Governor Malloy deserves great credit for presenting the first fiscally honest budget in many years, avoiding the quick-fix gimmickry that has contributed to our current revenue shortfalls, such as a reliance on one-time revenues and borrowing. His reforms are a first step toward a budget that improves fairness, is more adequate to the state’s needs, and offers greater fiscal stability. He avoids pushing our current fiscal problems onto future generations.
As Connecticut families struggle to emerge from this national recession, we must ensure that state budget changes don’t undermine their prospects for recovery in the short and long-term. A strong economy will require the public and private sectors working together. To succeed, families and businesses will need sustained public investments in education, early care, health, public safety, transportation, and infrastructure.
When Connecticut families face hard times, they not only sit around the kitchen table to discuss ways to reduce spending, they also look for ways to come up with more money. Connecticut policymakers cannot solve the problems caused by the unprecedented collapse of state revenues by spending cuts alone. We need a balanced approach to deficit reduction that includes revenues.
Governor Malloy has acknowledged this reality in his state budget proposal, recognizing that revenues must be part of the solution. He has taken steps to make our state and local tax system less regressive by increasing income taxes for higher-income residents. He proposes scaling back some of the state’s more than $3 billion in sales tax subsidies, eliminating a few tax exemptions. He has begun to impose some limits on state’s extremely generous film tax credits. Recognizing the impact of some of his budget cuts and tax increases on families, he proposes an Earned Income Tax Credit that will help offset the negative impact of these budget changes and give working families the kind of direct boost they need in this economy.
His revenue reforms have enabled him to avoid many severe cuts that would weaken our communities and economy. He maintains level funding for the state’s major source of K-12 education funding – the Education Cost Sharing grant to towns. He sustains health coverage and benefits for children, while providing a new benefit to help Medicaid members stop smoking.
However, the Governor has also missed opportunities for sensible revenue reform that are long overdue and could keep our public investments on a more sound fiscal footing. Especially given the windfall that wealthy residents will receive from the continuation of the Bush-era federal tax cuts, there is room to make our state income tax more progressive by raising rates on high-income earners. Rolling back 2009’s unaffordable rate reductions to the estate tax would also restore more balance and fairness in the tax code. We can no longer afford to maintain corporate tax loopholes that benefit multi-state companies over local companies; “combined reporting” tax reform would comprehensively close many of these loopholes and level the playing field for small, local businesses. Broadening the sales tax to include more services and eliminate unproductive exemptions could bring in substantial revenues while better reflecting our modern economy.
Policymakers should also take a hard look at evaluating the hundreds of millions of dollars spent on business tax subsidies. We all want to focus on job creation, but in this economy, we can no longer afford these massive subsidies without understanding which are actually working to create high-quality, high-wage, permanent jobs.
These additional revenues could help us to avoid many damaging cuts that are in the Governor’s budget, including the elimination of programs to support homeless youth, reductions in grants to school districts with high academic need (priority districts), cuts to school transportation, and new benefit limitations and copayments for parents in the HUSKY health insurance program. It could also avert the need to increase income taxes for middle-income residents.
Connecticut’s state and local government is relatively lean compared to other states and state spending has remained fairly stable over recent decades. As a proportion of total state income, Connecticut already ranks among the bottom 10 states in its spending on education, social services, transportation, public safety, and environment and housing. To ensure that Connecticut remains a state where people want to raise their children and start a business, we need to sustain the public investments and infrastructure that make our quality of life possible. Finding creative ways to spend scarce dollars wisely and implementing common sense revenue reforms must be essential ingredients of any budget formula that adequately maintains those investments.
Jamey Bell is executive director of Connecticut Voices for Children