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Connecticut’s Perfect Fiscal Storm January 17, 2008 Here’s a disturbing question: If Governor M. Jodi Rell and legislative leaders are willing to burden Connecticut with a huge tax increase in good fiscal times, what will they do when the state budget’s health shifts from black to red? Given that 2008 is an election year, Nutmeg State taxpayers may not learn the answer to that query in the upcoming session of the Connecticut General Assembly. But harsh financial realities can’t be avoided forever -- even by politicians. At this moment, the state budget appears strong. A modest surplus is predicted for the fiscal year that ends this summer, and the “rainy day” fund is filled to 85 percent of its statutory limit. But a number of developments point to trouble ahead -- big trouble. A sagging national economy is the biggest threat. In 2006, the Legislative Program Review and Investigations Committee noted that Connecticut’s income tax -- which generates a plurality of revenue for state government -- is “heavily reliant on top income filers.” So when the stock market tumbles, corporate profits slip, and dividends are cut, Connecticut’s largest revenue stream suffers. The Nutmeg State learned this lesson at the turn of the century, when a Wall Street freefall prompted politicians in Hartford to spend the nearly $600 million in the rainy day fund all at once. Weak job growth is another culprit. Connecticut’s government class continues to crow about booming employment in recent years, but viewed historically, the trend is downright frightening. According to state labor bureaucrats, between 1990 and 2007, a time when the nation’s job growth topped 25 percent, employment in Connecticut grew by less than 4 percent. And since many of the Nutmeg State’s new jobs are in lower-paying professions, the revenue state government derives from withholding from workers’ paychecks has been essentially flat. On the cost side of the ledger, of course, the story never changes. There is no willingness in Hartford, by either the governor’s office or the supermajority of Democrats in the Connecticut General Assembly, to adopt meaningful expenditure limits, much less make significant cuts. Since taking office, Rell and legislative leaders have negotiated three budgets. Two violated the state’s spending cap, and total expenditure growth during the period was a staggering 25.2 percent. Much of that spending went for politically popular but unaffordable -- and in many cases, unjustifiable -- programs and subsidies. Rell’s “Charter Oak Health Plan” is an example. Medicaid is already the biggest expense in the budget, and the governor’s budget staff recently estimated that between now and 2012, the cost of taxpayer-subsidized healthcare in Connecticut will grow by two and a half times the inflation rate. Last year’s massive expansion of revenue to Connecticut’s expensive and inefficient government schools is another culprit. It played well politically, but simply put off the inevitable day when school districts will be forced to reverse their appallingly abysmal productivity rate. One expense category the spending explosion did very little to address is the state’s unfunded liabilities, which currently top $54 billion. Some revenue was devoted to shoring up the hole in Connecticut government teachers’ pension fund -- educrats are the state’s most powerful lobby -- but nothing has been done to fix the $21 billion bill for retired state employees’ health, dental, and life insurance. (Municipalities are likely to start demanding state bailouts for their non-pension retiree benefits. In Waterbury alone, the bill is over $600 million.) Outstanding debt due to the state’s addiction to bonding continues to climb -- it tops $14 billion. Demographic shifts are making it increasingly tougher for the state to honor both its short- and long-term commitments. Young adults keep leaving the state for better economic opportunities. In fact, the entire working-age population -- those between 18 and 64 -- is projected to shrink slightly over the next few decades. In contrast, Connecticut’s elderly population will explode, as will the cost of state programs targeted to that group. As scary as all this sounds, Connecticut’s taxpayers will probably escape the 2008 legislative session without getting socked with a big tax hike. Governor Rell isn’t on the ballot in November, but all 187 state legislators are. Few politicians, even in a state where Big Government rules triumphant, are keen to run for reelection with “revenue enhancements” fresh in voters’ minds. Connecticut’s perfect fiscal storm is still in its early stages. But there’s no doubt that it’s on track to hammer the Nutmeg State in the not-too-distant future. And when it does, watch your wallet. D. Dowd Muska is a writer, commentator and public-policy researcher. He can be reached at muskacolumn@cox.net. # # # # # |
