Wednesday, March 04, 2015

Undervaluing Deficits

There will be time, there will be time 
To prepare a face to meet the faces that you meet…
Time for you and time for me,
And time yet for a hundred indecisions
And for a hundred visions and revisions
Before the taking of a toast and tea.

These lines, clipped from T.S. Eliot’s poem The Love-Song Of J. Alfred Prufrock, might easily describe the “visions and revisions” of Connecticut’s here-again, gone-again budget deficits.

Kevin Lembo – so far, Connecticut’s straight-shooting Comptroller – revised his deficit estimate early in March by $40 million, not the only revision in Governor Dannel Malloy’s second term. The boost in the deficit figure, Mr. Lembo said, was the result in part of an over-estimation of revenue the state had expected to collect from capital gains taxes paid through the personal income tax.

Capital gains taxes are a rake-off from stocks, and stocks have been in flux for the past few years. Mr. Lembo has attributed the more slender tax haul in capital gains to major changes in federal law, among which was, according to one story, “the termination of Bush era tax exemptions.” Of course, Wall Street investors understand every elimination of a tax exemption as a tax increase. One might put the matter a slightly different way and say, much more truthfully, that Wall Street investments are sluggish because revenue from the capital gains tax has been increased during the Obama administration.

We know what is driving state deficits – too much spending at a time when, at least in Connecticut, the state continues to be racked by a malingering and punishing recession. The recession rut in Connecticut has been deepened by repeated large tax increases, burdensome regulations and a crony capitalist state government that taxes nail salon owners and distributes some of the tax money collected from small businesses to either solvent large corporations that might move out of state or smaller businesses whose continuing prosperity is, to put it gently, questionable. Elsewhere in the nation, the recession has dissipated – not here.

What is it that is driving the continuing underestimation of state deficits?

Answer: Neither Mr. Malloy nor the Democratic dominated General Assembly wish to inconvenience each other. State statute stipulates that when a deficit reaches more than one percent of General Fund, the deficit must be resolved by the legislature; that is to say, the budget must be resubmitted to the General Assembly, a time consuming and politically embarrassing prospect. The governor’s recission authority, operative only AFTER the budget has been approved by the General Assembly, kicks in when the deficit is less than one percent.  Properly speaking, a so-called “recission” that occurs BEFORE the General Assembly has adopted a budget is a revision, not a recission.

During his first term, Mr. Malloy sent his budget to the General Assembly, which speedily approved it. The approved budget was then substantially changed after Mr. Malloy’s closed door negotiations with SEBAC, a union conglomerate authorized to negotiated contracts with the governor. The changed budget, however, was not resubmitted to the General Assembly for reapproval – purely for political reasons. Bottom line: The General Assembly had invested Mr. Malloy with plenary powers that are, to put it charitably, a violation of state statute, a violation of the state Constitution and a violation of the doctrine of the separation of powers, which holds that the legislature, not the governor, is responsible for authorizing  appropriations and expenditures.

This time around, the process has been flipped. The budget submitted to the General Assembly was, despite the fog of confusion that surrounds all of Connecticut’s budgets, not in balance. Mr. Lembo, whose budget calculations appear to be far more accurate than those of Mr. Barnes, insists that the budget submitted by Mr. Malloy is out of balance by some $101.2 million. If the submitted budget is not in balance, constitutional protocol requires the General Assembly to return the proposed budget to the governor so that statutory and constitutional requirements may be satisfied. The law, confining to be sure, is a stop sign. And a government of the people, by the people and for the people will not roll through such signs with impunity.
The out-of-balance budget likely will not be returned by the legislative branch to the executive branch: Among progressives, all limits may be exceeded at will to assure a predestined end. Limiting statutes and constitutional niceties are for saps to observe. In a one party state, the governor has only to hit the flashing lights on his cruiser to fly past every stop sign and red light.

Mr. Malloy, busy in Washington and on the national air waves promoting the most progressive presidential regime in modern times, has put himself on cruise control. His budget, he insists, is in balance. It is NOT in balance. But what cop, hidden behind the bridge, is watching? Mr. Malloy’s fallback position is: If my budget is not in balance, the same General Assembly that invested me with plenary powers during my first term will make straight the way of their lord.
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