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Budget Special Session: How We Got Here, And Where We Need To Go

This week the state legislature met to undo some of the damage that they did during the last legislative session.

In the late evening on Tuesday, after several hours of debate, lawmakers approved a deficit mitigation package by votes of 20-15 in the Senate, and 75-65 in the House. A few Democrats joined all Republicans legislators in voting against the bill.

If you think you’re experiencing déjà vu, you’re not. You’ve seen this before, and you’ll almost certainly see it again.

Over the past few years, tax revenues have consistently come in lower than expected, which has led to the following pattern: Lower than expected revenues, followed by cuts and tax hikes, followed by lower than expected revenues, followed by more cuts and hikes.

The tax hikes have worsened Connecticut’s long-standing problem of outmigration, as residents leave for states with better job climates and a lower cost of living. When people leave, they take their tax dollars with them, eroding the state’s tax base, which makes it even harder to get out of this mess.

Sadly, given the already projected deficits facing the state in 2017 and beyond, this cycle doesn’t look like it will end anytime soon – unless lawmakers get serious about doing more than trimming around the edges of the problem.

As state Sen. Scott Frantz, R-Greenwich, said yesterday, “We are a ticking time bomb if we don’t.”

The Deficit Mitigation Package

In the lead-up to Tuesday’s special session, budget cutting ideas were floated by Republican and Democratic caucuses in the House and Senate, as well as by Gov. Dannel Malloy. Each of the packages included changes that were substantive, but in the end few of the lasting changes made it into the final bill.

The plan to ‘cut’ $350 million from this year’s budget includes:

  • 271 cuts from various agencies. Most were very small – for example, $24,000 from the Department of Education for a health foods initiative, and $35,156 from the Office of Early Childhood for community plans.
  • Larger cuts included $1.35 million for regional vocational schools, $6 million for magnet schools, and $1.45 million from the state’s Open Choice Program.
  • A $10 million reduction in state employee overtime, and a new requirement that the Office of Fiscal Analysis prepare quarterly reports of how much overtime each agency is using. The budget director will also have to report to the Appropriations Committee on efforts to reduce overtime.
  • $35 million moved from the Special Transportation Fund into the General Fund.
  • The budget director is instructed to find another $93 million in savings in the executive branch, $2 million from the legislative branch, and $15 million from the judicial branch.
  • Several one-time “sweeps” were authorized, including $70.4 million from the newly created Municipal Revenue Sharing Account, from which the state is supposed to be sharing sales tax revenue with cities and towns to reduce car taxes, and $2 million from the state’s school bus seat belt fund.
  • Small tweaks were made to the corporate tax changes that were passed in June, which will represent an estimated savings to businesses of $1.5 million a year.
  • The bill instructs the state to start planning to close the Southbury Training School, and the Connecticut Juvenile Training School.
  • A spending cap commission was created, which is expected to report on final language to implement the cap by Dec. 1, 2016.

Unfortunately, few of these cuts represent the kind of lasting change Connecticut needs.

The June Budget Debate

A $2.5 billion deficit greeted lawmakers and Governor Malloy at the beginning of this year, just as they started negotiations over the two-year state budget. They ended up filling that gap by making some cuts, but also by passing a $1.8 billion tax increase, which included $500 million in canceled tax cuts.

The budget also put in place – without public input or even a thoughtful debate – new funding streams for municipalities and transportation.

Despite warnings from everyone from pensioners to corporate CEOs, a small majority of lawmakers voted in June to enact the deeply flawed budget.

The fallout from the budget vote was swift. The tax hikes were the final straw for many large and small businesses, and for many state residents, who voted with their feet by leaving the state.

Most famously, General Electric said it was looking for a new headquarters given the state’s poor fiscal health. At this point, even if GE decides to stay, the company’s public statements about Connecticut’s bad economic climate have already done their damage.

Despite this, lawmakers continue to put off making the long-term structural changes to the budget – and to state statute – that would put Connecticut back on a fiscally sustainable path.

This week’s deficit mitigation package, similar to the many other deficit mitigation packages that have had to be put together every year since 2008, made small cuts, and used one-time sweeps and budget gimmickry to close the deficit.

Given this, none of us will be surprised if lawmakers have to go through this whole process again as early as February, when they come back into session.

Another Constitutional Amendment For Lawmakers to Ignore

Before lawmakers could even get to the budget deficit yesterday, first they voted on a resolution that would have put a constitutional amendment for a “transportation lockbox” on the November 2016 ballot.

While the resolution received majority votes in both the Senate and the House, it did not receive the necessary ¾ vote for a constitutional amendment in the House, so it will not be on the November ballot.

The language in the resolution was criticized by members of both parties for not being strong enough.

Danbury Rep. Bob Godfrey was one of the few Democrats to vote against the amendment.

“This language, from my lawyerly point of view, is really bad,” he said. “It doesn’t create a lockbox…. The loopholes in this – and I can’t resist this – are big enough to drive a truck through.”

On the Republican side, lawmakers pointed out that the Democratic majority is already ignoring another constitutional amendment, which was approved by over 80 percent of voters 23 years ago – the spending cap.

The “lockbox” (and that term — didn’t Gov. Malloy learn anything from Al Gore?) is also evidence that state lawmakers can’t be trusted to leave transportation money alone. There would be no need for a lockbox if legislators could just show some restraint.

Republicans Holding Out for Substantial Reforms

Sen. Beth Bye, D-West Hartford, made the point yesterday that over the past few years, lawmakers have cut spending for many programs.

This is true – lawmakers are cutting spending and raising taxes. What gives?

The problem is that there are parts of the budget that are growing so aggressively that spending in those areas is squeezing out spending on other programs.

Those line items are almost all related to state employee compensation: State payroll, state retiree healthcare, current employee healthcare, and, of course, increased payments toward the state’s massive pension debt.

It came out yesterday that Republicans wanted to see serious, long-term reforms to the budget, and so when the bipartisan talks did not go in this direction, they refused to sign on to the final package.

Some of the reforms proposed by the Republicans – including that the entire legislature should vote on labor contracts, and that the state should try to re-open talks on state employee benefits – would be positive steps forward.

Of course, in order to do this, the state legislature will have to face down a very powerful special interest – the public sector unions. And they will have to confront the labor union staffers who are also elected lawmakers, including House Majority Leader Joe Aresimowicz, D-Berlin.

Not All Bad

Even though the deficit package did not go far enough, it is good that lawmakers at least tried to address the deficit early this year, instead of waiting until June.

There is still so much work to be done. We at the Yankee Institute put forward our ideas to the legislature on ways they can address the long-term fiscal health of the state.

As state Sen. Rob Kane, R-Watertown, said yesterday, “When are we going to finally decide that this band-aid approach doesn’t work?”

Connecticut needs more from its elected leaders. We continue to wait for them to step up.

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