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Back On Track: Budget Reforms for the Long Run

March 20, 2017
By Joe Horvath

In this Policy Brief, Joe Horvath of the Yankee Institute outlines several tools Connecticut legislators can use to completely rethink how the state budgets and spends.

Connecticut faces a sizeable budget deficit. Anticipated to be $1.7 billion for FY ’18 and more than $3 billion for the biennium, this significant gap requires meaningful, immediate action. Rather than continuing the pattern of large deficits followed by service cuts and tax increases, the Yankee Institute is proposing reforms aimed at establishing long-term budget stability. Although line item cuts could serve as an immediate fix, process and rule reforms will provide the most lasting results. As such, this report will recommend a series of tools to put the state back on solid fiscal ground.

Tax increases should not be the first solution to a shortfall. The more responsible option is to make significant changes to the way taxpayer dollars are spent. For example, in order to close a $1.7 billion deficit through a sales tax increase, the existing sales tax rate would need to be 8.95%, assuming that individuals would not then respond by buying less. Lasting spending reform, meanwhile, is generally better for an economy. With two large tax increases in just the past five years, followed by large deficits, Connecticut is on an unsustainable path. State lawmakers have both raised taxes and cut spending, but the spending cuts have not led to sustained savings, so deficits persist.

The five recommendations for budget reform that follow are:

  • Adopt priority-based budgeting. Comprehensively reforming the way government spends and prioritizing core services can close a deficit even larger than Connecticut’s (as shown in the Washington State case study below) without raising taxes.
  • Enact the spending cap. Defining, adopting, implementing and obeying a strong cap on state spending would restrain the growth of future spending.
  • Reform teacher and state employee pensions. Following a recent Yankee Institute study that outlines recommendations that save billions of dollars over the next few decades while assuring a secure retirement for Connecticut’s public employees.
  • Realign state employee pay and benefits. Right-sizing public sector compensation to levels commensurate with the private sector would immediately save billions in payroll and benefit expenses.
  • Slow the rate of borrowing. Growing debt and suboptimal credit ratings should make borrowing an option of last resort for now.