This time of year, children are told that Santa Claus is making a list and checking it twice to find out who has been naughty or nice. However, Santa isn’t the only one who makes a list every year. Leading experts and organizations across the country also rank states by their public policy. In this ongoing series, we will see which “naughty” lists Connecticut landed on and make small suggestions to help the state be a little “nicer.” Check back every day from now until Christmas for a new entry!
Connecticut’s state budget is obviously misaligned, particularly because of the state’s spending on employee pay and benefits. Recently, S&P Global Ratings downgraded Connecticut’s economic outlook rating to “negative,” citing “projected growth in fixed costs” that “could rise to a level [that] could comprise a substantial proportion of the state budget and thereby hamper Connecticut’s budget flexibility.” This news comes only a few months after the state’s bond rating was downgraded by both S&P and Fitch Ratings.
It seems more-than-casual observers are taking note, too. Financial news service 24/7 Wall St. recently released its annual report, The Best and Worst Run States in America. The report pulls data from the U.S. Census Bureau, the Pew Research Center, and the National Association of State Budget Officers (NASBO). Bond ratings from Moody’s Investor Services and the above-mentioned S&P were also included in the methodology.
Connecticut placed a disappointing 40 because it has perhaps been too nice to state employees and not nice enough to taxpayers.
“Despite a wealthy tax base, Connecticut is able to meet just over half of its pension obligations, a larger funding gap than any state other than Illinois, Kentucky, and New Jersey,” according to the report. “Connecticut’s budget problems extend beyond its pension liabilities. It is one of just four states in which total debt has surpassed annual revenue. It also has one of the smallest rainy day funds of all states.”
To paraphrase what Governor Dannel Malloy said at a recent event in Hartford, reducing spending to balance the budget will require making difficult decisions every single day. Those decisions, though, are as necessary as the savings they will produce.
A nice state, like eighth-place Colorado, controls spending through their Taxpayer Bill of Rights, or TABOR. TABOR is a very strong cap on spending by limiting revenues based on a formula that factors in previous spending, population growth and inflation. If Colorado collects revenues beyond what it needs, the taxpayers actually get a refund.
One way to help Connecticut clarify the need for cuts, and perhaps bolster policymakers’ will to make them, is to focus on maintaining a strong spending cap. Unbeknownst to many residents, the state constitution does, in fact, contain a limit on state spending. It simply hasn’t been fully implemented or followed.
Just on Monday, the state’s Spending Cap Commission failed to reach agreement on recommendations for the definitions necessary to finally implement the cap. The bipartisan commission hit road blocks over disagreements about what constitutes spending. Ideally, all money going out the door would count as "spending."
To escape 24/7 Wall St.’s naughty list, Connecticut must get its fiscal house in order. Implementing and enforcing a strong cap on spending would be the ideal first step.