Malloy Reminds Lawmakers About Connecticut’s High Fixed Costs, Bond Rating
The report published on April 5 spelled out how Connecticut will have to resolve its budget deficit at a time when the economy is weak and its fixed costs are high.
Marcia Van Wagner, a Moody’s vice president and senior credit officer, said Connecticut’s fixed costs command roughly 30 percent of the state’s $18.9 billion in revenues, which is the highest percentage in all 50 states.
Malloy warned that if the bond rating is lowered it will make closing a two-year $3.6 billion budget deficit that much harder.
“Moody’s affirms that addressing the state’s fiscal challenges through responsible and recurring changes — rather than significant revenue increases or one-time budget gimmicks — is the right and necessary path for our state,” Malloy wrote in his letter.
Van Wagner said the state’s economy has entered a “new normal” of slow job growth and income growth. The state’s finance sector has shed 11 percent of its jobs since 2007 and Connecticut was one of only four states to lose population annually since 2013.
Connecticut is losing about 575 residents per week to other states, according to 2016 U.S. Census data. Between July 1, 2015, and July 1, 2016, Connecticut’s total resident population fell by 8,278 people.
To address fiscal sustainability, according to Moody’s, Malloy has proposed an executive budget featuring extensive structural changes that would shift and reorder state aid to local governments and demand significant cost savings from collective bargaining agreements for state employees.
A program of this magnitude would cut $1.36 billion from the budget in fiscal 2018 as the budget pegs labor savings at $700 million, which could consist of a wage freeze and benefit changes.
Van Wagner concluded that structural changes will improve the state’s finances but could impact the credit rating of municipalities who are being asked to take on more responsibility by paying for one-third of the Teacher’s Retirement System. Malloy’s budget proposal would reduce state aid on net to about 130 out of 169 towns in the state, with varying degrees of credit impact, Van Wagner said.
House Majority Leader Matt Ritter, D-Hartford, thanked Malloy for the letter.
“We all understand our reality,” Ritter said. “But there’s nothing wrong with reminding people about the seriousness of the situation.”
However, Senate Republican President Len Fasano, R-North Haven, said every time Republicans mention these issues they’re somehow “rooting for failure” and all hope of a serious discussion is dismissed.
Malloy in his letter to legislative leaders also reminded them that revenue increases at this time are not the answer. Malloy, who approved the two largest tax increases in the state’s history, has not ruled out revenue. But he has been adamant that it’s not where he plans to start.
Malloy’s budget would increase taxes on lower and middle income residents because it eliminates the $200 property tax credit that can be claimed by those making under $100,000 a year.
It also reduces the Earned Income Tax Credit claimed by the working poor, who don’t pay income taxes, but generally pay more in sales and other taxes. The co-chairs have discussed broadening the sales tax, but have not discussed possible increases in the income tax for Connecticut’s wealthiest residents.
Legislative leaders have left it up to the co-chairs of the Finance, Revenue, and Bonding Committee to decide whether to increase taxes.
Ritter said the Democratic caucus is very aware of the state’s fiscal situation and are thinking about it every day.
“We all remind each other of our priorities,” he said.
Those priorities will begin to emerge at the end of April when the legislature’s two budget writing committees propose their own budget in response to the one Malloy unveiled in February.