Study: State debt and worker benefits ate into education and social services over two decades

A new study released today says that health care and debt service have consumed more and more state resources in the past 20 years — the shift in funding hurting education and social services the most.

Connecticut Voices for Children, a New Haven-based, progressive public policy center, attributes the shift to an aging population and workforce, rapidly rising health care costs, three recessions and the “ripple effects” of several other policy choices.

But Gov. Dannel P. Malloy’s budget director said Thursday that the current administration has worked to protect education funding, particularly at the municipal level. Office of Policy and Management Secretary Benjamin Barnes also said the seeming shift in spending toward retirement benefits also stems largely from the fact that past administrations irresponsibly ignored and deferred pension obligations, multiplying the fiscal challenges officials face today.

“The state budget is an expression of our values and priorities,” said Wade Gibson, co-author of the report and senior policy fellow at the Fiscal Policy Center. “In the face of these trends and continued budget deficits, we need to make sure that we make forward-looking budget decisions that maintain investments in the future while fulfilling our obligations to our most vulnerable populations — young and old alike.”

Education has experienced the largest decline, according to the report. It represented 29.2 percent of the state budget in the 1991-92 fiscal year, falling to 23.1 percent in 2011-12.

“This reduction has been borne most heavily by state colleges and universities. As a result, costs have shifted to students and families,” the report states, adding that “in-state tuition and fees have increased by nearly 90 percent in inflation-adjusted dollars over this period.”

At the same time, state funding also shifted away from one of the largest sections of the budget, human services. This share of overall state spending dropped from 33.4 percent to 30.9 percent. This was driven by declining payments to welfare recipients and to hospitals that serve a disproportionate share of poor patients, and declining staff numbers in the Department of Social Services, the report noted.

Over the same two decades that these programs received a smaller portion of state spending, the state has relied increasingly on borrowing. State debt has more than doubled in real dollars, increasing by 142 percent over the past two decades, the report notes.

And the “non-functional” section of the state budget, which includes funding to cover debt service and health care for current and retired state employees rose over the last two decades from 16 percent to 22.4 percent of the state budget.

“These trends mean that Connecticut will likely face similar budget pressures into the future,” said Matthew Santacroce, co-author of the report and policy fellow at the Fiscal Policy Center. “Policymakers will need to confront the long-term factors producing these budget trends if we hope to maintain the schools, health care, transportation and other public services we need for a healthy economy.”

But Barnes noted that the state’s pension funds, particularly its program for retired state workers, have been plagued for numerous raids and deferred payments over the past two decades. And the state employees’ program also began with a major structural hole. That’s because it wasn’t launched until the mid-1980s. Before that, the state effectively operated a pay-as-you-go system, saving nothing in advance of workers’ retirements, and therefore securing no investment earnings to help defray the cost of providing benefits.

Malloy launched a plan this past January to dramatically bolster pension payments and have enough saved to cover 80 percent of state employee pension obligations by 2025.

“We’re not fully funding our pensions and making up for the payments they should have been making 20 years ago,” Barnes said, adding that had past administrations been more responsible, “we’d be spending a whole lot less” now.

Connecticut Voices also made several recommendations to reverse this cost shift, including:

  • Reforming Connecticut’s “obsolete” system for financing K-12 education, reducing the reliance on municipal property taxes and increasing state funding.
  • Expand recent efforts to improve state employee wellness and otherwise contain state health care costs.
  • And, avoid borrowing to cover state operating expenses.

Barnes also noted that the administration has protected municipal aid — most of which is used to fund K-12 education, at a time when most states have not.

Malloy, who took office in January 2011, inherited a built-in hole of nearly $3.7 billion in 2011-12 finances. The biennial budget he and the legislature adopted spared all municipal aid from cuts, increased ECS by $50 million this year, and also gave municipalities a share of sales and real estate conveyance tax revenue worth about $50 million per year.