The purpose of the spending cap should be to limit taxation on Connecticut taxpayers. But as written, it actually cost the state jobs, undermined tax revenue, and surely raised taxes on Connecticut taxpayers.
OMG. How did that happen?
The legislative spending cap, now suspended, included almost everything, including the kitchen sink and most federal reimbursements. Thus the focus, necessarily, was on limiting all spending that fell under the cap, regardless of the source of the dollars. That meant that there was no reason to seek out federal dollars to which Connecticut was entitled or for which it might be competitive.
Worse, it meant that federal dollars, which were typically restricted in their use, were to be avoided; those dollars eliminated the discretionary power of the governor and legislature. Better to spend Connecticut taxpayer money as they wished rather than secure those federal dollars whose use was prescribed.
This antagonism to federal dollars then fed back into an overt hostility to creating and maintaining good data.. (Socio-economic data is of little value if you cannot use it.) So for five years Connecticut was the only state in the nation without a liaison with the U.S. Census Bureau (who cares about your demographic dynamics if you can not use that knowledge to determine for which federal dollars you qualify?) When resurrected, the Office of Policy and Management refused to make any significant investment in building a strong center because the data would be of little use.
Even today, Connecticut has among the worst administrative data of any state, and its liaison office with the U.S. Census is perhaps the poorest funded of any in the nation.
Adding to this perverse framework for state budgeting, the absence of quality data systematically undermined the ability of municipalities to secure the federal funding to which they might be entitled or for which they might compete. So the legislative spending cap not only undermined the aggregate state budget, but also sharply limited the ability of municipalities to secure federal support directly.
The final insult of the legislative spending cap was that, by including federal funds under the cap and thus creating a strong incentive to avoid them, Connecticut lost out on thousands of additional jobs, higher household incomes, and improved state revenues those federal dollars would have generated.
The federal contribution to Connecticut’s budget is among the lowest of any state; the foregone federal dollars are now probably well north of $1 billion annually (No one knows exactly, because there is no effort to find out for what Connecticut qualifies). Because avoiding those federal dollars has diminished and continues to diminish the state’s economy, the spending cap has lowered employment, lowered tax revenue, driven higher taxes on Connecticut taxpayers, forced reductions in critical public services, and meant foregoing strategic investments.
The spending cap as designed has been an unmitigated disaster, fiscally and economically.
The Commission now evaluating the spending cap should revise it so that it benefits, not punishes, Connecticut taxpayers.
Fred Carstensen is a Professor of Finance and Economics and Director of the Connecticut Center for Economic Analysis, University of Connecticut.