Our state government’s unwillingness to tackle the growing deficit and deal with the state’s underlying fiscal problems will have a catastrophic impact on many of the programs and services on which we depend.
While the actions that are necessary are painful, even repugnant, the alternatives are so much worse.
We can no longer allow ignorance of the facts or an unwillingness to concede reality to stand in the way of action.
Let us understand the situation.
In FY09, the fiscal year that ended last June 30th, our state government was forced to face the ramifications of this disastrous recession. Even using stimulus funds and raiding many of the state’s special targeted programmatic accounts, Connecticut’s budget exceeded its revenue by more than $1 billion. To cover the deficit the state was forced to borrow the difference in economic recovery notes.
In this fiscal year, despite significant revenue increases and budget cuts, the use of the rainy day fund, the federal stimulus funds and raiding remaining programmatic accounts, state expenditures will once again exceed revenues. We will be forced to borrow again, perhaps as much as another $1 billion to cover this year’s deficit.
The fact is, next year Connecticut’s budget is likely to exceed its revenue by more than $1 billion. This figure doesn’t even count the absurd and unachievable budget gimmick being used that calls for the securitization of a yet unidentified revenue source for another $1.3 billion.
The use of these many one-time revenues creates a massive structural deficit, which is exacerbated by the increased borrowing that will add hundreds of millions of dollars of debt service to the bottom line. For each billion borrowed the annual cost to the state is over $150 million.
On top of all of that, the proposed securitization, even if successfully implemented, would cost well over $180 million a year in lost revenue going forward.
At this rate, even if the economy does not deteriorate any further, the next governor who takes office on January 2, 2011 will immediately face a budget that has a revenue shortfall of over $4 billion dollars.
No millionaires tax, not matter how large, will even begin to fill that hole. Connecticut’s entire income tax program generates $6.5 billion.
If this catastrophic problem remains unaddressed during this fiscal year and the next, the size of the across the board income tax increase and sales tax increase would be enormous.
It is imperative that action be taken now to reduce expenditures and increase revenues so that our state government can rededicate itself to ensuring government is successfully tackling the many problems and challenges we face.
We simply can not wait because waiting will produce a problem that is so big that it will become insurmountable.
We know that every policy and programmatic change has significant ramifications but action is needed nonetheless.
While such a complex problem requires a far more complex solution than this space allows, we can be sure that the next steps must include (1) revising budget formulas to refocus dollars to those communities, programs and individuals who need the most assistance, (2) restructuring government to find economies of scale and reduce unnecessary administrative and management expenses, (3) modifications to the delivery of services to ensure that our state employees are using their time and expertise effectively, which includes , (4) postponing or canceling all but the most vital capital expenditures so that the additional debt service from the economic recovery notes doesn’t consume the next few budgets, (5) real and significant negotiations with our state employee unions to control mid and long term personal costs associated with personal services and benefits and (6) identification of additional revenue streams to limit the size of the structural deficit going forward.
There are many factors that contributed to this crisis but some of the blame lies directly with our state government’s failure to read the warning signs and take action to minimize the damage.
While it is far easier to lay out the necessary steps than it is to actually implement them, these steps must be taken. Inaction will only make these problems worse in the future.
The time has come for our state’s elected officials to put Connecticut back on the road to fiscal stability.
