Letter from Hartford: Whither Connecticut?
The dust has now settled on Connecticut’s 2013 legislative session. Because this is an odd-numbered year, it was a budget session, designed to set the course for the next biennium. Where did it take our state, and where are we going?
I had hoped the budget would take Connecticut in a new direction. All signs pointed to a need for change.
Connecticut had already fallen to the bottom of numerous state rankings, including personal income growth, debt per capita, business friendliness, pension liability funding, retirement attractiveness, credit quality, combined individual tax burden, educational achievement gap size, and road quality. Unemployment continues to hover around 8%, higher than both national and New England averages.
Recently, the news became even worse. The U.S. Department of Commerce reported that in 2012, Connecticut’s economic growth ranked dead last — the only state whose GDP actually shrank.
The policies that have brought Connecticut to this pass have entailed successive major annual spending increases and extensive borrowing and tax hikes to pay for them, culminating in the state’s largest-ever retroactive tax increase in 2011. Still, despite $3 billion in new taxes, Connecticut had a midterm deficit and a persistent cash shortage. Although a $220-million year-end surplus is projected, it’s due to a one-shot influx of estate and gift taxes that’s unlikely to recur. So the state still faces a structural deficit.
While no one thought all legislators would agree on how to do it, there was certainly an expectation the budget would address these issues head-on and lay out a clear strategy for improvement. Instead, it maintained existing policies and eroded taxpayers’ only protection against excessive spending.
The budget passed by the majority and approved by the governor makes no structural tax or spending policy changes. It increases spending by nearly 10%, borrows $750 million to pay operating expenses, delays debt service payments of $400 million, and imposes more than $300 million in new taxes, including a 16% gasoline tax increase and an extension of the 20% corporate tax surcharge scheduled to expire. It also raids $120 million from the Special Transportation Fund and $130 million from other special-purpose funds. For all of these reasons and more, I could not support it.
While officially the biennial budget totals about $38 billion, it actually spends $44 billion, about $6 billion over Connecticut’s constitutional spending cap. To exceed the cap, the legislature must vote to do so with a three-fifths majority and the governor must declare a budgetary emergency. Instead of respecting this process, the majority changed a longstanding accounting practice by taking $6.3 billion in Medicaid spending “off-budget” — still spending it, just not counting it toward the cap.
This sets a dangerous precedent. The cap was introduced two decades ago, along with the state income tax, to ensure the state’s spending would not outstrip its ability to raise tax revenues. It sets realistic parameters for how much residents can afford, thus keeping the state from pushing them beyond their means. Skirting the cap leaves taxpayers exposed to unfettered state spending.
Without real policy changes, there’s nothing to stop Connecticut’s downward spiral, with taxpayers caught in the vortex, paying more and more for services that don’t improve.
What are the alternatives? The minority party proposed many, but the majority declined to consider them. These included structural spending cuts, including replacing state employees’ defined benefit retirement plans with defined contribution plans; increasing their health care contributions; eliminating longevity bonuses; limiting future hires; privatizing state services that can be better provided by community organizations. Our infrastructure and services are increasingly suffering from the failure to recognize that the state must stop spending more than taxpayers can afford. The money is just not there.
Another priority should be expanding the tax base by attracting new businesses and providing an economic climate that helps all businesses — not just a few — create jobs. The administration’s policy of targeted spending on selected companies hasn’t been effective in stimulating broad job creation, because it doesn’t give businesses a structural foundation for long-term growth. Only a favorable tax and regulatory environment that reduces their ongoing costs can do that, and Connecticut’s failure to provide one has led to increasingly vigorous recruitment efforts by other states.
For those of us who love this breathtakingly beautiful state, Connecticut’s economic plight tugs at our heartstrings. We want the answer to “Whither Connecticut?” to be “Forward, toward jobs, security, and prosperity.” The evidence is clear: the same old tax and spend policies won’t take us there.
Ms. Lavielle represents portions of Wilton, Norwalk and Westport.