Solving Connecticut’s Fiscal Crisis
Connecticut has a spending problem. It feeds a cycle of budget deficits followed by tax hikes followed by more deficits, hampering the state’s economy and job creation.
From 1995 through 2016, state government spending grew by 110%, outpacing the growth of household income, inflation, and Connecticut’s population.
That rate of spending growth well exceeds taxpayers’ ability to pay, making Connecticut less affordable and threatening funding for essential state programs and services, including education, transportation infrastructure, and social services.
Connecticut now faces a near $5 billion deficit for the next two fiscal years.
It’s clear that the 2011 and 2015 tax hikes—the largest in the state’s history—haven’t worked.
Policy changes are desperately needed, a number of which are outlined in a new CBIA report, Fixing Connecticut’s Fiscal Problems: Spending Reforms, Long-Term Solutions, Best Practices.
“We have to keep state spending within taxpayers’ means,” says CBIA President and CEO Joe Brennan.
Tax increases haven't worked and will continue to make this situation worse.
“It’s critical that state government becomes more effective, more accountable, and creates more affordable policies for families and businesses."
Debt service and state employee benefits were responsible for the largest share (29%) of state spending this fiscal year, followed by education (25%), human services (19%), and corrections (7%).
Pension costs increased 128% over the last seven years—from $504 million to $1.15 billion—while retiree health costs jumped 38% to $731 million.
According to a 2016 study published by the Mercatus Center at George Mason University, Connecticut's unfunded pension liabilities stand at $83.3 billion, or $23,294 per capita.
Among the major drivers of state spending, only corrections has decreased since 2010, declining 10% from $1.57 billion to $1.42 billion, due in part to policy reforms.
The CBIA report identifies five key reform areas, including:
- Modify state employee retirement benefits
- Expand the use of quality nonprofit providers
- Continue reforming the corrections systems
- Rebalance long-term healthcare
- Continue streamlining state government
“The state must deliver essential state services to the neediest citizens, but it must find a way to do so that doesn't increase taxes and drive more families and businesses out of the state,” said CBIA economist Pete Gioia.
“Accelerating the conversion of state services to nonprofit community providers and continuing to streamline the corrections system alone could save hundreds of millions of dollars in a short amount of time.”
The report also features best practices implemented by other states.
Rhode Island addressed its fiscal crisis by implementing a series of reforms, including overhauling its state employee retirement plan. Those reforms are expected to save taxpayers $3 billion over the next decade.
Pennsylvania and Utah raised the healthcare contribution levels for state employees, while Vermont restructured its health benefit plans.
Corrections reforms are realizing hundreds of millions of dollars in savings in a number of states, including Michigan, Oregon, South Carolina, and Kentucky.
Massachusetts, Virginia, and Washington state implemented performance-based budgeting measures that driving policy choices and strategic decision making.
“It’s important to see where other states are excelling and determine how their best practices can work for Connecticut,” Brennan said.
“We are not alone in facing our challenges, but failure to address them now will make it extremely difficult for Connecticut’s economic recovery to catch up to neighboring states any time soon.”
The report also emphasizes the importance of adhering to the state's constitutional spending cap.
“Holding the line on spending cap exemptions is critical to controlling state spending, restoring long-term fiscal stability to Connecticut, and demonstrating to taxpayers and businesses that the state is serious about improving its economic competitiveness,” Brennan added.
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