RJ Editorial: The Connecticut budget: Cap and cut

December 3, 2014

Record Journal

Connecticut Gov. Dannel P. Malloy has so far kept to campaign promises and avoided tax hikes while addressing the projected $93 million budget shortfall this fiscal year. He ordered a $48 million decrease in state spending. This will mostly affect social services, healthcare and operating grants for public colleges and universities. Malloy also asked the legislative and judicial branches, and Connecticut’s watchdog agencies (which are all exempt from emergency cuts) for another $7 million in voluntary reductions.
The governor made a number of difficult decisions, and then challenged fellow officials to follow suit. It will take more of the same for this state to emerge from ongoing economic woes.

One problem that requires immediate attention is how Connecticut identifies and tracks federal claims. State Comptroller Kevin P. Lembo was caught off-guard last month by a projected decline in national Medicaid revenue (CT Mirror, 12-2). He was “deeply concerned” about the sudden discovery, in part because it “prevents [him] from accurately reporting on the state’s financial conditions.” This news is troubling, and a major reason why Malloy’s campaign claim of an imminent budget surplus has proven the opposite.

Lembo called for his office to work with the governor’s administration in creation of “improvements and greater transparency” in state systems that monitor federal revenue billing and claims. The comptroller added, “A recurrence of last month’s shortfall projection is unacceptable.” We emphatically agree.

Another pressing issue — one, in this case, in plain sight — is Connecticut’s spending cap.

Passed by voters in 1992 to help contain the state income tax, the law is supposed to hold spending increases in line with annual growth in personal income or inflation. Problem is, required contributions to state employee retirement plans — compounded by years of underfunding pensions — are increasingly eating into dollars available for social services and education.

Thus, governors have exceeded the limit. Just prior to the 2005-06 fiscal year, Republican Gov. M. Jodi Rell cooperated with Democrats on $244 million in extra money for nursing homes. During the 2007-09 biennial budget, she successfully collaborated on cap-overages of $497 and $691 million for education grants and Medicaid fees.

Malloy was less direct. He employed a number of one-time accounting maneuvers to channel state revenues around the treasury. Thus, they never technically counted towards the cap. For instance, beginning in 2012, charter school payments were funneled through municipal governments. Because payments to poor communities are not held against spending limitations, this gained $50 million in cap room while continuing support of charter schools.

A nifty trick, yes. And so are the other one-time techniques Malloy has since proposed or implemented. But these maneuvers can only stretch funds so far — and they have potential to create holes in future budgets. To maintain current state services next fiscal year, nonpartisan analysts have projected that spending would have to exceed the cap by $590 million. “I think we need to respect the cap . . . we’ve been dealing with excuses and loopholes for too many years,” Senate Minority Leader Len Fasano aptly asserted.

Malloy has tried to distance himself from the economic policies of his predecessor. But circumventing the cap echoes Rell by mortgaging Connecticut’s future to prop up the present. Instead of tricks and gimmicks, the governor should rely upon difficult decisions — like his $48 million in demanded cuts — to lead Connecticut out of its recent history of shortfalls, and towards a self-sustaining, reliably-balanced budget.