Budget Chief Says Fiscal ‘Hysteria’ Misplaced

Connecticut’s economy is generating enough heat to meet the state’s revenue needs, but growth in state spending and an unhealthy budgeting system is having a chilling effect on the balance sheet.

Ben Barnes, Governor Malloy’s budget director, said that to more than 500 business leaders at the CBIA-MetroHartford Alliance Economic Summit & Outlook today in Hartford.
Barnes said he thinks there’s “a sense of hysteria about [state] pensions and the budget in general which … is misplaced.”
The reality is, he said, an obvious gap between state revenues and state spending that must—and can be—closed.
And Barnes also suggested a possible cure for the pension funding crisis.
More than enough
Connecticut’s economy continues to improve, producing about a 3% annual growth in state revenues. But, said Barnes, the state budget is growing about 7% a year under the current-services system.
Project that gap out a few decades and the state could easily be tripping over trillion-dollar deficits.
“Three percent growth a year in revenues is enough for us to continue to provide some of the finest public services in the nation, make new investments in areas that are priorities for the legislature, the governor, and the people of Connecticut, and to continue to meet our long-term obligations,” said Barnes.
The problem is, “Nothing ever goes away in Connecticut; if you put it in the [state] budget, it stays there. And that’s a problem that we can’t afford to continue.”
Instead, Barnes said state government has to “take a new way of looking at how we develop the budget.
“There are lots of ways for state government to become more responsive and cheaper,” he said.
Barnes said it won’t be easy, but all state agencies will have to continually find new and more cost-effective ways to provide services, be careful about managing long-term obligations, and in making new commitments to expand public services.
Clash of generations?
And speaking about managing the state’s long-term obligations, Barnes also challenged the thinking that postponing payments to pension obligations for state employee and teacher retirees, as the governor has proposed, is bad for future generations.
“I’m not sure it’s fair to make Connecticut businesses and residents, over the next 10-15 years, pay for 100 years of failure to fund pensions,” said Barnes.
“These are long term problems, so why are we trying to solve them in 10 years?”
Currently, Connecticut spends about $2 billion a year to meet its retirement obligations, which Barnes said will grow to about $3-$5 billion a year and possibly to $10-$15 billion a year if the market keeps going sour.
Eventually, the state’s tab will plummet down to about $500 million a year, “an incredible bonanza” to whoever is doing the budget at that time.
But following this path “doesn’t make any sense,” said Barnes.
Better choice
He said a better approach is to stabilize contributions to $2-$2.5 billion a year over the next 30-40 years, which will solve the pension problem without causing interest spikes, higher taxes, and without having to make decimating cuts to public services.
“It’s the obvious choice for how we should manage our pension systems,” said Barnes, which is why the governor made some proposals on how it could happen.
Ultimately, the goal is to meet the state’s obligations but do it in a way that’s predictable for businesses and residents and non-disruptive to Connecticut’s economy.
Crisis mode
Also on Barnes’s plate are state employee contracts, with Connecticut beginning negotiations for collective bargaining agreements with 15 state employee unions.
“Collective bargaining over the last few decades was always done in crisis context,” said Barnes, and that has negated opportunities to find “real solutions” and greater efficiencies.
And it’s much the same today, he said.
“We don’t have a lot of extra money.”