Spending battle shaping up over state’s surplus [Stamford Advocate]

February 10, 2014

By Ken Dixon | Article as it appeared in The Stamford Advocate

HARTFORD — Mark Twain may have called Connecticut “The Land of Steady Habits,” but its state budget is vulnerable to wild swings of fortune.

Like a spreadsheet pendulum, dependent on personal income, sales and gasoline taxes, the state’s annual spending package over the last quarter century has gone back and forth between surplus and deficit.

Connecticut’s rebound is part of a national trend that saw revenues expanding at a pace not seen since the Wall Street collapse and housing bubble popped five years ago.
Now a slowly improving state economy has created a $506-million surplus.

The economic resurgence has gifted states from California to Texas to New York with surplus windfalls — and many are battling over what to do with the extra money in a gubernatorial election year.

It was a billion-dollar budget shortfall that led to Gov. Lowell P. Weicker Jr.’s push for the personal income tax back in 1991.

By the time Dannel P. Malloy took office in 2011, another budget crisis, created by Republican governors and the Democratic General Assembly in the caldron of the sputtering state economy, created a deficit of about $3.4 billion. Malloy and majority Democrats raised taxes by record levels, reduced benefits for unionized state employee benefits and extended borrowing to cover operating expenses.

But even with the resurgence over the last eight months, the projected Connecticut surplus has wavered from $189 million last July, to $135.9 in October, and $272 million as recently as November.

Opposition Republicans warn that Malloy’s election-year budget, which includes refunding taxpayers $155 million for sales and gasoline overpayments, will lead to billion-dollar deficits in 2015 and 2016.

“The governor’s address emphasized that there is a `surplus’ in Connecticut today,” said state Sen. L. Scott Frantz, R-Greenwich. “But, where did that surplus come from? Literally just a few months ago, things were so dire in the state of Connecticut that we were talking about emergency rescue plans to prevent another Detroit from happening in Connecticut. So, how is it that we can have a surplus of roughly half a billion dollars?

Frantz, a private banker, criticized Malloy for taking out loans on more money, extending the state’s use of Economic Recovery Fund notes from five years ago.

“Roughly $725 million was borrowed from the market, from other dedicated funds or came from accounting changes, thereby creating the surplus of about $525 million,” Frantz said. “We have to keep that in mind going forward with every policy decision this year.”

David Martin, Stamford’s new mayor, who attended Malloy’s State of the State and budget proposal last week, said he’d like to see even more commitments to towns and cities from the General Assembly.

“I’d like to see bigger steps, but I also understand we have to be financially and fiscally responsible,” Martin said.

Question of stability

Malloy promises that the modest 2.8 percent overall spending increase proposed for this year will keep the state in even fiscal shape in the years after.

The cycle of surplus-deficit, surplus-deficit may continue until Connecticut comes up with a stable way that doesn’t depend on the volatility of Wall Street dividends.

Kevin B. Sullivan, the former state Senate president and lieutenant governor who is the current commissioner of the Department of revenue Services, said last week that the projected $506 million surplus reflects an upturn in the economy, plus a tax-amnesty program that was expected to attract a fraction of the $185 million that was eventually remitted.

“We have 11 major taxes and in particular, it was the sales tax and estimated and final income taxes that are running well ahead of the estimated goals,” Sullivan said in a recent interview. Traditional withholding taxes, however, are “dramatically” off

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