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Report: State Budget Is Full of ‘Gimmicks’

by | Aug 2, 2013 4:30am
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Posted to: State Budget

CLICK TO ENLARGE A left-leaning advocacy group released a report Thursday that described the $37.6 billion, two-year budget passed in June as a “quick-fix” that will deepen the state’s long-term budget deficit.

“In the short term, this budget protects many important investments in early education, health coverage, and other supports for hard-working families,” Wade Gibson, senior policy fellow at Connecticut Voices for Children’s Fiscal Policy Center, said. “But by relying on borrowing and one-time fixes, we’re undermining the long-term stability of the budget and gambling with these investments in our children’s future.”

The report took issue with several areas of the budget including the nearly $600 million in borrowing, more than $400 million in temporary fund transfers, and $500 million in one-time revenues to pay for operating expenses. It warned that because these funding sources will dry up at the end of the two-year budget, there is currently a projected state deficit of $712 million in fiscal year 2016 and comparable holes in 2017 to 2018.

If state lawmakers had instead used recurring revenues rather than one-shot revenues and borrowing, the long-term budget would be nearly balanced in these years, the report concludes.

But Deputy Undersecretary at the Office of Policy and Management Gian-Carl Casa pointed to state Comptroller Kevin Lembo’s certification Thursday of a $359.6 million budget surplus for fiscal year 2013 as a sign that things are being managed properly.

“There is still work to be done as Connecticut continues to dig out after decades of ignoring our problems, but it’s clear that Governor Malloy’s fiscal management is steadily improving Connecticut’s budget and financial footing,” Casa said.

But Conneticut Voices for Children pointed out that the state continues to kick the can down the road by delaying payments on things like the Economic Recovery Notes it borrowed in 2009 to balance the budget. By delaying the repayment of the notes another two years to 2018, the state will incur an additional $45 million in interest on the debt.

Like Republican lawmakers, the Voices report also found curious the state’s decision to borrow money from a bank to repay a debt it owed itself to transition to Generally Accepted Accounting Principles.

The report asks why the state would borrow money from the private market to meet stricter accounting requirements. It concluded that in an emergency, it would be better to ask state “employees and retirees for concessions to preserve vital public services” than it would be to ask for flexibility from the private bond market.

Fitch was the only Wall Street rating agency that mentioned the state’s decision to borrow for GAAP last month when it changed its outlook for Connecticut’s bonds.

“Fitch recognizes the immediate cash flow benefit of the GAAP borrowing, although notes that the use of bond proceeds essentially replaces the use of budgetary surpluses to make the transition. The borrowing would have a limited impact on the state’s debt burden, already high in Fitch’s view,” analysts concluded last month.

“In sum, this budget makes little progress in paying down our debts; in fact, it adds new debts,” the report says. “While it closes much of the GAAP deficit and reduces the pension system’s unfunded liability, it does so with funds borrowed from third parties, diminishing the state’s flexibility in a crisis.”

The Connecticut Voices for Children report concluded that the two-year state budget Gov. Dannel P. Malloy signed with little fanfare in June was a “gambler’s budget.”

Rather than “one-time revenues, temporary fund transfers, and excessive borrowing,” the state should either “raise recurring revenues or sustainably reduce spending, balancing the budget without tricks or gimmicks.”

It reasons that with more and more of the state’s operating capital going to cover things such as debt and unfunded pension liability, policymakers should keep in mind that raising revenues can be part of the equation.

“The administration disagrees — we have a balanced budget without them,” Casa said.

After implementing the second-largest tax hike in the state’s history in 2011, the Malloy administration has opposed increasing revenues.

“The state must take a balanced approach to balancing its books that includes revenues,” Gibson wrote.

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(6) Archived Comments

posted by: Fisherman | August 2, 2013  5:49am

Christine, I applaud your coverage of this story; very balanced. Moreover, I applaud Connecticut Voices for Children’s accurate assessment of Connecticut’s fiscal MESS, and for their courageous declaration that decisions made within the past couple of years (ie: spending like drunken sailors, while simultaneously borrowing for operating expenses!) amounts to nothing more than kicking the can down the road. This is one sad way to operate a state.

Households balance their budgets… not by borrowing to heat and eat; but by limiting their spending to the really important things. Businesses balance their budgets… and when they do borrow, they do so to increase value.  But the State of Connecticut IS borrowing to heat and eat and has NOT created value.

And this is after retroactively grabbing our taxes.  Even today, some have the nerve to proclaim that Connecticut has a “Budget Surplus”. 
Some should tell them that you can’t have a “surplus” until you pay off your debts.

posted by: art vandelay | August 2, 2013  7:28am

art vandelay

I agree with Christine Stuart’s assessment & Fisherman’s Comment 100%. In 1990 the state operated on an 8 billion dollar budget with NO Income Tax. When Weicker took office the debt was a mere 40 million. He bullied the legislature into an income tax to eliminate the deficit.  The income tax was purely a “license to spend”.  The tax certainly met and far exceeded its goals.

posted by: BrianO | August 2, 2013  7:32am

Very insightful information, but I think we do a disservice when we identify the source as “left leaning.” 

As you note, the Republicans agree with much of this analysis.  The fiscal issues of our state go well beyond partisan politics.  This report does not advocate for one program over another, it is an objective analysis with integrity.  Unfortunately, many will discount the information because the source is identified as “left leaning. “  Addressing our state’s economic issues in an objective manner can actually provide a meaningful opportunity for bi-partisan agreement.

posted by: Janster57 | August 2, 2013  11:26am

I wonder whether Generally Accepted Accounting Principles allow an entity to declare a surplus which is less than the amount borrowed to get it? If I don’t make a mortgage payment is it a surplus?

posted by: JamesBronsdon | August 2, 2013  12:20pm

I found the use of the phrase “left-leaning” illuminating. I don’t know that the author intended any particular point by it, but to me it means that it is not only Republicans or the right-leaning who think our state’s fiscal situation is in a dire situation. If we can’t use “liberal” “conservative” “left” “right” in these twitter-sized posts, we’re condemned to right treatises (which won’t be read).

posted by: dano860 | August 3, 2013  7:52am

...and we are surprised!?
“There is nothing behind that curtain.”