Connecticut's Fiscal Problems

The summary below and the full report, attached as a PDF file, were written by Brian Kost, a member of Suffield's Board of Finance.

Connecticut’s fiscal problems are severe. Not only do we have a short-term need to balance the budget, but we also have long-term needs to reign in the state’s massive debts and to shrink the scope of state government to an affordable level. The attached report was compiled from records available from the state’s Web sites.

All of the content is true and it is very scary. I urge you read it in its entirety, as the devil, as always, is in the details. This report was based on the initial budget proposed by the governor and does not capture the impact of some of the recent changes proposed, but those changes are relatively small in the grand scheme of things.

The report addresses a variety of issues related to our state’s finances. These include our current budget challenges, the governor’s proposed solution, the state’s debts, state employee benefits, where our tax dollars go and who pays our taxes.

Here are a few startling facts:

• The State faces a $3.2 billion deficit next year where expenditures exceed revenues by over 16 percent.
• In order to fix this problem, the governor is proposing two things: 1. Raising your taxes by about 15 percent (for which there are detailed proposals) and 2. Finding a way to reduce state employee costs by 20 percent or $1 billion (for which no details exist).
• Even after finding $1 billion in labor savings, the governor is still proposing to spend more money in next year’s budget than we spent this year. Where is the fiscal restraint?
• Even though close to 40 percent of the state’s expenditures are for social programs like Medicaid, the governor’s budget does not make any noteworthy reductions in those programs.
• Connecticut is already ranked third in the country for the highest state and local tax burden. If the governor’s proposal is passed, we will probably be first. This is one first-place award we can do without.
• The governor has proposed increasing taxes on just about everything that is currently taxed, including income, sales, cigarettes, alcohol, insurance and inheritance, as well as starting to tax a few things that are not yet taxed.
• The costs of state government have grown at double the rate of inflation for the past 10 years, consuming a larger percentage of everyone’s income.
• Connecticut is one of the most debt-ridden states in the country, with over $75 billion of debt – $21,000 for every resident – and growing fast. More than 70 percent of the debt relates to generous pension and retiree healthcare benefits promised to state employees and retirees that you, as a tax payer, don’t get yourself, no private company would ever consider and other states don’t offer.
• Connecticut has $33 billion in debt related to providing healthcare benefits to retirees and not a penny has been set aside to fund these debts.
• Most retirees from the state pay nothing for their healthcare benefits once they are retired. All you have to do is work for the state for 10 years and you get free health care when you retire. Do you or will you get that yourself?
• Connecticut ranks fourth in the country as the most reliant on the wealthy for paying income taxes. In 2009, the wealthiest 6,000 residents of the state paid close to 25 percent of all income taxes (almost $200,000 each) while those making under $50,000 a year (53 percent of all taxpayers) paid less than 5 percent of the total income taxes (under $300 each). We are too reliant on just a few people for too much. For example, in 2008, total income tax collections dropped $700 million (12 percent) compared to 2007 when economic conditions deteriorated. Most of the decrease was due to people making over $1 million per year making less.

We can get our state’s financials back on track, but it requires a long-term strategy of fiscal prudence and short-term sacrifice by all. The state’s fiscal problems are more a result of poor decision-making and the expansion of government over an extended period rather then the recent economic downturn.

We must endeavor to reduce the scope of state government to make our state more attractive for business and more affordable for individuals to reside in. To that end, I recommend the following.

• Elect new people to serve in the legislature and replace executive management in key positions. Many of the people currently in office have been there for a long time and have failed us. They are in both parties. We need new people with new ideas. Vote for someone new in the next election. It is unreasonable to think that those who have led us into this mess are capable of leading us out.
• Develop and implement a long-range plan to reduce the size and scope of state government over the next five to 10 years. Establish specific targets requiring that state budgets grow at rates significantly below general inflation during this time period.
• Benchmark state employee compensation and benefits to that offered in private industry. Reduce compensation and benefits for active employees to align with market conditions and require retirees to start contributing toward their healthcare benefits immediately.
• Benchmark the state’s social welfare program programs against those of other states. Establish a goal of having a welfare state that is below the median average of the other states at large.
• Reduce municipal aid slowly over time and reduce state mandates on municipalities. Let local governments run themselves with less state involvement. We will be better served in the long run.
• Pass laws that require that pension and other post-employment benefit obligations are budgeted and funded annually based on generally accepted actuarial standards. If we as a society are going to offer these benefits to employees, the costs should be born by today’s taxpayers as services are incurred rather than passing the buck to our children and their children. Laws are necessary, as I have no confidence that these debts will be managed without them.
• Raise taxes in the short term, as our problems are so severe that expenditure reductions alone cannot solve the problem without adverse consequences. Tax increases should be born by all, proportionate to income. Roll back increases by statute over the next five years as the long-range plan to reduce costs is affected.

These thoughts are but a few of the matters addressed in the full report. Please take the time to read the full report and share the material with your friends. The better educated that the general public is about our fiscal problems, the more likely that the government will address and resolve the issues before it is too late.