This is no time to mince words about Connecticut’s fiscal crisis. It is deep, serious, and affects everyone and everything: taxpayers, businesses, jobs, social services, infrastructure, K-12 schools, colleges and universities, towns and cities, hospitals, federal funding opportunities, and Connecticut’s reputation. Let’s be clear–it’s not new. The state’s finances have been precarious for several years. But now even those who have long denied the gravity of the situation are acknowledging it.
The facts speak for themselves.
- The projected deficit for the upcoming 2018-2019 biennium now exceeds $5 billion. Both the governor’s budget office and the legislature’s Office of Fiscal Analysis agree on this figure. It ballooned after they downgraded estimated revenues for the period by $1.46 billion, due to a sharp decline in income tax receipts in April.
- For the third year in a row, Connecticut is slated to finish the current 2017 fiscal year on June 30 with a deficit. This time it’s very large: $390 million. To close this gap, the governor has proposed a plan that includes depleting the Rainy Day fund, canceling $19 million in scheduled municipal aid, and various one-time cuts and fund sweeps.
- The state’s two massive tax increases since 2011 have not produced correspondingly robust revenues. In particular, income tax receipts, which fell $450 million below estimates in April, are not hitting their targets. Realtors, who flocked to the Capitol last week to express their concerns about the state’s economy, tell us that high earners and retirees are leaving the state, and the figures support this. Connecticut’s population declined by 8,278 in fiscal year 2016, its third straight year of shrinkage. The administration reports that it has collected 45% less in income taxes from Connecticut’s 100 wealthiest taxpayers than it did last year. Withholding taxes have also declined. According to the State Comptroller, “A general shift in the composition of employment by sector to lower paying jobs may be a contributing factor.”
- Three major ratings agencies, Fitch, Moody’s, and S&P, have just downgraded Connecticut’s bond rating. These moves followed downgrades within the past year by S&P and Kroll and a prior Fitch downgrade. Among the factors the agencies cited were declining tax receipts, growing budget deficits, increasing debt, and the pressures of growing public-sector labor costs and massive unfunded pension liabilities. Meanwhile, on May 12, the day of the Fitch announcement, the governor and majority party members of the state Bond Commission voted to approve $352 million in new borrowing, bringing the total for this calendar year to just under $600 million.
Against this backdrop, the legislature must pass a budget that closes the looming $5 billion deficit. This is meant to happen by June 7, when the legislative session ends, but subsequent special sessions may drag the process out indefinitely.
The facts show that higher taxes and more borrowing are not the answer. Proposals to make towns pay for teachers’ pension contributions (thus necessitating property tax increases), to introduce tolls, to build a third casino, or to tax marijuana will not resolve the perennial problem of skyrocketing state labor costs. The issue is spending, not revenue.
While every budget proposal on the table cuts into programs and services, the state cannot restore its finances by snipping its way around the edges of its overhead costs. Reducing public-sector pension and benefits costs, which account for more than a third of the budget, is critical. The governor’s proposal to deliver $1.5 billion in concessions from state employee unions over the next two years is likely not enough, but it’s a start. Negotiating is the governor’s job. If the legislature is properly doing its own job as an advocate for all taxpayers, it will not only stand firm and accept nothing less from the governor than what he has proposed, but will also stand ready to ask for more.
State Rep. Gail Lavielle represents the 143rd district, which includes parts of Norwalk, Westport, and Wilton. She is Ranking Member of the General Assembly’s Education Committee, and a member of the Finance, Revenue, and Bonding Committee and the Transportation Committee.