Letter: More Taxes Next Year for CT Residents

To the Editor:

In a recent memo to the agency heads in Connecticut from Gov. Dannel P. Malloy’s Budget Director Benjamin Barnes, he details his projections for the upcoming fiscal budget in 2018 (July 1, 2017-June 30, 2018).  These projections show a deficit of over $1.1 billion. Based on information I was able to find, the budget deficit will be much higher.

Driving the huge upcoming budget deficit is significant growth in fixed costs the state cannot avoid. The increase comes from rising costs in debt service, teacher pension plan, state employee fringe benefits and OPEB, Medicaid and other entitlements and pay increases forecasted for the new collective bargaining agreement. 

Adding to the upcoming deficit, the budget director is also forecasting a drop in state revenue, due to the continuing decline in Connecticut state income tax receipts.  His total projected budget deficit starting July 1, 2017 is $1.162 billion.

However, based on several recently published reports, the upcoming budget deficit will be much higher than the budget director’s projections. Just last week, in a new actuarial analysis of Connecticut’s teacher pension plan, state contributions need to increase by an additional $47 million more than what is in the budget director’s projection. 

This increase must be paid into the teacher pension plan due to covenants in the pension bonds Connecticut issued back in 2008. One major covenant in the bonds is for Connecticut to pay the annual required contribution (the ARC) to the teacher pension plan. Connecticut cannot avoid paying more into the teacher pension plan.   

Also, the non-partisan Office of Fiscal Analysis (OFA) just lowered revenue expectations for next year which will add an additional $46 million to the deficit. Once again, Connecticut state income tax receipts are coming in lower than expected, which will continue into 2017 and 2018. 

This should be no surprise to anyone in Connecticut as we have watched GE and other companies move out, while retirees and other wealthy people in Connecticut leave the state to avoid the high death tax and uncertainty in the state’s financial condition.

The last major growth in fixed costs next year will come from Connecticut’s state employee’s pension plan. When the 2015 budget was passed, the budget implementer (the law which implements the budget) mandated Connecticut to pay the annual required contribution (ARC) into the state employee pension plan, and if the state did not, state employees could sue Connecticut for twice their salary. 

At the end of November 2016, the pension plan will be re-based by actuaries, which will indicate the state is falling further and further behind in the needed assets for pension payments.  This review will require Connecticut to increase the ARC payment. 

Using the increase already calculated for the teacher pension plan to help guide my analysis, and due to the state employee pension plan being much larger that the teachers’, I estimate the additional payments needed for the state employee pension plan to add roughly $300 million to the budget deficit next year.

Adding in all the additional fixed costs stated above, and also the using the lower state income tax receipts projected by OFA, the budget deficit for 2017-2018 may reach $1.56 billion. As I have written many times before, Connecticut is in a financial death spiral as revenue continues to drop and expenses continue to rise.  Making matters worse, there is only about $200 million left in Connecticut’s Rainy Day Fund.

Throughout Governor Malloy’s terms in office, he has repeatedly raised taxes while not implementing solutions to fix the dramatic increases in pension and other costs.  As Albert Einstein has said, “Insanity is doing the same thing over and over again and expecting different results.”  Will Governor Malloy finally learn we need real solutions?

The results in the recent state election were encouraging where Republicans picked up eight seats in the House, and Connecticut now has an even split of Democrats and Republicans in the state Senate. The election clearly shows the Connecticut taxpayer is fed up with the constant threat of larger deficits and higher taxes.

So, how can you help? Please write or call your state legislators and also write the members of the Spending Cap Commission (.(JavaScript must be enabled to view this email address)) to demand that all state expenses be included in the Constitutional Spending Cap Amendment. Your actions will force the governor and the leaders in Hartford to make the difficult decisions to reach a real financial solution for Connecticut.

Bart Shuldman
Westport