Two reports on Connecticut’s finances show that a surge of fixed costs, including debt payments and pension payments, are behind the estimated $1.3 billion shortfall that lawmakers will have to settle next year.
Fixed costs are expected to rise nearly $900 million in the next fiscal year, including increases of $244.6 million for debt payments, $297.4 million for teachers’ pensions and $192.3 million for state employee pensions and retiree health care, according to a report from the legislature’s nonpartisan budget office. As a percentage of the budget, fixed costs are projected to increase from 37 percent in 2006 to 53 percent in 2018.
Despite the expectation that the coming budget cycle will be a grueling ordeal shaped by a slew of unpleasant choices, Gov. Dannel P. Malloy said he is unlikely to propose major tax increases.
“If you’re asking me if I’m leading with the expectation that we’re going to raise a lot of additional dollars, the answer is no,” the Democratic governor said during a press conference Tuesday. Malloy said he is still formulating his budget proposal, which will be delivered to lawmakers in January. But he said a looming crisis of underfunded state employee and teacher pensions must be dealt with.
Malloy has asked all state departments to submit plans on how they would trim their budgets by 10 percent. The first of those plans were released earlier this month and the remainder are expected to be released this week. The Office of Fiscal Analysis said nonfixed costs would have to be cut by 13 percent to bring the budget into balance.
During the last legislative session Malloy enacted layoffs and lawmakers made spending cuts totaling hundreds of millions of dollars.
“Our state is facing a death spiral, and we must start talking about fixing it today,” Senate Republican Leader Len Fasano said. “Connecticut cannot even keep up with its most basic everyday expenses. This report shows us what would happen if the state only funded the absolute bare-bones of our budget. … This report shows the devastating truth that Connecticut can’t pay for core government services if we continue on the same path we’re on now.”
The state is also grappling with lower-than-anticipated tax receipts as Connecticut slowly recovers from the Great Recession. In a separate 76-page report to lawmakers Tuesday, Ben Barnes, secretary of the Office of Policy and Management, said recovery from the Great Recession has “been uneven both nationally and in Connecticut.”
As of September the state recovered 76.2 percent of the jobs lost during the recession, much lower than the national average, and those new jobs often pay less. More than 54,000 of the jobs lost had an annual wage of more than $80,000. Just 8,200 of the jobs recovered pay that much, according to Barnes’ report.
The report from OFA said Connecticut was hit harder than other states in the region by the recession because of its reliance on the finance and insurance industry, which were disproportionately impacted, and the volatility of high-income earners, who have accounted for 76 percent of all income growth in the state since 2004.
Barnes said lawmakers will also have to repeal hundreds of millions of dollars in bonding authorizations to comply with statutory debt limits: $316.1 million in fiscal year 2018, $481.3 million in fiscal year 2019 and $531.6 million in fiscal year 2020. In May, lawmakers canceled or delayed about $1 billion in borrowing for a variety of projects, citing declining tax revenues.
In 2011, Malloy approved $1.5 billion in new taxes, the largest increase in state history. He also signed a significant tax increase in 2015. Malloy said he does not think most Connecticut citizens understand that the current fiscal predicament is rooted in a decision by previous governors to forestall pension payments.
“I don’t believe that people understand the lack of paying the bills as they should have been paid has led to the current difficulties the state of Connecticut has been living with,” Malloy said. “Nor have we had an appropriate response in all cases by all the branches of government.”
He acknowledged that he has been blamed for the tax increases. “You know who should get blamed? My predecessors, who did not fund the pension system.”
