The state’s largest business lobby released a report Wednesday that says state spending has jumped 153 percent since 1992, outpacing population growth, inflation, and median household income.
The Connecticut Business and Industry Association’s report says state employee health benefits have grown 981 percent, debt service has increased 204 percent, Medicaid is up 180 percent, state employee pensions are up 583 percent, and spending on the state’s correction system has increased 178 percent since 1992.
The report concluded that the state’s budgetary shortfall is not “simply a function of an underperforming economy but also the product of state spending policy.”
Over the past two decades, when the state has confronted deficits it has chosen to increase or expand taxes to fill the gap and “any ‘cuts’ have been, in reality, usually just a slowing in the rate of spending growth,” the report says. “The truth is that Connecticut has a spending problem that’s been exacerbated by tax revenues not being used as effectively as possible.”
CBIA president and CEO John R. Rathgeber said it’s time to adopt a comprehensive policy to control spending.
“That’s the most viable economic development strategy we have as a state,” Rathgeber said in a statement. “By making the tough decisions needed to address our fiscal challenges, lawmakers will renew business confidence in Connecticut, giving employers the confidence to invest, grow, and create jobs here.”
However, Office of Policy and Management Undersecretary Gian-Carl Casa took exception to the sweeping generalization of Connecticut’s economic woes as a spending problem.
“Measuring Connecticut’s fiscal trends over the last two decades does not give enough credit to the significant changes made by the Malloy administration,” Casa said. “Most of the problems described in the report were years in the making — and we’re taking them on.”
He said the report “dismisses the sluggish national economy and the fact that 31 other states are facing similar fiscal problems.”
“To say taxpayers have seen ‘few efforts’ to reduce spending is simply incorrect,” Casa said. “The rate of spending under the Malloy administration has been smaller than those of his last two predecessors; he has focused spending on areas most likely to help Connecticut grow jobs.”
Gov. Dannel P. Malloy doesn’t release his two-year state budget until Feb. 6, but he has said he doesn’t “intend to raise taxes.” That means he will have to produce a budget that closes a $2.2 billion deficit mostly with spending cuts. However, because of the concession package he struck two years ago with state employees, most of the workforce is protected for two more years by a no-layoff pledge.
The business group was critical of that $1.6 billion concession package. The report concludes it didn’t do enough to change the state’s long-term obligation to its workforce, even though it concedes it took a step toward improving it.
The state currently has an estimated $63.9 billion in long-term obligations. Without the concession package those obligations, such as pension and retiree health care costs, may still be valued at about $73.1 billion.
In 2011, the state increased the penalty for early retirement, increased the years of service to be eligible for retirement, and increased the contributions new employees must make toward their health benefits, but the business lobby believes there’s much more the state can do to change its relationship with its workforce.
However, unlike in other states, in Connecticut the governor and the labor leaders are the only ones who can agree to reopen the contract. The scenario is unlikely to occur since the current contract extends through 2016, and job security was guaranteed until 2015.
If the stakeholders had any desire to reopen the contract, the business lobby recommends changing how pension calculations are made by taking the average of the last five years, instead of the last three years. It also suggested moving away from a defined benefit plan, which provides a monthly benefit to participants at retirement, to a defined contribution plan similar to 401k.
The report also reiterates several recommendations on how the state could improve the efficiency of state agencies through something called “lean” government principles, which attempt to reduce redundant layers of management, restructure functions, and adopt new ways of budgeting. At least three state agencies have taken on the lean challenge, but the report suggests much more can be done.
During his first year in office Malloy reduced the number of executive branch agencies from 81 to 59 and reduced then even further to 52 in his second year.
The report also suggests that the state can take a different approach to budgeting by employing performance based budgeting or zero-based budgeting. Performance based budgeting looks at continuing funding for programs within a state agency that are getting the desired results. Zero-based budgeting assumes that every budget starts at zero to avoid the assumption that programs previously funded would continue to receive funding.
Other solutions to changing the state’s budget trajectory are long-term solutions proposed by the Connecticut Institute for the 21st Century.
The Institute has suggested that the state could save money if it made sure 75 percent of the elderly population, currently in nursing homes, were receiving services in their homes. It estimates the move could save the state about $900 million annually by 2025.
It also suggests the state could save money if it allowed more services to the poor and disadvantaged to be done through private nonprofit providers, many of which are not unionized, instead of state agencies.
“According to the bipartisan Commission on Nonprofit Health and Human Services, Connecticut’s nonprofit community already provides a number of healthcare services to the state at substantially lower cost than if those services were provided by state employees and institutions. By carefully expanding the use of qualified nonprofit providers, Connecticut could deliver quality programs and services at less cost,” the CBIA report concludes.
Lawmakers were unable to comment on the report because a majority of them had not seen it.