Turning the Tide on the State’s Fiscal Woes
153% state spending rise since 1992 far outpaces inflation, population growth
While the growth of state spending over the last two decades poses serious threats to Connecticut’s economic health, there are many practical options to help policymakers make budget ends meet, improve how state government works, and restore a vibrant economy.
That’s according to a new CBIA report, Turning the Tide: Fiscal Policy Changes, Best Practices and Ideas That Work, which illustrates how state spending policies are as much to blame for the current budget woes as the slow economic recovery.
Latest state budget projections indicate at least a $64 million deficit for the current fiscal year—after a record-high tax increase–and a combined $2 billion gap for the next two fiscal years.
Meanwhile, Connecticut’s economy continues to be stalled, with the state’s unemployment rate (8.6%) higher than the national rate (7.8%) and more people leaving the workforce each month.
The report says that state deficits, and the economic doldrums, are related—and fixable.
“It’s time to adopt the comprehensive policy changes needed to control spending, develop fiscal discipline, and make government more efficient,” says CBIA president and CEO John Rathgeber. “That’s the most viable economic development strategy we have as a state.”
In early February, Gov. Malloy will present his two-year budget proposal to the General Assembly, and lawmakers will vote o
n a new state budget later in this session, which adjourns on June 5.
Since 1992, state government spending has jumped 153% to more than $20 billion this fiscal year, far outpacing population growth, inflation, and median household income.
Also over the past 20 years, state employee retiree health benefits jumped 981%, while pension costs climbed 583%. Costs for servicing state borrowing increased 204%, Medicaid spending rose 180%, and corrections spending was up 178%.
The report outlines a series of reforms, including those developed by the Connecticut Institute for the 21st Century and others adopted as best practices in a number of states, across five key areas:
- Continue to streamline state government: Adopt lean techniques and other efficiency strategies government-wide, use performance-based budgeting in all state agencies and programs, upgrade the state’s information technology system, and modify union rules to allow redeployment of employees based on priorities.
- Rebalance long-term healthcare: Provide home-based care when appropriate, shift more Medicaid recipients to high-quality community-based programs, expand the use of nonprofit agencies for services, and increase the state’s fraud prevention and control units.
- Reform the corrections system: Expand nonprofit programs, reform corrections officer job classifications and work rules, implement Connecticut Sentencing Commission recidivism reduction recommendations, overhaul medical retirement benefits, and engage the business community in re-entry programs.
- Modify state employee retiree benefits: Cap annual pension payouts at $100,000, eliminate the use of overtime in calculating pensions, increase medical co-pays for future retirees, raise the retirement age from 62 to 65, and eliminate post-retirement medical coverage for new employees while switching them to 401(k)-style retirement plans.
- Expand use of quality nonprofit agencies: Require state agencies to use results-based accountability for assessing existing programs and services, streamline current contracting procedures and cut red tape, and allow health and human services clients to more readily access community or home-based care.
Other states have successfully implemented a number of the recommendations contained in the report, resulting in billions of dollars in savings and greater accountability to taxpayers.
Making tough decisions now on the state’s fiscal challenges can help renew business confidence in Connecticut and give employers the confidence to increase investments in the state, create jobs, and expand operations here.
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