June 17, 2010

It came as no surprise to me that the state’s bond rating was recently lowered by one of the rating agencies. I have been sounding the alarm about the state’s practice of excessive borrowing for some time, and it is for this reason that I have voted against the last two state budgets.

The Fitch rating agency was reported last week to have based it’s downgrading on the recent budget’s use of borrowing (or securitizing) to close the gap in the upcoming fiscal year. In addition, there were concerns about the use of one-time revenue sources that do not provide an ongoing source of funds to support ever-expanding state expenditures.

The reality is that nearly every state has a budget problem right now, because tax revenues plummeted and the economy has not yet recovered. But Connecticut’s fiscal woes are due to much more than the current economic downturn. Indeed, that is only one factor, and even if the economy had not gone south, our state would have been in fiscal trouble. That’s because spending increases have long been outpacing revenue increases, and the state’s leaders—from both political parties—have opted to borrow, to bond, to underfund pensions and not-at-all to pre-fund retiree health obligations, as the way to avoid the politically unpopular decisions of either making cuts in spending or increasing taxes.

As a result, Connecticut is second from the bottom of all states in terms of funding pensions of state employees, with only 54% of the liability funded. Our retiree health benefits are 0% (yes zero percent) funded. Our total unfunded liabilities are $43.6 billion. This absence of prudent fiscal planning jeopardizes all state retirees in the long run, as well as taxpayers.

Our bonded indebtedness per capita is $6,812, making us the 4th highest debtor state in the nation. Our debt service—the interest paid on these bonds consumes 11.4% of our budget—money that could be better used providing services to needy people.

Connecticut is facing record projected deficits of over $3 billion per year in the next two years, even as the economy firms up a bit, because we will have exhausted all the one-time revenues and federal bail-out funds available.

Simsbury’s recent vote on the town’s budget demonstrated overwhelming support for a small budget increase, which I believe was based on the feeling that we are getting value for our tax dollars. We have a stellar school system and a wonderful town, that enriches us all, both through the services we receive and through our property values.

The state needs to similarly provide good value for our tax dollars to enjoy such support, and there is a lack of confidence that we are getting our money’s worth. The things we need to do to earn public support for the state’s budget are the same things that will restore our bond rating: operate more efficiently, providing needed services economically and effectively, and streamlining our operations so that we don’t need to borrow or rely on other gimmicks to balance the budget.