With a $900 million deficit projected for the fiscal year beginning July 1, and widening to well over $2 billion by 2020, Connecticut faces a looming, but not unmanageable, fiscal crisis. In response, the legislature has debated significant cuts to health and human services and to education. While such cuts may offer a short-term solution to the budget gap, they do so at a significant cost to the long-term economic and social structure of the state.
A myriad of factors have contributed to the current budget crisis, including disappointing tax revenues, slow growth in jobs and wages, rising long-term liabilities, a flawed tax structure and related social and economic inequalities. Short-term fixes, particularly arbitrary austerity, will exacerbate these challenges and hurt Connecticut in the long-term.
Connecticut needs a budget that starts to address these underlying issues and puts the state on a path to strong, sustainable, and equitable economic growth.
In order to outline some of the key structural challenges facing the state, highlight the strengths the state can leverage in addressing those challenges, and offer some guiding principles for navigating the challenging road ahead, Connecticut Voices for Children, working in partnership with the Yale Law School Legislative Advocacy Clinic, released Arbitrary Austerity Harms Future Prosperity. The goal of this outline is to shift the debate away from short-sighted cost-cutting towards solutions that are grounded in sound economics and focused on Connecticut’s long-term prosperity.
Connecticut’s fiscal challenges trace back decades and will only grow worse if not addressed systematically. Among the largest challenges state lawmakers face: disappointing government revenues (a result of factors including stagnant economic growth, a shift toward low-wage jobs and a dramatic growth in tax expenditures); rising long-term liabilities; persistent social, racial, geographic, and economic inequalities, and; under-investment in areas critical to long-term prosperity.
Fortunately, Connecticut can harness its remarkable economic strengths as it invests in a brighter future. Years of economic prosperity have helped the state attain one of the highest standards of living and best access to economic opportunity in the country. Companies seeking to put the state’s well-educated and highly productive workforce to use can do so relatively cheaply; business taxes of 3.4 percent of gross state product are the third lowest in the country. Finally, Connecticut can use its strong credit ratings and historic low interest rates to make strategic investments in the state’s physical and human capital, which will fuel long-term economic growth.
Lawmakers should adopt a budget for fiscal year 2017 that avoids short-term austerity and instead focuses on addressing Connecticut’s long-term, structural challenges. Although the specifics of that budget will require significantly more discussion and compromise, we offer a few guiding principles to set the stage for that conversation.
Principle 1: Adopt a balanced approach to the state’s budgets
The common-sense choice for Connecticut should be a balanced approach that includes revenue, rather than a cuts-only approach that threatens an already fragile economic recovery.
Likewise, to make our public budgeting system more accountable and transparent, we must hold the $7.24 billion lost annually to tax expenditures to the same standard as spending on education, health, and social safety net programs by performing regular review and holding public hearings.
Principle 2: Protect human and physical infrastructure investments
Already, less than one-third of Connecticut’s General Fund spending supports programs that benefit children and families – down from 40 percent in the early 1990s. Investments to support the next generation are critical to ensuring our children grow up ready to meet their full potential.
Similarly, Connecticut can take advantage of the current low interest rates to invest in infrastructure, which will improve the state’s economy now and in the future.
Principle 3: Equalize tax burden and resources across towns and cities
Property tax reform provides an enormous opportunity to reduce the yawning fiscal gaps among towns, help all children in all places get an equal opportunity to succeed, encourage economic growth, and retain families, who, in the wake of a low-wage economic recovery, have seen housing costs escalate.
By addressing the state’s structural challenges through these principles, lawmakers can use Connecticut’s advantages to ensure long-term growth, without resorting to short-sighted measures.
Derek Thomas, M.P.A. and Jesse Marks, Yale Law School Legislative Advocacy Clinic