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Budget debate continues into next election

Published May 12. 2013 4:00AM

Upon taking the oath of office on Jan. 5, 2011, Gov. Dannel P. Malloy confronted the most serious fiscal crisis in Connecticut's history. Projections showed that left unchecked, spending would outpace revenues by 20 percent in the next budget. Working with the legislature he had to close a $3.7 billion fiscal hole.

The steps subsequently taken, the assumptions made and the political calculations behind them are outlined in an exhaustive and illuminating three-part series by reporter Keith Phaneuf of The Connecticut Mirror, much of it recently published by The Day. Readers can find the full report on the non-profit news organization's website, www.CTMirror.org.

This is the bottom line: The detailed series shows that while Gov. Malloy and a legislature controlled by his fellow Democrats made some difficult and politically unpopular decisions to address the crisis, the actions taken were not enough. They failed to address some fundamental problems with how Connecticut collects money (from a bureaucratic-building 378 different taxes, service fees and fines, according to the conservative Yankee Institute for Public Policy) and spends it (unsustainable obligations).

Connecticut again confronts deficit projections - $2.5 billion over the next two fiscal years - that while not as large as those the state faced when Gov. Malloy arrived in office, clearly show the problem is not fixed.

Most disconcerting is that the budget proposal Gov. Malloy presented to the legislature, and which continues under debate, returns to the some of the same gimmick and borrowing tactics for which he rightfully criticized his predecessor, Republican Gov. M. Jodi Rell. It is a budget that borrows to meet ongoing expenses, is overly dependent on one-time sources of revenues and adds up only if some rosy economic growth predictions are accepted.

Gov. Malloy's political calculus is clear. Having signed into law the biggest tax increase in state history - in dollars if not percentage - he does not want another tax hike as he moves toward 2014, a re-election year. And Gov. Malloy has apparently assessed that he lacks the political leverage to seek further concessions from state workers.

In the first two years of his term the governor negotiated a wage freeze and significant employee concessions. But in return the state agreed to a no-layoff provision and to wage increases totaling about 10 percent over the next three years. The contract ends in 2015, the first year of Gov. Malloy's second term, or someone else's first.

The savings achieved by the labor deal fell well short of projections, in significant part because the projections were unrealistic to begin with. Also contributing to the deficit the state again faces is that the Malloy budget fix depended on expectations of a robust economic recovery. That did not happen.

Unwilling to again raise taxes and unable to cut labor costs, the governor was left with borrowing and gimmicks. Short of the labor unions deciding to take their chances with the incumbent and reopen contracts before the end of Malloy's first term, the fiscal ingredients appear baked in through the 2014 gubernatorial campaign.

That campaign, therefore, must focus on who has the best ideas for addressing the long-term structural problems the state faces.

Since 1992 state spending for employee retiree health benefits has grown 981 percent; employee pensions 583 percent; debt service 204 percent; spending on prisons, 178 percent. Those trends are untenable. While the Malloy administration has taken some steps to address them, more dramatic action is necessary.

That will need to include caps on pension payouts, a higher retirement age, greater co-pays, the end of using overtime to spike pension pay, and switching new hires from a defined benefit to a 401(k) system. In providing social services and alternatives to incarceration, the state must make better use of non-profit agencies. The tax system needs to be revamped and simplified.

Only with substantive change will Connecticut avoid moving from one fiscal crisis to the next.

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