Wednesday, January 18, 2017

It’s The Spending, Stupid


Governor Dannel Malloy has vowed several times not to raise taxes. There is no third act in Connecticut for a governor who has raised taxes twice in an effort to discharge repetitive deficits and failed conspicuously to balance budgets. Mr. Malloy and his Democratic confederates in the General Assembly have imposed on Connecticut the largest and the second largest tax increases in its history, with little amelioratory effect. Budget analysts project a $1.42 billion deficit in 2017-18 and a $1.60 billion shortfall in 2018-19, according to a CTMirror report, and revenue tributaries that in the past have washed away Connecticut’s deficits have diminished.


In the past few elections, Democrats lost seats in both the state Senate and the House. There is little doubt that Connecticut Republicans – shut out of budget negotiations by Mr. Malloy since his first term – have made historic gains in the General Assembly because of the state’s flagging economy. The Senate is now evenly split 18-18 and the House is split 79-72,” the most House seats occupied by Republicans since 1986,” the Hartford Courant reports.

It’s still the economy – stupid. Politically, both the Malloy administration and the Democrat dominated General Assembly have cheerily walked a progressive plank over shark infested waters. They are now confronted with repetitive deficits, more companies leaving the state, entrepreneurial flight, and diminished revenue resources -- jagged teeth flashing in the waves.


Will they jump? Is there yet another debilitating tax increase in Connecticut’s near future?

Apparently, there is. State Representative Toni Walker of New Haven, co-chair of the Appropriations Committee, has hauled the possibility of “revenue enhancements” out of the closet.

“There are some who believe we can get through all of this with austerity,” Walker is quoted in one story, “but they haven’t seen what an austerity budget would mean.”

By “austerity,” Ms. Walker is suggesting that further spending cuts would be ruinous. To put it in other terms, since Governor Dannel Malloy has multiple times pledged not to raise taxes, following the two highest tax increases in Connecticut’s history, and since Mr. Malloy has taken an across the board axe to current spending, any serious attempt to cut spending further would adversely impact the most needy among us. We have already, according to Ms. Walker’s view, cut to the bone; must we debone the deserving poor as well? If further spending cuts are not possible, it follows that tax increases of some form or other must be considered.

Mr. Malloy has been praised in some quarters as having cut spending, but the nature of the cuts are temporary. When, or if, Connecticut’s economy revives, all the cuts may easily be restored. Democrats in the General Assembly have been waiting patiently for a restoration of the good times that will save them from instituting permanent fixes. In the meantime, Connecticut’s serious problems have outpaced their patience. S&P Global Ratings has once again downgraded its outlook for Connecticut. S&P’s revision “reflects our view that projected growth in fixed costs could rise to a level we believe could comprise a substantial proportion of the state budget and thereby hamper Connecticut's budget flexibility as the state addresses large out-year budget gaps."

The state’s anticipated growth in fixed costs marks the edge of an abyss: “Connecticut projects that service debt, pension, and other post-employment benefit costs will total 32.6 percent of fiscal 2018 general fund revenue, a level that the agency considers high, with the potential to increase in future years. Fixed cost growth has led to large out-year budget gap projections that could be difficult to manage following previous biennium tax increases and expenditure cuts."

Fixed costs are consuming a huge chuck of Connecticut’s budget and, in the meantime, the state’s economy continues to groan under a recession that ended in much of the country in the summer of 2009, seven years ago. Connecticut’s tax base is deteriorating, and the state has yet to recover the full complement of jobs lost during “The Great Recession.” Connecticut Department of Labor statistics show the state has recovered only 69% of jobs lost during the recession, not the sort of tide that, in the words of former President John Kennedy “lifts all the boats.” Connecticut’s job recovery “is into its 80th month and the state needs an additional 36,900 jobs to reach an employment expansion.”


Almost everyone but Ms. Walker -- including Mr. Malloy, author of the largest and the second largest tax increases in state history -- appreciates the now visible unintended consequences that attach to the state’s too frequent revenue enhancements. The richer the state budget, the poorer the people, and there is a direct causal connection between increases in revenue and increases in spending. Connecticut’s options, like its tax base, are diminishing as time inexorably rolls on. What Charles Dudley Warner, a friend of Mark Twain’s and an editor of the Hartford Courant, said of the weather in Connecticut, “While everybody talked about the weather, nobody seemed to do anything about it,” is true also of the state’s ruinous spending inflation.



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