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State Spending Cap A Costly Failure From The Start

By BILL CURRY

June 07, 2013

Connecticut's constitutional spending cap is a study in inadvertent consequences. Its flaws are congenital. It was born of the longest, nastiest fight in Connecticut political history, the battle over the state income tax in 1991. It was written hurriedly and under great pressure by people — income tax supporters, mostly — who didn't really want a cap. It was meant to contain the political damage of adopting the tax as much as it was meant to contain spending. Among its myriad defects:

1. It has failed its essential task, in that it seems not to have reduced spending. The cap limits spending increases to the higher of the rate of inflation or the growth in personal income. Yet for most of the last 20 years, Connecticut spending rose and fell at about the same rate as all states in the region. It's hard to prove a hypothetical, but the burden of proof is on those who say it works.

2. Its real impact is on how we spend rather than how much; on what we buy, how and when we buy it and who pays. State programs, for which legislators are held accountable, get spared while local programs, for which local politicians take the heat, get cut. New Jersey Gov. Chris Christie has cut spending, but mostly in aid to cities and towns. The result: deep cuts in education and public safety followed by local tax hikes that hit average families hardest. Under Christie, taxes for those at or near the median income are way up.

Due in part to Connecticut's spending cap, what's gone on in New Jersey for three years has gone on here for 20. The state's share of local education costs is among the nation's lowest, while its property taxes are among the highest.

3. The cap encourages borrowing rather than spending from current revenue, because borrowing isn't under the cap. Politicians claim to be for "pay as you go" fiscal policies. But the cap promotes "buy now, pay later." It's crazy. When you have a chronic debtor, you freeze his credit card, not his checking account. It means the small bribes offered to legislators to help pass budgets and grease the wheels of government end up in bond packages, unintended gifts from our children to us.

4. The cap encourages borrowing, but not debt payments. It discourages meeting long-term obligations such as pensions. So, our per capita debt and the debt-to-equity ratios on our pensions usually rank among the nation's worst.

5. The cap does curb spending when we need it most — in hard times, when inflation and personal income are low, but demand for vital public services is high and some deficit spending may help the economy. It's in good times, when inflation and income are up, that Connecticut earns its reputation for spending the rent money on keggers.

6. Under the cap, we've counted federal grants as state spending. This is highly unusual, utterly illogical and was barely understood by legislators who enacted it. As a result, we decline money that then flows to other states. The vast Obamacare Medicaid expansion has legislators at last paying attention, but their partial fix in the new budget won't end our long, sorry history of leaving federal money on the table.

7. The biggest way the spending cap may reduce spending is by contributing to a level of cynicism that leaves the public disinclined to support even sensible new programs. The public sees the ineffectiveness of the cap and worse, how politicians evade it. There may be no scientific way to measure cynicism, but polls say it's at an all-time high. A cynical public won't trust government to do anything. It's a form of fiscal restraint, but what a price we pay.

So what do we get from this spending cap that doesn't cap spending? Deepening cynicism and deepening debt; higher property taxes and fewer, shoddier services; budget busters — unmet pension obligations, health care costs, corruption — that languish unattended. The cap isn't the sole cause, but it contributes to all of them.

You'd think someone would do something. Repeal's out of the question. But a smart, responsible fix can't be.

Bill Curry, former counselor to President Bill Clinton, was the Democratic nominee for governor twice.