Surprise: Conn. can’t borrow its way out of budget deficit
By Keith M. Phaneuf
Journal Inquirer
Published: Friday, March 6, 2009 1:10 PM EST
HARTFORD – Since record-setting budget deficits first were projected last fall, officials have said the state may be forced to put billions of dollars on its credit card to ride out the recession.
But there is agreement now that one all-but-immovable obstacle makes that impossible: the state constitution.
Voters overwhelmingly approved the 28th Amendment to that document in 1992, establishing a spending cap mechanism as a countermeasure to the then-new state income tax.
And while that cap has drawn most of the headlines, a second component of that amendment requires the legislature to approve a balanced budget each fiscal year.
So while its acceptable for the state to borrow money to close an unexpected deficit at fiscal year’s end, it’s an entirely different thing to concede before the year even begins that the budget is unbalanced – and that funds must be borrowed.
The state did borrow $966 million in 1991, $222 million in 2002, and $97 million in 2003. But in each case it was done to close end-of-the-fiscal-year budget shortfalls.
“It’s our understanding that that would run afoul of the constitution,” Office of Policy and Management Secretary Robert L. Genuario, Gov. M. Jodi Rell’s budget director, said Thursday. Rell consistently has said the state should not borrow to prop up future budgets.
“I think we know now that’s not going to be an option for us,” House Majority Leader Denise W. Merrill, D-Mansfield, said today, adding that many lawmakers were hoping it would help reduce the need for spending cuts or tax hikes. “That just makes this budget even more impossible to balance without major changes.”
The legislature’s nonpartisan Office of Fiscal Analysis estimates the next two fiscal years face a combined built-in deficit of $8.7 billion based on current spending and tax policies. OFA also says this fiscal year’s budget deficit is about $410 million worse than Rell’s administration estimated, potentially elevating the overall problem beyond $9 billion.
That potential $9 billion hole is close to half the size of this fiscal year’s entire $18.4 billion budget. It is roughly 13 times the size of the last proposed state income tax hike, a 2007 bill that would have raised about $600 million more per year.
“Borrowing would not have solved the structural problems we have in this state anyway,” said state Comptroller Nancy Wyman, who for years has urged lawmakers and governors to curtail borrowing. Connecticut already ranks among the most indebted states, per capita, in the nation.
Wyman, a Democrat from Tolland, has been critical both of the governor, a Republican, and the Democrat-controlled legislature, arguing they have moved too slowly to respond to the deficit forecasts.
“They’ve done a few things, but cutting back on pens and paper isn’t going to do it,” she said, adding that it’s time to make hard decisions about both spending cuts and tax hikes. “They’ve got to put the politics in the back pocket and start thinking about the people of the state of Connecticut.”
Democratic lawmakers have been at odds with Rell since February, when she released her $38.4 billion budget for 2010 and 2011.
Rell, whose administration in November forecast a $6 billion built-in deficit for the next two fiscal years, essentially hasn’t changed her assessment since then – despite huge plunges in stock values that legislative analysts say will greatly reduce state tax receipts.
But while Democrats accuse Rell of refusing to acknowledge a larger deficit so she can avoid having to accept tax hikes, the governor has fired back that Democrats have refused to endorse nearly all of the spending cuts she has proposed.
Democratic lawmakers, who enjoy strong support for organized labor, also allowed raises between 4.5 percent and 5.5 percent to be awarded this fiscal year to unionized state prison guards.
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