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OP-ED | Don’t be Fooled by Surplus Smoke and Mirrors

by Susan Bigelow | Jan 24, 2014 8:00am
(15) Comments | Commenting has expired
Posted to: Cartoons, Election 2014, Opinion, State Budget, Taxes

Good news; the state government is running a bigger-than-expected surplus! Just don’t dig too deeply into the numbers.

The new surplus is twice what analysts thought it would be, and for a state that in 2011 faced a massive $3 billion budget hole it’s great to be in the black at last. Gov. Dannel P. Malloy said in a statement that the increased surplus “. . . highlights the continued progress we have made in turning a record-setting $3.6 billion deficit to a surplus of more than $500 million, while at the same time making smart investments to improve our education system and grow jobs.” It sounds great, right?

But this is Connecticut, where good news always comes with some sort of catch. In this case, it turns out that the budget surplus doesn’t reflect good policy so much as the legislature and governor tweaking the system to get a surplus now while huge deficits loom just over the horizon. Figures.

There are two big problems with the surplus. The first is that it relies upon a number of one-time or unreliable revenues. Tax revenue from gains on Wall Street is nice, but hardly the sort of thing that budget-makers should rely upon. The budget passed in June 2013 also included increased revenue from a tax amnesty program that brought in much more than expected. And, the state borrowed money to finance the transition to Generally Accepted Accounting Principles (GAAP) instead of paying for it outright.

The second problem is that the surplus doesn’t represent anything near smart accounting methods. The budget continued a number of taxes that were supposed to sunset this year, for instance, and pushed off repaying certain debts to 2018.

And then there’s the mess waiting for whoever wins the gubernatorial election in November. By 2016, according to the legislature’s nonpartisan Office of Fiscal Analysis, the state will be staring yet another billion dollar deficit in the face. That deficit is expected to grow to nearly $1.5 billion by 2018.

So while Malloy and Democratic leaders can point to a surplus heading into the election, that isn’t all there is to the story. The state’s fiscal house is far from in order, and the current surplus is more about luck and conveniently-timed borrowing than good economic policy.

Republicans have been quick to point this out. The Connecticut Policy Institute, brainchild of presumptive gubernatorial candidate Tom Foley, sent out a laundry list of problems with the surplus, and Foley himself called the surplus “phony Malloy Math” in a release. Senate Minority Leader John McKinney and House Minority Leader Lawrence Cafero both jumped on the fact that the surplus relies on one-time revenues, and Cafero pointed out that the state is still borrowing over $20 billion through bonds.

This ought to be a winner of an issue for Republicans. Democrats’ claims that the surplus is a sign of economic recovery and better government don’t really hold up, especially considering lackluster economic growth and the big deficits in the forecast.

Unfortunately for them, the electorate doesn’t usually have a lot of patience for budget narratives, and Democrats will be able to say that they turned a big Republican deficit into a Democratic surplus. That’s a very simple, effective message, and if people are willing to hear anything about state finances this fall, that’ll probably be it.

The sad truth is that the state’s finances haven’t been in particularly good shape for decades. Even during the good times of the early years of the Rell administration the state still had huge underfunded liabilities, such as the teacher retirement fund, and plenty of debt through bonding.

Governors always come in pledging to restore budget sanity, honor the spending cap, and cut runaway spending, but it never seems to work out that way. In Malloy’s case, the nasty fight over a package of tax hikes, spending cuts, union concessions in 2011 and the transition to GAAP were supposed to get us on the right track, but if the deficit projections for 2016 forward are any indication, then those measures haven’t worked. Connecticut’s finances remain stubbornly dysfunctional.

So now what? The surplus does exist, for now, and there’s already chatter about how best to spend it. Republicans want a tax cut. That would be nice, but we could also use it to pay down the debt, or maybe throw it at the black hole of our unfunded pension liabilities.

Or perhaps, if there’s enough left over, we could buy some of the people at the Capitol a clue.

