You may have heard that our state is facing a 'gloom and doom' budget scenario: a $365 million hole this fiscal year, and deficits of over a billion dollars in each of the next two years.
The current budget took effect just four months ago, but already revenue is down sharply, and spending is up. The causes are clear, and not surprising:
- People are not buying goods, so sales tax collection is less than expect. Corporation tax revenue and money received from the state's casinos have also declined.
- Medicaid costs have increased by over $260 million
- Personal expenses, salaries, and overtime for state workers is up over by $10 million
A November revenue report by the Office of Policy and Management and the Office of Fiscal Analysis (the state's number crunchers) has just announced the alarming $365 million shortfall. As recently as November 1, the administration projected a deficit of only $61 million.
Why are we just now learning of these bad numbers? It’s hard to not suspect that a conscious decision was made to hold the bad news till after the election.
In December, the comptroller is expected to issue a letter signaling a series of actions that must take place by statute. The administration must put together a plan to address the problem, which might include cuts in spending, cuts in programs, and layoffs.
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 one time revenue enhancer, and by no means certain. What alternatives do we have besides wishful thinking?
For too many years, our response to budget deficits has been tax increases and borrowing. That has driven down our state economy and our fiscal rating. We simply can’t continue down that path.
We must reduce state spending, carefully but significantly, and steadily. As a member of the Appropriations Committee, I helped prepare an alternative budget, which required no tax increases and no additional borrowing. Though the legislative majority rejected it, that budget can serve as a blueprint as we return to the issue this January.
Fixing this budget hole is and has been the number one priority in Hartford. It can’t be said enough: Connecticut has a spending problem.
It’s one reason why Moody’s lowered our credit rating last year. We also finished dead last in an assessment of states’ credit quality released this week by Conning Inc., a Hartford-based company that does financial research, primarily for insurers.
And the State of the States’ Municipal Credit Research Report, prepared twice a year, ranks us fiftieth among the fifty states on credit quality, based on revenue growth, year-over-year employment gains, and foreclosure rates.
Paul Mansour, managing director of Conning’s municipal credit research group, said, "The reality is quite alarming. The state is among the worst in job creation, tax revenue growth, and has not yet seen a recovery in home prices. It has very high debt and retirement obligations, little budget flexibility and no rainy day fund balance."
We are standing at the edge of the cliff. We need to apply the old Yankee virtues of thrift and restraint. I will do my very best to find savings, and to oppose any effort to raise taxes or to put our state deeper in debt.