Thursday, September 25, 2008

The Coming State Budget Crunch

The national economic fender bender should introduce a welcomed dollop of sobriety into budget discussions between Connecticut’s major parties.

The Democrat camp, which for several years has argued for a more steeply progressive rate on the incomes of Gold Coast millionaires, has put away its rhetoric, at least for the time being. The millionaires are hurting, and their pain is being felt by redistributionist mayors and congresspersons at the state capitol. Connecticut’s revenues have been diminished by, in Democrat parlance, the parlous financial conditions of the greedy CEOs of Wall Street who are now suffering a well deserved comeuppance. Unfortunately, their setback means that the revenue that poured into state coffers for the last decade and more from dubious financial transaction on Wall Street is no longer trickling down to the big spenders at the state capitol.

Obviously, something must be done. At this point, Micawber’s economic theory kicks in.

“Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness,” says Mr. Micawber in Charles Dickens’ David Copperfield. “Annual income twenty pounds, annual expenditure twenty pounds and six, result misery.”

Apparently, no one shared this apercu with the boys on Wall Street busily engaged in a kind of financial alchemy in which worthless mortgages were transmuted into complex financial instruments and sold to idiot buyers. But here we are in Micawberworld; we have come crashing to the bottom of reality’s pickle jar.

And Connecticut, a state that depended overmuch on the good fortune of those who had fortunes, is now hurting – like its millionaires. The projected state budget deficit was $300 million a few days after the mortgage industry went bust. It will rise as the economic tide recedes.

The moral of this sad tale is simple: Any state that lives off the tax dollars collected from, in Democrat parlance, “those who can afford to pay their fair share” will experience revenue contractions when the fortunes of those who can no longer afford to pay their fair share diminish or disappear.

You can’t get water from a stone, not even a rich stone.

The stone sober state Republican Party has called for a forum to discuss and settle upon a means of cutting spending. The state Democrat Party, still suffering from delusions of plenty, has called for – take a deep breath here – a study group to study the problem.

Given the seriousness of the national financial collapse, calling for a study group to recommend ways of cutting state programs may strike some as Neronic; Nero, it has been said, fiddled while Rome burned. And if study groups were around in 64 AD, he would have called for a study group and then fiddled. Actually, the fiddle was not in existence when Rome burned. Nero was an accomplished harpist; so, the metaphor would be more correct if it were said that Nero was harping while Rome burned.

The state legislature is also harping. Republicans want a forum in which participating members – including legislative leaders and enlightened leaders in the state – will decide what to cut and what remedies to apply to staunch the wounds, while Democrats want a study group to audit the Department of Social Services and recommend measures to discharge the deficit.

Concerning the proposed audit, Republican leader Stewart McKinney justly said, “ "Anyone who thinks we are going to audit our way out of this financial crisis," McKinney said, "is either incredibly naive or deliberately trying to pull the wool over the heads of voters."

What’s to study? There is a deficit, the deficit must be discharged, and this can only be done by raising taxes or cutting spending. The national economic meltdown almost certainly precludes raising taxes. And so we are left with spending cuts. The legislature itself, which sets the budget, is a study group empowered to raise taxes or cut spending. So, let it study in the time honored fashion, in open session, and recommend ways of trimming the budget.

Micawber the realist knows that debts unsettled will settle the debtor, and so do Democrat leaders in the legislature.

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