Holiday shoppers aren’t the only ones taking a wary look at their credit card balances these days.
State government recently undertook its own annual debt review, looking from several perspectives but coming to the same conclusion each time: Connecticut remains one of the most indebted states in the nation.
The state entered the fiscal year with close to $19.5 billion in debt owed to investors who purchased state bonds to finance municipal school construction, capital programs at public colleges and universities, road and bridge upgrades, repairs to state buildings and other projects. That’s according to fiscal projection reports filed recently with the legislature both by Gov. Dannel P. Malloy’s budget staff and by the legislature’s nonpartisan Office of Fiscal Analysis.
Another way to look at that debt, according to Gov. Dannel P. Malloy’s budget staff, is that it represents more than $5,569 for every man, woman and child in Connecticut, based on U.S. Census population numbers. That is the highest debt level of any state in the nation.
But some officials note that not all of Connecticut’s bonding is paid off over the long-term, 10 or 20 years, using tax dollars. Some financed projects are paid off using the revenue they raise, such as a parking receipts used to cover the debt on a new public garage.
What if those types of projects are taken out of the equation? Connecticut’s per person debt shrinks to $5,236 per person, but that still ranks first.
Then again, can’t Connecticut afford a larger limit on its credit card, given that it’s one of the wealthiest states?
According to nonpartisan legislative analysts, if tax-supported debt is viewed as a percentage of personal income here, then Connecticut ranks as only the third-most-indebted state, slipping behind Hawaii and Massachusetts.
What about county government? Connecticut doesn’t have it. How does the Nutmeg State rank in a comparison of debt incurred at the municipal, regional and state level combined? Connecticut’s ranking slides a little, but it still has the fifth-highest debt per person.
“We’ve been high for years,” Sen. Eileen Daily, D-Westbrook, co-chairwoman of the Finance, Revenue and Bonding Committee said Thursday. “Whether that is good, bad or indifferent, that was part of the way we do business.”
In fact, the share of annual state spending devoted to paying off bonded debt rose sharply after the income tax was enacted in 1991.
In each of the five years prior to that tax, debt service ranged between 6.2 and 7.7 percent of the annual budget, according to budget records. It jumped to nearly 9 percent in the first year after the tax, hit double-digits by 1996 and has remained there ever since. About 10.4 percent of this year’s total budget, or $2.2 billion, will cover payments on bonded debt.
“The problem isn’t how we compare with other states,” said Sen. Joseph Markley, R-Southington, a member of the Appropriations Committee and one of the most vocal critics of Connecticut’s debt. “Every other state is in trouble too. The problem is simple: We have too much debt.”
And the problem with this bonded debt, Markley said, is mild when compared with Connecticut’s so-called “soft debt,” its obligations to fund current and future pension and health care benefits to retired state employees and municipal teachers.
Add those costs to the bonding obligations and the state’s total long-term debt approaches $72 billion, or $20,450 for every person.
The ranking GOP senator on the Finance panel’s Bonding Subcommittee, Tony Guglielmo of Stafford, said he fears officials silently have accepted that a debt crisis in the not-too-distant future is unavoidable.
“It really makes me wonder,” he said. “I think people think it’s too big to change it. They just shrug.”
But Daily said that since Malloy took office in January, Connecticut already has taken one major step forward: no longer using its credit card to pay for annual operating costs.
Legislators and former Gov. M. Jodi Rell borrowed more than $1 billion in June 2009 to mitigate the need for tax hikes or spending cuts. They also endorsed nearly $1 billion more in May 2010. That borrowing, which would have been repaid with a surcharge on residential and business utility bills, was canceled last summer by Malloy and the legislature as tax revenues began to rebound from the last recession.
“We should all be vigilante now in terms of our borrowing, but at least we are using it now to invest in projects that create jobs,” Daily said.
And the Malloy administration indicated last month it isn’t ready to throw in the towel.
Office of Policy and Management Secretary Benjamin Barnes challenged the Appropriations and Finance committees to work with the administration next to shore up the state workers’ pension fund. One of the single-largest areas of debt in state government, that fund needs another $11.7 billion to cover all of its obligations.
And while must be resolved over the long-term, Barnes told lawmakers there’s only one way to close most of that gap: start contributing more each year.
“The only way to solve long-term structural liabilities is to pay them off,” he said last month, adding that the sooner Connecticut addresses this problem, the more progress it will make. That’s because larger contributions to the pension fund will increase investment earnings, which in turn will be reinvested and produce more income for the pension system in future years.