After a four-month battle, Connecticut appears to have a tentative budget — and, of course, more than $1 billion of new taxes to close the deficit in the state’s roughly $40 billion two-year budget. This would be the third round of billion-dollar tax increases under Democratic governor Dannel Malloy.
You may conclude that this is just another round of the usual tax-and-spend policies of Democrats in absolute control of a deep-blue state.
It’s not. In fact, it’s just the opposite. Connecticut has entered a brave new world of tax-and-don’t-spend, unless you include under “spending” the ever-increasing amounts devoted to paying public-employee wages and benefits. Taxes are rising and vital services are being cut in order to fund the pay and overgenerous benefits of public-employee union members under an agreement that Malloy extended just this summer so that it runs a full decade through 2027. In the most literal and visceral fashion, regular citizens are paying more for less.
You might be thinking, “Eventually, you run out of other people’s money . . . ” That’s the larger construct. More specifically, what’s going on is a corollary of that truism: Eventually, you run out of money for actual government services, because you have to fund the bloated bureaucracy and pay the legions of bureaucrats built up over time to deliver the services that you can no longer afford.
Since Connecticut’s budget machinations began last February, budget proposals have been flying around like ticker tape in a Broadway parade. If it were the explicit and exclusive mission of elected officials in Hartford to confuse the public, they couldn’t have done a better job.
Yet, from this maelstrom, there is actually one document which provides insight into the fundamentals driving the state’s fiscal deterioration: the Executive Order Resource Allocation Plan for Fiscal Year 2018 by which Malloy has been running the state since July 1 in the absence of a budget.
The Order utilizes certain straightforward assumptions and clarifying baselines, including the generous pay and benefits under the extended labor agreement. For revenue, it uses “the consensus forecast,” i.e., the revenue estimate agreed by the non-partisan Office of Fiscal Analysis in the legislative branch and the Office of Policy and Management in the executive branch. This estimate includes revenue only from existing revenue sources. For this fiscal year, FY2018, the estimate is $17.5 billion.
The Order takes this amount as the maximum amount the governor can spend. Then, the Order compares this amount to prior spending levels, specifically spending authorized in the prior fiscal year, FY 2017, which was $18.3 billion (subsequent rescissions reduced actual spending to keep it in line with actual revenue). So, $800 million in cuts are unavoidable.
Then, the Order divides spending into two broad categories, “fixed costs” and everything else, with fixed costs comprised of three things: (1) spending mandated by law, mostly social services spending such as Medicaid, (2) debt service, and (3) benefits for active and retired employees. In FY2017, fixed costs consumed $8.75 billion. The Order projects fixed costs will increase $800 million, or 9 percent, in FY2018, to $9.6 billion.
Here’s the rub. If overall spending must be cut $800 million and fixed costs are rising $800 million, spending on “everything else” must be cut $1.6 billion. Well, spending on everything else was $9.6 billion in FY2017, so a $1.6 billion cut amounts to a whopping 17 percent reduction in all other government services.
It gets worse.
The real issue is not spending on overall “fixed costs,” but rather spending in one subcategory, namely, state-employee benefits and the teachers’ pension fund, which is skyrocketing from $2.9 billion to $3.4 billion, or 18 percent. That $500 million is two-thirds of the total increase in “fixed costs.”
The $3.4 billion doesn’t include salary and wages for active employees, which are running very roughly $4.5 billion according to Malloy’s summary of the labor-deal extension that he negotiated and jammed through the assembly on a strict party-line vote. So, public-employee pay and benefits account for almost half of all state spending under the Order.
Republicans recognized the obvious. The first place to go in closing any budget deficit is the largest category of expense, especially if it is also the fastest growing category. In all their budget proposals, the GOP included reforms. Even after Malloy put most reforms out of reach with the labor-deal extension, the GOP included post-agreement pension reforms.
Malloy and the Democrats did not.
The need for pension reforms was so obvious and pressing that the GOP budget attracted enough votes from a few brave rank-and-file Democrats that the GOP budget passed the assembly in mid September.
Now, from the very beginning, Republicans could have disassociated themselves from the budget process since the fiscal condition of the state is the outcome of absolute Democratic control. For all but two of the last 30 years, Democrats have controlled both houses of the assembly, and, for the last seven, the governor’s mansion as well. Republicans could have said to Democrats, “you own it.”
For all but two of the last 30 years, Democrats have controlled both houses of the assembly, and, for the last seven, the governor’s mansion as well.
Instead, Senate GOP leader Len Fasano and House GOP leader Themis Klarides worked incredibly hard to engineer the mid-September budget outcome. They deserve tremendous credit from citizens of the state.
However, Malloy has issued his inevitable veto, an override is a patent impossibility, and, tragically, the tentative budget worked out by GOP and Democratic leaders in the assembly has been stripped of the future pension reforms. To vote for a budget without those reforms — one which ignores completely the single most significant factor driving the long-term fiscal deterioration of the state — would be irresponsible. Republicans should vote against the budget.
GOP leaders Fasano and Klarides accomplished the near-impossible in the passage of the mid-September budget bill, and, since, have negotiated to prevent the worst of what Democrats might otherwise have done. Ultimately they were not able to overcome the Democrat–public-union axis.
Now, GOP legislators should honor their oath of office to do what is best for the state.
There will be a budget. The Democrats have the votes. On the strength of hefty new tax revenue, funds will become available to departments, agencies, cities, towns, and third-party service providers. The current crisis will end, but it should not end by giving the impression that the tentative budget has done much to resolve the state’s long-term crisis. For the GOP to vote for it would be a misleading disservice to the citizenry.
— Red Jahncke is the president of Townsend Group International, a business consultancy in Connecticut, and a freelance columnist who writes on public-policy issues.