Developing enforceable, effective government spending controls should be the top priority for the state's Spending Cap Commission according to Webster Bank chairman and CEO Jim Smith.

Appearing before the commission's September 7 hearing, Smith said the state must adopt "a control our destiny" approach to resolving Connecticut's long-term fiscal problems and driving economic growth.

Webster Bank CEO Jim Smith"I am deeply concerned for the state's fiscal condition, which I think we can agree is deteriorating," Smith told the commission.

"I strongly believe that fiscal pressures and related uncertainty regarding taxes and regulatory rules are largely responsible for the low and waning confidence expressed by businesses and consumers.

"You have it within your power to change the course of events by defining the spending cap, and especially the exemptions, in a way that sustainably controls total state spending, lowers the state’s cost of doing business, and improves public sector productivity."

Approved by 82% of Connecticut voters in 1992, the spending cap was meant as an offset to the widely unpopular state income tax the legislature approved the previous year.

It was designed as a tool to keep most budget appropriations in line with actual personal income increases and inflation.

Despite the two largest tax increases in state history, our state remains mired in an endless cycle of budget crises.
— Webster Bank's Jim Smith
While there have always been some budgetary exceptions from the cap, such as debt payments, exemptions have steadily grown through generous cap interpretations.

Current spending cap exemptions now amount to almost 30% of state expenditures.

Smith told commission members the most important issue they face was deciding what state expenditures should be included in the cap, noting that the recurring use of exemptions was "like trying to eat our cake and have it, too."

'Violating the Will of Voters'

He highlighted recent legislative action, taken by a simple majority of state lawmakers, that moved $1.9 billion in payments toward unfunded pension liabilities outside the cap, freeing up approximately $100 million in additional spending this year.

"Such maneuvers violate the will of voters and only serve to make our finances more precarious," he said. "Unchecked, these maneuvers will surely produce a catastrophic result and would be the ruin of Connecticut.

State Government Spending
State spending has far outpaced the growth of Connecticut’s population, inflation, and household income.

"The spending cap should be comprehensive and include all state spending other than debt service. I believe that only debt service should be exempted since the fewer the exemptions, the more likely we can achieve true fiscal discipline.

"A case in point is that over the last 45 years, total appropriations have grown at well over twice the rate of personal income."

Smith noted that if the spending cap was faithfully observed since 1992, cumulative state spending would have been reduced by as much as $5.5 billion, mitigating the need for constant tax hikes.

"Despite the two largest tax increases in state history in recent years, our state nonetheless remains mired in an endless cycle of budget crises with no end in sight," he said.

While lawmakers avoided tax hikes this year—an election year—Connecticut faces budget deficits in excess of $1 billion for fiscal years 2018 through 2020.

Crisis Atmosphere

Connecticut's economy continues to trail the region and the country.

The state's GDP grew a modest 0.6% in 2015, the unemployment rate is the highest in New England, and we've yet to recover all jobs lost during the 2008-2010 recession.

"This crisis atmosphere has had a predictable impact on business confidence," Smith told the commission.

"If we do not instill businesses with confidence in our state's leadership and finances, the attrition of businesses to other states will accelerate.

"Businesses in this state are vitally interested in what this commission recommends. I would rate achievement of a functioning, effective spending cap as their number one priority.

"The commission’s recommendations will be closely watched to determine the level of discipline it seeks to impose on future spending, and taxes.

"You can be sure that businesses will make investment and location choices accordingly."


For more information, contact CBIA’s Louise DiCocco (203.589.6515) | @LouiseDiCocco