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Budget Crisis

Hartford Courant Editorial

November 17, 2012

The state's budget crisis continues, despite tax hikes, wage freezes, a spending slowdown. This calls, sadly, for painful cuts and another look at what state employees can do to help. Most other options are gone.

Even with one of the largest tax increases in state history, a surge of red ink is headed this way -- a

$365 million shortfall now, a $1.2 billion deficit in the next fiscal year and $900 million deficits after that -- because of disappointing tax revenues and rising demand for Medicaid services.

Connecticut isn't alone in this. New York state may be facing a $2 billion budget deficit for fiscal 2013-14, exacerbated by Sandy. Tax-hating New Jersey Gov. Chris Christie suggested tax increases this week. "I know how to do math," he said.

It could be political suicide for Gov. Dannel P. Malloy to propose higher taxes, however, and he's said he's not inclined to do so.

Nor can the state resort to layoffs. To help it out of another deficit two years ago, state employees got a four-year no-layoff guarantee in exchange for concessions; they may have gotten the better of the deal.

To borrow its way out of this mess would be a mistake as well. Connecticut is in the Top 5 of states with the highest debt per capita.

A TOUGH SPOT

There aren't many ways left to balance the budget. The governor has ruled out tricks his predecessors used to close budget gaps, such as early retirements (they're not real savings and they don't ultimately reduce state ranks).

Mr. Malloy is in a tough spot. Fortunately, that's his element, he thrives on challenge, and he's capable of making hard decisions.

He's hoping for a windfall of capital-gains tax revenue from Connecticut's well-to-do selling stock this year, in anticipation of their federal income taxes going up next year. But that would be a temporary fix, and the state needs more fundamental changes to get its economy on sounder footing.

For guidance, Connecticut can look to a neighbor. Rhode Island treasurer Gina Raimondo, a Yale Law School graduate, backed that state away from its own fiscal cliff -- its pension obligations were eating up state revenues, taking money from schools, roads, etc. -- by leading the charge to raise the minimum retirement age for state workers and switching them to pension plans that include 401(k)s, among other reforms. She's now Rhode Island's most popular politician (though not with unions) and is getting pressured to run for governor in 2014.

Mr. Malloy has reduced Connecticut's unfunded pension liabilities by $13 billion, putting the state on firmer ground than when he took office. Despite his efforts, this past summer the Pew Center on the States ranked Connecticut down with Rhode Island, among the worst in the nation, in saving for employee retirement benefits.

State employees could step up to help before they're forced to. Even with concessions, they enjoy guaranteed raises and a pension and health care plan unmatched in the private sector.

For the mid- and long-term, the state needs to take a broad look at how services have been delivered lo these many years.

We have a state government, 169 local governments and regional entities. Are there ways, without giving up the local identity many cherish, to glean more efficiencies? For example, do we need both state and local public works departments?

Taxpayers are interested in the overall cost of government. If that can be kept down, we can be competitive.

SPENDING CUTS

State spending has slowed, according to the Malloy administration. It went up 4.8 percent under Gov. John G. Rowland, 4.5 percent under Gov. M. Jodi Rell and 3.3 percent under Mr. Malloy. The crisis requires even more braking.

One exception: The state has to continue making smart investments in such growth areas as bioscience, particularly with the defense industry, on which Connecticut depends, "among the first to fall over the federal government's looming fiscal cliff," as Connecticut Mirror writer Ana Radelat writes.

Even if it still has the highest per-capita income of all states, Connecticut has to live within its diminishing means while readying for a new world.