Fiscal Responsibility

As a result of poor decision making at the State Capitol, Connecticut families must prepare for a long winter of financial woe. Much like the squirrels do, I would start storing money for the painful bills that will eventually arrive courtesy of the government.

Budget Director Ben Barnes presented the Office of Policy and Management’s annual Fiscal Accountability Report to the General Assembly’s Appropriations and Finance Revenue and Bonding Committees on November 27th. As a member of the Finance Committee, I attended this meeting. I was not surprised by these mammoth numbers. For quite some time, I have been saying Connecticut has a spending problem and this report showed that in great detail.

The report examines major issues and trends over the next four fiscal years. This report comes on the heels of a recent update from Secretary Barnes, who confirmed the state’s current fiscal year faces a $365 million budget gap and the next fiscal year, beginning July 1, 2013 is nearly $1.2 billion in deficit. That deficit is expected to continue into the next two fiscal years giving Connecticut a big picture number of nearly $3 billion deficit through 2016.

How did we get here?

Last year, Mr. Barnes reported that the state’s budgetary picture had stabilized due to higher taxes, reduced state spending and concessions from state employees. But he warned the economic recovery was slow. Slow is an understatement and the state actually spent $1.4 billion more (a 7% increase over two years) in addition the estimated concessions came up short some $200 million.

The other causes for our big budget mess are clear, and not surprising:

How do we fix this fiscal mess?

We need to lower tax burdens. Let’s give families back their $500 property tax deduction and the deduction on taxes to clothing and footwear under $50. This will put money into the hands of families who need it to survive.

Instead of more $100 million corporate giveaways, we should consider the latest research that links poverty reduction with entrepreneurship. Its author, Stephen Slivinski, calls for policymakers to put a priority on promoting entrepreneurial growth and suggests lowering tax burdens as a catalyst for job creation. Mr. Slivinski cites that “for every 1 percentage point increase in the tax burden, there’s a corresponding 1 percentage point drop in the entrepreneurship rate.” (Source: Kaufman Foundation for Entrepreneurship). Our tax rate on businesses is one of the highest in the nation. Let’s lower it and give companies and small businesses a break so they will invest and hire workers– creating jobs.

The Governor is optimistic that state income tax receipts will climb next spring, as many of Connecticut’s wealthier residents sell their stocks and report capital gains before federal income tax rates rise. However, this is a onetime revenue enhancer, and by no means certain.

What alternatives do we have?

For too many years, our response to budget deficits has been historic tax increases, coupled with historic spending and unfunded pension liabilities. We can no longer follow that unsustainable path. We need a change in legislative mindset.
We must work together to reach solutions to these challenges. Last year, minority party members came forward with solid proposals, vetted by the nonpartisan Office of Fiscal Analysis to help solve the state’s budget problems. However, the ideas were rejected by the majority.

It is time to take another look at that proposal, reach out and find a middle ground. There may be some suggestions the Governor and his majority party can agree on with the minority party instead of resorting to job killing tax increases again.

One suggestion is responsible budgeting. Instead of giving automatic increases to the current services budget, the legislature could cut back based on last year’s numbers. Allowing automatic increases and then pulling some of those additional dollars back is not a cut in spending. A true cut in spending would be to start at last year’s budget total and cut back from there. Go after the bottom line, not the rate of increase.

Meantime, storing your little if any extra cash might not be a bad idea. Having reserves to draw from is the responsible thing to do. This year a bipartisan solution based on responsible decisions could help solve Connecticut’s fiscal crisis.