State Spending Back in Focus as New Deficit Appears

With turbulence roiling the economy once again, state income tax receipts are falling short of expectations, leaving the state with a new budget gap for this year and larger deficits for the next few.
According to the latest estimates from the Office of Fiscal Analysis, income tax receipts are lagging, but sales and corporate taxes are not quite strong enough to offset the shortfall.

As a result, the state is now facing gaps from $7 million to $27 million for fiscal year 2016, and projected deficits of $552 million in fiscal year 2016-17, $1.72 billion for 2017-18, and $1.87 billion for 2018-19.
State lawmakers passed $350 million of assorted spending cuts, transfers, and other savings in December to close the budget gap at that time.
Now, in view of the new deficit projections, administration officials say policymakers need to sharpen the focus on controlling state spending.
“Households need to curb spending when necessary,” said an official in Gov. Malloy’s budget office, “and so does government.”
Those remarks echoed what the governor’s budget director, Ben Barnes, told the recent CBIA Economic Summit & Outlook.
According to Barnes, Connecticut’s economy has been generating enough revenue to meet the state’s critical needs, but the intake has being overwhelmed by the outflow in state spending.
Barnes said the obvious gaps between state revenues and state spending must—and can be—closed.
Connecticut’s economy continues to improve and is producing about a 3% annual growth in state revenues, he said. But the state budget is growing about 7% a year under the current-services system.
Project that kind of problem out a few decades, said Barnes, and the state could easily be seeing trillion-dollar deficits.
“Three percent growth in revenues a year 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.”
He added, “There are lots of ways for state government to become more responsive and cheaper.”
It won’t be easy, he said, but all state agencies will have to continually find new and more cost-effective ways to provide services, being careful about managing long-term obligations, and about making new commitments to expand public services.
Also on Barnes’s plate are state employee contracts, with the state beginning negotiations for collective bargaining agreements with 15 state employee unions.
“Collective bargaining in the last few decades has always been done in a crisis context,” said Barnes, which 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.”
For more information about state spending, email or call CBIA’s Louise DiCocco (860 244.1169). For more information about state taxes, email or call CBIA’s Bonnie Stewart (860.244.1925) | @CBIAbonnie