CT Budget Update

August 26, 2009

As your legislator and as a citizen I am appalled that Connecticut is one of only two states which remain without a budget. As elected representatives our primary task is to present and adopt the budget.

These are tough times - I know it and every family in Connecticut knows it and I feel that adoption of the right state budget will be a tool toward a more stable and brighter future for all.

I WANT YOU TO KNOW THAT DURING THIS SUMMER I HAVE WORKED WITH A GROUP OF MY LEGISLATIVE COLLEAGUES TO PUT FORWARD AN ALTERNATIVE  BUDGET PLAN TO BREAK THE IMPASSE. THE DEMOCRATIC LEADERSHIP HAS RECEIVED IT. WE ARE SHARING IT WITH THE OTEHR COLLEAGUES AS WELL.  IT HAS THE FOLLOWING KEY FEATURES:

• the elimination of the high levels of borrowing proposed by both the Governor’s and Democrat’s budgets
• budget cuts that exceed those proposed in the Democratic proposals thus far
• increases in taxes that exceed the Governor’s tax proposals thus far

This summer has been characterized by the endless budget impasse.  I know the news coverage doesn’t tell the whole story.  So please review the following news from my corner and be in touch with me. I’d like to know what you think.

Background:  The state’s 2009 fiscal year ended June 31st with a $935 million shortfall.   Both the Governor and leaders have agreed that the rainy day fund, which is $1.4 billion, should be saved for the new budget.  So the state will need to borrow to close the 2009 deficit, which we will vote on this week.

The new 2 year budget period started July 1st.  Since we don’t have a budget agreement, the governor has been running the state on monthly “resolutions.”  The gap between expenditures and revenues for this budget period was the subject of dispute between the Governor and legislative leadership for many months, but all have now agreed that it is $8.5 billion.

What you are not hearing in the news:
The impasse between the Governor and leadership is characterized in the news as a disagreement over whether to tax or cut to close the gap.  What has not been highlighted is that both sides recognize that only taxing or only cutting is insufficient to close the gap.  But what both sides propose as a result is to borrow significant additional funds.  The Governor proposes mostly cutting and also over a billion in borrowing, while the Democrats propose more taxing and nearly a billion in borrowing. 

Borrowing would not be a terrible idea if we weren’t already the third most indebted state in the nation and if we expected to see our revenues exceed our expenditures in the coming years, so that we would have surplus with which to pay down the debt.  However, our expenditures do exceed even the revenue levels we had prior to the recession, so I am concerned that we must address this imbalance or we will be irresponsible in borrowing additional funds.  If we borrow too much now, then in two years we will inevitably have to cut more and raise taxes again to pay off the debt.

The current economic downturn has brought attention to the state’s budget problems, but those problems were developing long before and will continue after the recession.  Our fundamental problem is that we’ve been spending more than we have been collecting in recurring revenue.   In this budget we will rely in large part on one-time funding sources to supplement our recurring revenues from income, sales, and corporate taxes.  The one-time sources include the rainy day fund, federal stimulus money, and a variety of “fund sweeps.”  Given that these one-time sources will be exhausted in this biennium, it is essential that we adopt a spending level now that will not result in a fiscal melt-down in two years.  Hopefully the economy will recover enough in the next two years that recurring revenues will increase enough to make up for the loss of the one-time revenues.  But if we do not bring spending and revenues more in line now, we are at risk of financial catastrophe in two years, as we will certainly have a huge gap between in-flow and out-flow. This structural deficit has been raised as a concern by Treasurer Nappier, who rightly identifies the risks to the state’s bond rating.

An Alternative Budget Proposal
I and a group of other legislators spent weeks preparing an alternative budget to present to our leadership, in hopes of persuading them to reach a more fiscally prudent compromise with the Governor.  We proponents of this budget feel strongly that it is essential to put CT on a fiscally prudent path to future economic security.  As I said, we have presented our work to the Democratic leadership and we hope they are considering our proposal seriously.

We recognize that economists generally support sustained government spending during a recession.  And our budget does indeed continue state spending at its 2009 level.

But we were also able to craft a budget that balances the budget through both cuts and new taxes, with no borrowing.  Our budget gives us a “curative dose” of medicine – both taxes and cuts – ONCE, now, in order to avoid having to consider additional taxes and cuts again in 2 years.

Highlights of the Alternative Budget:

• Relies substantially less on borrowing, than both the Governor and the Democratic budgets.  The Governor’s biennial budget calls for borrowing over a billion dollars to close the budget gap, and the Democrat budget calls for $835 million.  This after both borrow nearly a billion dollars to close the ’09 deficit.
• Makes more in cuts than it raises in  new taxes, again addressing the structural deficit and responding to the polling that shows that the majority of folks feel we should cut first, and increase taxes only when we’ve exhausted reasonable cuts.
• Makes enough cuts that the budget is equivalent to the FY 09 actual spending.  The Democratic proposals thus far have raised spending over the FY2009 level.
• Maintains funding for towns (so we don’t transfer our problems to them) and also provides towns some other options for savings to off-set flat funding by offering some mandate relief in a budget implementer:
• Cuts some services and imposes some nominal costs on certain recipients of government health care services, but establishes an Earner Income Tax Credit in the second year, which will help the working poor to retain more of their earnings.
• Raises the income taxes on the wealthiest in a progressive manner so that taxes on marginal income in excess of $250K for married filers would be increased .5% (half a percent);  and taxes on income in excess of $500K would be increased 1%.  (This marginal tax increase translates to an overall increase in taxes of just $250 for a couple with income of $300,000, $1,250/year for a couple with an income of $499,000 and $6,250 for a couple with in income of $1,000.000.)  This provides a more broad-based (and therefore less volatile) progressive income tax increase than the Democratic budget and doesn’t raise the percentages as high.  We alsofixed the estate tax cliff in a budget-neutral manner.
• Makes other new taxes temporary, including a corporate surcharge and .5% increase in sales tax.  We propose to automatically sunset these taxes when certain indicators of economic recovery are met.
• Reduces some state bureaucracy where there are ready opportunities to do so for immediate savings.
• Assures that future revenues from fees, fines, licenses and permits keep up with inflation.
• Lays the groundwork for better fiscal planning in the future by:
  • Establishing a work group to conduct long term strategic economic planning for the state,
  • Establishing a process for identifying and investing in further opportunities for efficiencies and performance improvement in the State’s agencies, using RBA and independent analyses and audits,
  • Increasing the amount of money deposited in the Rainy Day Fund in future years (when there will hopefully be a surplus!)
  • Establishing a committee charged with annually reviewing the size and affordability of the state’s debt, and recommending a maximum amount of new debt that prudently may be authorized for the next fiscal year.

These are tough times – I am working hard and would welcome any and all of your ideas.