An unfortunate byproduct of the governor’s effort to control expenses was his sacrifice of leverage in obtaining future concessions from state employee unions. Connecticut has the highest cost per municipal employee in the nation. His attempt to renegotiate union pension and health contracts and bring employee costs down to a sustainable level produced only half of what was needed and promised— and this at the price of tying the state’s hands with a two-year no-layoff union agreement.

In defense of Governor Malloy, it was noted that he inherited the largest deficit per capita in the nation from his predecessor, Republican Governor Jodi Rell, who it should also be noted faced veto-proof Democratic majorities in both House and Senate. The fact is, our financial problems have their genesis over a long period of time, and many administrations and legislatures. There is a widely distributed chart illustrating the long-term economic trend: Since 1987 Connecticut’s population has grown only 9.4%; inflation has increased 98%; but state spending has skyrocketed 318%. (During most of this time Democrats held the majority in the legislature.)

Down the road, Democrat or Republican, it doesn’t matter—our children and grandchildren face the highest per capita level of unfunded liabilities in the nation.

The conservatively calculated figure is $66.1 billion, but it could be as high as $80 billion, and it is divided nearly equally between outstanding debt, state employee and teachers’ pensions, and health insurance.

Pointing to negative job growth for the past twenty-five years, Senator McKinney revealed that Connecticut is now losing people not just to the sunny South, but to our neighboring states. To reverse the trend, we must improve our climate for business. Connecticut is ranked forty-fifth among the best and worst states in the union in which to do business. It is at the bottom for economic competitiveness and business-tax climate. And, with the third highest per capita state and local tax burden in the country, Connecticut is also ranked the worst place to retire. Raising taxes, McKinney insisted, was not the road to recovery.

On a positive note, he pointed to our important assets: a highly educated workforce, fine educational institutions, proximity to New York City, and a natural environment that offers unlimited recreational opportunities and a wonderful lifestyle. He also observed that even with the overwhelming Democratic majority in our legislature, there was actually more bipartisanship in Hartford than is found in Washington, D.C., and there is a growing recognition across the aisle that we cannot tax our way out of trouble.

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