State of the State: Connecticut
"Simply put, our generation is paying for Connecticut’s past mistakes."
Governor Dannel P. Malloy’s State of the State address acknowledged the $1.4 billion elephant in the room—Unless reforms occur, the Constitution State’s alarming budget deficit will put the financial security of retirees, job creators and taxpayers at risk. To help put Connecticut back on the path to fiscal stability, Governor Malloy proposed making government more cost-effective, reforming pensions and making local aid sustainable. The governor deserves recognition for his efforts to address Connecticut’s budget crisis, particularly in regards to the state’s struggling pension system.
Governor Malloy discussed his ideas for making Connecticut’s government cost-effective. He explained, “The responsible way to do that is by setting priorities and allocating our resources where they are needed most.” He also encouraged commissioners to work with their teams and the legislature to reduce spending. While the governor did not discuss specific cost saving measures, he will include them in his budget. Clearly, the massive budget deficit proves business-as-usual budgeting and past tax increases failed Connecticut taxpayers. Instead of conventional budgeting, priority-based budgeting focuses on the key functions of government that are important to taxpayers. According to the ALEC Center for State Fiscal Reform study The State Budget Reform Toolkit, Washington state used priority-based budgeting in 2003 to close a $2.4 billion deficit, without resorting to economically damaging tax hikes.
Reforming Connecticut’s troubled pension system was another key theme in the State of the State address. As Governor Malloy acknowledged, “Over many decades, legacy costs, insufficient contributions, lower-than-assumed returns and early retirement packages left us with a significant unfunded liability in the state’s employee and teacher retirement systems.” The ALEC study Unaccountable and Unaffordable 2016 found that Connecticut’s funded ratio is a mere 22.8 percent, ranking dead last nationally. The governor stated he will continue to negotiate with labor leaders on how to address the rising pension costs. Connecticut workers and retirees deserve a retirement system that is sustainable and secure. Positive pension reform solutions, such as offering a defined-contribution plan for new hires, and other reforms outlined in ALEC’s Keeping the Promise: State Solutions for Government Pension Reform are a great place to start.
Finally, Governor Malloy discussed reforming aid for towns and cities, with a special focus on education. Currently, Connecticut provides a total of $5.1 billion in municipal assistance. Out of that number, $4.1 billion (or 81 percent) is education funding. Governor Malloy advocates directing more local aid to struggling communities. The governor asked, “In a time of scarce state resources, are we spending this money in the best way possible?” He stated that his new proposed school funding formula would be based on current enrollment, local property tax burden and student need. Although he did not mention a specific formula, he will include the proposal in his budget.
It is encouraging to see Governor Malloy once again acknowledge Connecticut’s fiscal woes in this annual address. Pro-growth initiatives, such as priority-based budgeting and pension reform can help create real fiscal stability in Connecticut. While there will be many tough choices ahead, smart reforms, not economically damaging tax hikes, can help provide Connecticut families with the brightest economic future.