Economy is the Number One Issue…Next Budget Must Protect Taxpayers

October 22, 2008

With losses on Wall Street continuing to mount and economic indicators such as job creation and the housing market pointing downward, it goes without much saying that the troubles with the economy are having an effect on just about everyone. During this period of uncertainty, families and businesses alike are forced to make changes in the way they manage their expenses. The old adage “tightening of the belt” quickly comes to mind.

While much attention has focused on the national economy, the state’s economic forecast is similarly ominous. According to the legislature’s Office of Fiscal Analysis (OFA) and the Office of Policy and Management (OPM), the current fiscal year that ends on June 30th, 2009 is projected to be nearly $300 million in the red. With the economy struggling, household income has dropped significantly creating what is anticipated to be an even larger deficit of approximately $2 billion for the next two years beginning on July 1st.

The legislature’s track record at confronting budget shortfalls is troublesome. In fact, when Connecticut faced similar budget problems in 1991 and in 2002, the legislature instituted and subsequently raised the state income tax. The income tax did bring in added revenue to state coffers but it also brought about a new wave of annual spending increases to the state budget. Ironically, 1991 was when voters in Connecticut also approved the constitutional spending cap, but since the state was receiving more tax revenue the legislature had the ability to spend more. Instead of using the revenue for one-time expenditures, surpluses were used for on-going expenditures which created deficits when the economy slowed.

A study conducted by the nonprofit Tax Foundation concluded that Connecticut is still feeling the effects of the massive tax and spending increases of 1991. The study points out that Connecticut ranks first in the nation when it comes to per capita taxes and that the amount of tax revenue the state brings in on a yearly basis has nearly tripled over the past 17 years. This has led to poor job growth and population losses in our state.

Taxing our way out of the state budget crisis makes no sense because it is one of the main contributors to how we got into this financial crisis in the first place. This year, some lawmakers are calling for the use of the state’s rainy day fund to balance the budget. The rainy day fund currently has a balance of $1.4 billion, and while there is enough to cover the current year’s deficit it would still be nearly a billion dollars short for the next two-year cycle.

The worst thing we can do is raise taxes because people can simply not afford to pay any more. It would be a devastating blow to our economy and clear recognition that the state cannot help itself when it comes to spending. It would also signal that the legislature is unwilling to do the hard work that comes with making the difficult decisions that go into making a leaner budget. That is the repsonsibility of the legislature and it is time for the state to tighten its belt and find ways to reduce spending and cut waste, much the same way families are managing during theses difficult times.