On Nov. 18 of last year, Connecticut Office of Policy and Management (OPM) Secretary Benjamin Barnes stated that Connecticut “…entered into a period of permanent fiscal crisis in state and local government.” Daily news accounts confirm those words.
As the budget drama continues, Connecticut’s balanced budget requirement again plays out, not a measure of the sustainability of state finances but as a game of “Whack-a-mole.” The legislature is struggling to cover expenses precisely because the state’s expenses themselves are unsustainable.
Connecticut’s budget woes are no surprise to state finance researchers. Sheila Weinberg is founder and CEO of Truth in Accounting (TIA), a Chicago-based think tank that analyzes the 50 state government financial reports.
“The first step to fix this issue is fiscal transparency,” said Weinberg. “Until Connecticut’s accounting is accurate and transparent, real action cannot be taken and future generations will carry the financial burden.”
In the report, TIA researchers reveal that the state did not report 78 percent – or $38 billion – of its retirement liabilities on its balance sheet. Connecticut only reported $10 billion in employee retirement and healthcare benefits, but owes $48 billion. When Connecticut’s unfunded liabilities are divided among taxpayers, the per-taxpayer share is a whopping $48,600.
Connecting the dots leads to only one explanation: The cost of benefits promised to Connecticut state retirees and teachers were not paid at the time they were earned. Consequently, the 2016-2017 tab for state employee and teachers’ retirement benefits is $5 billion out of the $40.billion dollar budget.
Whether you agree politically or not, the fact remains that at no time in the 10 budget cycles over the last 20 years, did lawmakers find enough money to properly fund pensions and retiree health benefits.
We are witnessing the tension between unfunded promises and current needs and its direct impact on all Connecticut taxpayers, the level of social services, and cost of borrowing.
Earlier this year, three rounds of budget rescissions repeatedly hit the non-profit sector, colleges, and universities. In April, the CT Mirror reported that 2,000 developmentally disabled people are waiting for state-funded residential services.
Hospitals continue to decry the system that extracts more and more from their cash flow. As reimbursement payments are squeezed, doctors in high debt-load states such as Connecticut accept fewer Medicaid patients.
Tax increases won’t work for several reasons; the gap between the dollars necessary for the benefits as promised and the discretionary budgetary dollars is too great and Connecticut’s economic growth is at best stagnant.
Connecticut depends too heavily on borrowing money to pay operating expenses. During the year ended June 2014 Connecticut’s bonded debt grew another $1.5 billion to $20.2 billion. The increase was roughly the same amount as the payment made into the state employees’ retirement system.
To learn more about where Connecticut stands compared to another state or the nation as a whole, log on to Truth in Accounting’s state data lab at the State Data Lab.
Julie McNeal is the director of finance and operations at the Connecticut Society of Certified Public Accountants in Rocky Hill.