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Groton - The line between monetary sanity and political reality became a chasm over the past few decades as the state kept putting off paying for the long-term costs of pensions and retiree health care, according to panelists at a "Fiscal Sustainability" forum Friday.
Sponsored by Webster Bank and hosted by the Chamber of Commerce of Eastern Connecticut, the forum featured state budget director Benjamin Barnes, secretary of Connecticut's Office of Policy & Management, and was moderated by Harriet Jones, business desk reporter for public radio's WNPR. About 60 people attended the event at the Groton Inn & Suites, one of three public forums on fiscal sustainability held so far throughout the state.
Jim Smith, chairman and chief executive of Webster Bank, kicked off the forum by asserting that Connecticut is on a "shaky fiscal foundation." The state, he said, has a structural rather than a cyclical problem with its budgeting.
"We really have to look at the spending side of the equation," he said.
Barnes agreed, saying the state's long-term obligations were "especially vexing" but pointing out that spending over the past few years under Gov. Dannel P. Malloy has been kept to under 3 percent annual increases - much lower than under previous administrations. The state also renegotiated contracts with unions to raise the retirement age and require some payments for retiree health care, both of which reduced long-terms costs for taxpayers, he said.
The state went for a long time with a pay-as-you-go philosophy of funding pensions, he said, which meant putting off payments largely until tomorrow. Tomorrow has now arrived, and Barnes said long-term obligations that now make up 23 percent of the state budget will rise to 30 percent in the next two years.
Things would have been much rosier for taxpayers had the state taken at least a portion of the $5.5 billion in budget surpluses that Connecticut accumulated between 2000 and 2012 and used it for long-term obligations, Barnes said. Instead, state taxpayers now have more long-term debt obligations per capita than in any other state, said Spencer Cain, former head budget analyst for the General Assembly who now runs the Cain Associates consultancy.
"Spending is a major concern," Barnes said. "But our ability to direct the economy is extremely limited."
The economy enters the equation because tax revenues are largely reliant on income and spending. While sales taxes have been relatively stable, Cain said, the income tax's reliance on capital gains and dividends has been a huge wild card, accounting in 2009 for a large portion of the state deficit.
"It's a very volatile piece of our tax structure," Cain said. "If you lose $1 billion in your tax revenue, you have a serious problem."
And budget cuts can be difficult to implement politically, panelists said, especially in an election year.
"The ... gorilla in the room is that the political choices don't really change a lot," said Keith Phaneuf, state budget reporter for The Connecticut Mirror. "Neither side really wants to roll out traditional spending cuts."
Long-term planning also is lacking in the political process, Pfaneuf said. And when one-time funding is available to solve a budget problem or pay for special projects, panelists said, it's often too easy for the legislature to raid a rainy-day fund or use up a budget surplus.
"The problem is finding the political will to make these tough, long-term decisions," said Paul Choiniere, The Day's editorial page editor.
Panelists said that without a county government structure, Connecticut also must take on regional projects that other states do not have to tackle. He suggested that increasing regionalization efforts could help save the state money, though the history of home rule in Connecticut so far has been hard to break through.
"I see no political will to take on that challenge ... to regionalize government to make it more efficient," Choiniere said.