WARNING! WARNING! The state of Connecticut’s Fiscal Health
Last Friday, the Connecticut General Assembly’s Office of Fiscal Analysis issued its annual Fiscal Accountability Report. The report serves as the definitive independent assessment of the fiscal health of the state of Connecticut.
Unlike the “projections” produced by the Office of Policy and Management, which are designed to protect a sitting governor from criticism, the work done by the Office of Fiscal Analysis is widely respected and noted for its accuracy.
Those truly interested in understanding the Connecticut state budget and the issues surrounding taxes and spending in Connecticut should begin by reading OFA’s Fiscal annual Accountability Report. The OFA report not only provides a review of the status of this year’s state budget but they also provide a detailed assessment of what will occur over the next three fiscal years.
Unlike the rosy picture painted by Dannel Malloy during the recent gubernatorial campaign, OFA’s report is stark and disturbing.
The Office of Fiscal Analysis reports;
- This year’s state budget (FY15) is running at least an $89.1 million deficit. (Although Malloy repeatedly claimed, up until Election Day, that there will be NO state deficit, his budget director has finally admitted that this year’s state budget deficit is closing in on $100 million.)
- The projected state deficit for FY16 (next year) is $1.3 billion.
- The projected state deficit for FY17 is $1.4 billion.
- And the projected state deficit for FY18 is $1.7 billion.
The single most important factor to understand when reviewing the OFA projections is that they take into account the expected growth in the economy.
For example, this year the state of Connecticut was expecting an additional $350 million in revenue due to growth in the economy. However, one of the reasons the state is now facing a deficit is that Connecticut’s economy is not growing as quickly as the experts expected.
According to OFA, the factors driving this year’s growing state deficit is that state revenues are $59.1 million lower than originally budgeted and state spending is $30.4 million higher than originally budgeted.
The increased spending is due, in part, to the Malloy administration’s failure to allocate sufficient funds to pay the healthcare costs for state employees retiring from the Department of Corrections and Malloy’s decision to intentionally underfund Connecticut’s magnet schools.
The harsh reality is that Connecticut is short about $4.5 billion in revenue from what it will need to maintain “current services” over the next three and a half years and that this number already takes into consideration an on-going improvement in the economy.
While OFA’s Fiscal Accountability Report is immediately relevant because of its projections about revenue and spending over the next three fiscal years, the report also covers Connecticut’s long-term “obligations” or “liabilities,” otherwise known as the money that taxpayers will need to come up with in order to make the state’s debt payments and fund the state’s other obligations, such as pensions.
It is in this area that the news is even more troubling.
The following chart highlights Connecticut’s Unfunded Liabilities.
|Liability||Amount in Billions|
|Debt Outstanding||$21.3 Billion|
|State Employee Retirement System (SERS)||$12.3|
|Teachers’ Retirement System||$10.8|
|State Post Employment Health and Life||$19.5|
|Teachers’ Post Employment Health||$2.4|
|Generally Accepted Accounting Principles Deficit||$1.1|
The total amount in long-term obligations means that Connecticut taxpayers will need to come up with $68.4 billion over the twenty to thirty years, in addition to their federal, state and local tax payments for existing governmental expenses.
In essence, the state’s long-term debt saddles taxpayers with an annual payment in addition to any payments they have for a home mortgage, student loan debts or consumer debts.
With about 1.2 million taxpayer households in Connecticut, the state’s extraordinary level of debt and long-term obligations means that each taxpayer family or household, on average, will be responsible for paying in about $57,000 in addition to their regular tax payments over the next twenty years or so.
And unlike debt at the Federal level which can be easily pushed off, Connecticut MUST pay these obligations during the next two decades or so. This means that the burden to make these payments will fall on the state’s existing taxpayers and those that are already born but have yet to become taxpayers.
You can read more about the latest budget news at CT Mirror -Budget chief: Some tax cuts may have to wait; CT colleges likely to face cuts and NewsJunkie Gov’s Budget Office, Nonpartisan Analysts Project Deficit.
The reports include confirmation that Governor Malloy will be announcing budget cuts soon and that those cuts will probably be disproportionately aimed at Connecticut’s public colleges and universities.
The CT Mirror story also reports that the Governor’s operation is already backpedaling on nearly $220 million in tax cuts that Malloy pushed through before the election and another $40 million in tax cuts that he promised to put into law if he were re-elected.
The list of new and proposed tax cuts that Malloy promoted during his campaign are now in jeopardy include;
- Restoring the sales tax exemptions on clothing and non-prescription medications.
- A new income tax credit for retired teachers.
- Returning the Earned Income Tax Credit for working poor families to its original level.
- And putting an end to the corporation tax surcharge.
- Plus new tax cuts, including a special tax break for urban businesses and an income tax credit for those who are paying interest on their student loans.