Letter from Hartford: Back in the red: Time to get serious about spending

One of the most daunting tasks facing our General Assembly is the development of the 2013-14 state budget. This will be especially difficult because the budget already has a built-in $2.2-billion deficit, and certain tools normally in our budget toolbox will not be available, without important changes in policy.

The signal to start work will come on Feb. 6, when Gov. Malloy delivers his budget address. As always, it’s the legislature that will ultimately write and pass a budget, but the governor’s proposal will provide a framework and general direction to start off the process. Those of us on the Appropriations Committee are preparing for a long haul.

Although the deficit we faced two years ago was larger, the situation now is arguably worse. The current biennial budget actually increased spending by more than $1 billion and, to pay for it, relied on the largest (and retroactive) tax increase in Connecticut’s history. People and businesses are still reeling from the tax hikes, and further increases would certainly not be received well. The budget also included projected savings from a contract with the state employee unions that locked in wages and benefits for several years.

The only avenue that has not yet been seriously pursued is spending cuts. But if we are to break the continuing cycle of deficits that have plagued the state for years and restore the state to financial health, only real, structural cuts can do the job. Nothing demonstrates this better than the situation of our current year’s budget.

Last summer, it was already apparent that revenues from the huge 2011 tax increase were falling significantly short of projections, and the agreement with state employees was not delivering promised savings. Borrowing, raiding the Special Transportation Fund, and a number of other one-time fixes prevented the state from ending the 2012 fiscal year in deficit. Soon after, however, revenues began once again to trail expenses.

Over the subsequent months, the administration’s (OPM) and the legislature’s (OFA) budget offices signaled a growing deficit. By December, it had widened to $365 million, requiring emergency action. The governor made cuts within his rescissionary authority, and the legislature made up the difference with a bipartisan deficit mitigation bill. Many of the measures cut spending for areas like social services, health care, and higher education.

Now, hardly a month later, the state is already back in the red. The nonpartisan OFA has just reported a current deficit of $139 million. Two factors are mostly responsible: a shortfall in sales and other tax collections and a continuing increase in Medicaid expenditures. Once again, the state is spending far more than it is taking in, and the truth is that all the one-shot deficit mitigation plans in the world can’t make it stop.

Where does this leave us as we begin tackling the budget? Certainly more taxes are not the answer, particularly since even the state’s largest-ever tax increase has not been enough to stop the bleeding. Spending must be reduced.  A report by the Connecticut Business & Industry Association (CBIA) is one of several documents released in recent months that highlights target areas for structural change.

CBIA reports that since 1992, state spending in Connecticut has increased by 153%, while median household income and inflation have increased by only 60% and population has remained flat. Among the budget components that have grown during that period, state employee retiree health benefits have increased by a stunning 981%, and pension costs have climbed 583%.

If we are to take a structural view of the budget and change the way the state runs its finances for the long term, then everything must be on the table, including the terms of the recently negotiated state employee agreements. Increasing medical co-payments, raising employee contributions to pension and health care plans, and replacing defined benefits plans with defined contribution plans are only a few of the possible alternatives that many would consider preferable to cutting education funding, municipal aid, or services for the truly needy. This wouldn’t be a first. Governors have renegotiated contracts before.

It’s time to get serious about cutting spending. I look forward to hearing Gov. Malloy’s proposals next week and to getting down to work on the budget. I hope the legislative majority will once again be open to the bipartisan collaboration that helped the General Assembly move forward with a no-tax-increase deficit mitigation bill in December. Only by working together can we make the structural changes we need to restore Connecticut’s fiscal health.

State Rep. Gail Lavielle represents part of Wilton, Norwalk, and Westport. She is ranking member of the General Assembly’s Commerce Committee and a member of the Appropriations Committee.