The Folly Of “Kicking The Can Down The Road” As A State Budget Strategy

June 22, 2010

When confronted with the staggering problems affecting Connecticut’s economy, I am incredulous. As our economy struggles, state officials seem even more determined to continue on the destructive path that brought us to this point.

The state budget that takes effect on July 1st relies on habitual shortcuts of borrowing and increasing taxes to avoid making necessary spending cuts. This places a burden on Connecticut’s businesses and families. Rather than confronting our financial problems, they merely delay the hard choices we must make.

The gross mismanagement of our state’s finances cannot be ignored. The recent, predictable, downgrading of state bonds by one of the nation’s top rating agencies affirms our financial predicament. As Connecticut prepares to borrow money to cover its budget deficit again, Fitch analysts note, “the state relies on borrowing to address its ongoing fiscal challenges in the context of already high liabilities and large projected structural gaps.” Analysts for Moody’s reported, “Connecticut has the highest net tax-supported debt among the 50 states.” Furthermore, “Connecticut is more dependent than most states on high-income earners.” Our per capita tax rate is 64% higher than the national average. Interestingly, Maine and Rhode Island have moved to reduce taxes for high earning residents. Legislative leaders in Rhode Island are correct when they state, “lowering the marginal tax rate (to 5.9% versus Connecticut’s 6.5%) will help make Rhode Island more appealing to companies looking to come into the state”. Meanwhile, Connecticut continues to discourage its most productive residents by laying the cost of financial profligacy at their feet.

Consequently, our business climate has soured. CEO Magazine stated that businesses view the northeast as “very expensive, with some of the highest wages, taxes, regulations and cost of facilities in the nation.” Sadly, Connecticut has offered no challenge to this perception. In fact, within just the last five years we have fallen to 45th place as a state most conducive to business. Connecticut must halt this decline to regain its former status as the best state in which to live, work, raise a family and retire.

Enormous challenges remain. Connecticut faces deficits of more than $3 billion in 2012 and 2013. Union leaders while controlling the Connecticut House of Representatives continue to push through higher salaries and benefits. Connecticut also faces $43 billion in unfunded pension and retirement liabilities. Instead of cutting back on wage increases, state union leaders successfully fought to underfund state pensions by $100 million this budget cycle. Some conclude that state government borrowing makes tax hikes inevitable. Not true; it is this type of thinking that has fed Connecticut’s insatiable appetite for spending and has made us the state with the highest tax burden in the country. Increasing taxes is not the answer; fiscal austerity is.

Reinventing state government will take political courage. As noted by Institutional Investor, March 2010, “The bad news is that solutions require steely will on the part of politicians faced with determined and organized public employee unions. Such courage is a rarity in the world of realpolitik”. Until now, Connecticut’s politicians have kicked the proverbial can down the road. Their lack of courage has led to a public outcry for fiscal responsibility that has gone unanswered.

State budget problems we now face are monumental. We cannot continue to pretend the situation will improve without a dramatic change in direction. Connecticut’s taxpayers are now demanding more than fiscal responsibility – they are demanding accountability.