Susan Bigelow is an award-winning columnist and the founder of CTLocalPolitics. She lives in Enfield with her wife and their cats.

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(15) Comments

posted by: Noteworthy | January 24, 2014  10:21am

What they all need, including the governor and his staff, is a vaccine against dishonesty. Can we buy them a dose?

I would have a grudging respect for the governor if he couched the “surplus” with quantifiers rather than claiming all the credit for a surplus that is not real or sustainable. From the little people to the governor - if you haven’t fixed the problem with the state finances, don’t crow about it. Why can’t you get it done?

posted by: StanMuzyk | January 24, 2014  10:37am

@Susan: Thank you for telling the truth. It’s very obvious that the Malloy administration chooses to be “careless with the truth.”

posted by: ocoandasoc | January 24, 2014  12:13pm

Mr. Bickerson: “Blanche, we have to do something. We’ve got way too much debt.” Mrs. Bickerson: “Well, John, can’t we just give some of it away?” Mr. B: “Blanche, I’m serious. We owe money to everyone in town!” Mrs. B: “Well that’s not a problem, John. We’ll just take out a loan from the bank and pay them all back.” Connecticut radio listeners thought this was funny back in the 40’s. Today’s Connecticut voters probably wouldn’t get it.

posted by: BFlood | January 24, 2014  12:42pm

But, but… what about all that money from Keno?
Love how the Republicans first denied the existance of a surplus, then quickly found a use for it.
Both parties need to buckle down and deal with reality. Stop the gimmicks.

posted by: StanMuzyk | January 24, 2014  2:39pm

@BFlood:  Both parties are not in control—and the Democrat’s are doing the gimmicks—to hide the disaster that they have created.

posted by: Just another CT resident | January 24, 2014  2:39pm

Susan,
Thanks for digging, uncovering and reporting the facts behind the Gov’s press release in an unbiased manner.
Well done.

posted by: art vandelay | January 24, 2014  4:23pm

art vandelay

Susan,
Great article.  You’re 100% on the money.

posted by: dano860 | January 24, 2014  8:47pm

Where is that pile of cash from the suggestion box? Huh? What? Oh ya the unions promised that, go figure won’t ya.

posted by: justice | January 25, 2014  9:18am

Gov wants to say “there was a surplus when I was in office” even if its not true! If there is surplus give it back to the hard working TAX PAYER! Stop wasting our money.

posted by: StanMuzyk | January 25, 2014  12:17pm

@Justice:If Malloy has any money, he won’t give it back to the taxpayers. You already know: “He will spend it!” When he has no money—he uses credit cards to pay our state bills. What a way to run a business.

posted by: Chien DeBerger | January 25, 2014  6:21pm

Susan-
You and I don’t agree with much, but you are spot on! Keep up the real journalism.

posted by: JamesBronsdon | January 26, 2014  7:40am

I second Chien’s comment.

posted by: Joebigjoe | January 26, 2014  1:10pm

Susan, Excellent journalism.

The problem here with the lies is that it just doesnt matter to these politicans and I include both parties even though this article accurately points at the Dems for this issue.

So what if Malloy doesnt get re-elected. So what if a few legislative Dems dont get re-elected. I can insert Republican names here as well.

They all scratch each others back and they will all make out great financially. The day that someone comes up with a legal idea that would prevent them from cashing in on government related businesses or employment after they get out is the day we change all government for the better.

posted by: StanMuzyk | January 26, 2014  6:16pm

Successful business success executive Tom Foley called our politician Governor Malloy’s state surplus as “Phony Malloy Math.” It relies upon a number of one-time or unreliable revenues.

posted by: StanMuzyk | January 26, 2014  6:48pm

This surplus smokescreen attempts to smooth over the
Gov.Malloy $1.8 billion dollar tax increase given by Gov. Malloy to ordinary citizens struggling to make ends meet and his continued skyrocketing spending. Give us a break.