Testimony Submitted By Carol Platt Liebau, President of the Yankee Institute for Public Policy, to the Appropriations Committee on the 2017 Budget Revisions

February 16, 2016

Good evening Senator Bye, Representative Walker, Senator Kane and Representative Ziobron. My name is Carol Platt Liebau and I am the president of the Yankee Institute for Public Policy. Our mission is to transform Connecticut into a place where everyone is free to succeed.

I am here today to discuss Governor Malloy’s FY 2017 budget plan.

We at the Yankee Institute support the Governor’s budget plan. We know it is a bitter pill. Like you, we agonize over the hardships it will impose on some of the most vulnerable residents of our state. But even so, we have concluded that, at this point, it is necessary to make these difficult cuts in order to put the state back on a more sustainable path.

Connecticut’s businesses and residents are worn out from paying for the two largest tax increases in state history ‐‐ both enacted in just the past five years. And we have learned, from sad experience, that those increases did not have the desired (and predicted) result – state revenues continue to come in below projections. Given the repeated, demonstrated failure of tax increases to solve our state’s fiscal problems, it would be foolish to believe more of the same would work this time.

In fact, this week, Gallup released a new poll showing the linkage between a high tax burden and residents’ desire to move out of their state. A full 46 percent of the Connecticut residents surveyed said they wanted to leave. The polling data shows a direct relationship between high tax burdens and residents’ dissatisfaction with their home state.

This is not what we want for Connecticut. We love Connecticut, as we know you do. We want people to stay here, work here and raise their families, to build their lives here. But high taxes are driving people away.

As the committee that oversees how the state spends its money, we know you have many difficult choices to make.

As you discern the path forward, I hope you will keep in mind the significant cost drivers in the state budget that impose constant upward pressure on spending. Increasingly, these growing expenses are crowding out the funding for vital services our most vulnerable residents desperately need.

These cost drivers include state employee pensions, state employee health care, retiree health care and payments on our debt.

Debt payments increased by 13 percent from 2016 to 2017. I’m sure you notice that all of the other major drivers are related to public employee compensation.

From 2016 to 2017, spending on retired state employee health care increased by 9.5 percent. And the cost of health care for our current employees went up by more than 7 percent.

In order to provide greater transparency moving forward on fringe benefit costs, we support the Governor’s efforts to move fringe benefits out of the Comptroller’s budget and into the agencies’ budgets. We believe this increases accountability for fringe benefit spending because it allows agencies to make a decision about whether they would prefer to spend money on fringe benefits or on direct services.

However, we do not support block grant funding. We think the legislature provides an important oversight function.

Our research shows that state employee pay and benefits are significantly out of alignment with the pay and benefits received by Connecticut residents who work in the private sector. We hope you will make it a priority to realign state employee compensation, so that it is both fair and sustainable. As you vote on the state employee contracts that will come before you this year, we respectfully ask that you keep these facts in mind.

This request is in no way intended to disparage the work that our state employees perform ‐‐ or the employees themselves. It is simply a recognition that we must reform the way we spend our money here in Connecticut in order to restore fiscal responsibility and secure our state’s economic future.

Finally, I would note that many other states, including all of our neighbors, set state employee benefits in statute rather than through collective bargaining. In fact, in Connecticut, we already set our teachers’ retirement benefits in statute, so precedent for this approach exists.

In any case, our state’s pension debt is a matter of ever‐increasing urgency. The latest report by the State Treasurer Denise Nappier shows that the state’s pension funds all performed poorly last year, which is not unexpected given the volatility in the market. Unfortunately, when our pension funds underperform, our pension debt grows at a faster rate, hastening a looming crisis.

We are encouraged to see that the governor is calling for stakeholders from across state government and labor to come together to solve the state’s pension debt crisis together. We hope the members of this committee will also play an active role.

We ask that you use your platform as the holders of the state’s checkbook to call for greater restraint in how much money the state borrows.

As always, all of us at the Yankee Institute thank you for your dedication to our state. We stand ready to help in whatever way we can.

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