State’s Chronic Red Ink Demands Policy Reforms

Between 2002 and 2015, Connecticut was one of 11 states that continually spent above its means, according to a report from a nonpartisan national policy research group.
Connecticut only covered 97% of expenses during that period, failing to meet all its obligations in 10 of the 14 years covered in The Pew Charitable Trusts report, which takes a big picture accounting of state finances.
The report says that pattern jeopardizes the state’s long-term fiscal flexibility, “pushing off to future taxpayers some past costs for operating government and providing services.”
The 50-state median was 102% of revenue to expenses during that period, ranging from Alaska’s robust 137.5% to New Jersey, worst in the country at 92.4%.
The report notes that a red-ink state “generally turns to a mix of reserves, debt, and deferred payments on its obligations to get by.”

‘Unsustainable’ Fiscal Situation

Chronic shortfalls are an indication of more serious structural deficits, Pew warns, where “revenue will continue to fall short of spending absent policy changes.”
“Without offsetting surpluses, long-running imbalances can create an unsustainable fiscal situation,” Pew says.
Pew puts Connecticut’s debt and unfunded state employee pension and retiree healthcare costs at $67.5 billion—over 30% of personal income.
State employee retirement costs are one of the main factors driving the persistent deficits that have dominated budget debates since the last recession.

While revenues exceeded expenses in 2015, the last year covered by the Pew report, Connecticut's tax income declined dramatically last fiscal year, with a projected $5.1 billion budget deficit for fiscal 2018-2019.
"The Pew report makes it painfully clear that Connecticut needs long-term structural reforms," said CBIA economist Pete Gioia.
"Our current fiscal situation is not sustainable. Lawmakers must change their approach if we're going to restore Connecticut's long-term fiscal health."

Budget Stalemate

Gioia warned against imposing new tax hikes to resolve the state's current budget stalemate.
"Tax hikes haven't worked," Gioia said. "It's been a case of raise taxes, get less revenue.
"We had the two biggest tax increases in state history in 2011 and 2015 and what did we get? Shrinking revenues, growing deficits, and job and economic growth that still trails much of the region and the country."
Last month, both the state House and Senate narrowly approved a $1.57 billion concessions agreement with state employee unions.
The deal includes a temporary wage freeze, furlough days, increases in medical and prescription payments, changes to retiree healthcare, and a hybrid pension/defined contribution plan for new workers.
However, it also extends current state employee contracts another five years to 2027 and includes no-layoff provisions, generating widespread concerns about its long-term sustainability.
An earlier Pew analysis of the union agreement recommended that lawmakers consider additional policy measures that would broaden the deal's projected savings.