State Budget Crisis, 2013-16: Nowhere To Hide

by Categorized: Economy, Public finance Date:

Ben Barnes, the state budget czar, brought a pile of ugly numbers to a packed room full of lawmakers Tuesday with a broad message and a statement — “not a pledge” — that Malloy won’t seek more tax hikes.

The state not only faces budget shortfalls of $363 million this year and $1.1 billion in 2013-14, but the spending plan will fall short by nearly $1 billion in each of the next three years if we keep services right where they are. That’s because of rising Medicaid, healthcare and pension costs.

Worse still, the state government would have to slice spending by an average of $1.7 billion in each of the next three years just to stay withing the mandatory spending cap, as defined by overall income and economic growth.

And those scary numbers are all based on the personal income tax growing at 7.2 percent a year in each of the coming three years — up from an average of 4.6 percent gains in 2011 through 2013.  Oh, and federal grants would have to leap by 30 percent to $4.9 billion, for the hole to be only as large as projected.

Read Barnes’ presentation here

Gov. Dannel P. Malloy “will NOT propose tax increases as a solution to these challenges,” Barnes’ document said. Whether he means for that promise to hold through 2016 will be up to the voters, of course, but the comment clearly applies to 2013-14, which has the $1.1 billion projected shortfall.

But is it even a promise for next year? Barnes, in an interview later Tuesday, said anti-tax activist Grover Norquist has given the words “pledge” and “no new taxes” a loaded meaning, and he will not go there. “It’s a statement, not a pledge,” he said.

That brings us to Barnes’ broad message, which was the title of slide No. 9 in a 45-slide presentation. “Policy changes are needed.”

That means not only that the state has to cut spending, it must reform how it operates.

“We can’t support current services spending,” Barnes told the lawmakers. Later, he said of any cuts, “We’re working very hard to identify what those are…if they were easy we would have already done them.”

This means painful choices, and Barnes made it clear Malloy will not back away from investments in job-creation and education.

We’ve heard all this before, including the reform bit and the tough choices.  But this time it seems different for four reasons. First, this isn’t a recession like 1991, 2001 or 2008, so we don’t necessarily have better times to look forward to.

Second, Malloy has already raised taxes by $1.5 billion in the last go-around, so there’s not much room for that trick even if it could work.  The cigarette tax, for example, is starting to show reverse results as smoking declines, and corporations have developed an appetite for more tax credits that they’ll get here, or move elsewhere.

Third, borrowing and shorting the pension funds are also right out, for the same reasons. The bond rating agencies have spoken.

And fourth, the state employee payroll is already down by 3,700, more than 12 percent, since 2008 — and employees are overdue for raises totaling $112 million and $152 million over the next two years. Malloy has already promised no layoffs through 2015, so he shouldn’t look there for more wiggle room.

Nowhere to run to, nowhere to hide.

Well, almost nowhere. The state’s Medicaid budget, $5.1 billion this fiscal year, is projected to grow to $6.2 billion in three years as federal health reform kicks in and the number of eligible adults rises sharply.  The good news is that federal Medicaid reimbursement will rise even faster, which is why overall federal grants will surpass the state sales and use tax by 2015.

And in a glimmer of hope noted optimistically by retiring Sen. Edith Prague, who didn’t seek her old seat but has no shortage of energy to finish out her term, there are ways to reverse Medicaid spending trends. Barnes said, for example, that the state could hope to persuade federal Medicaid officials to allow Connecticut to keep elderly people out of skilled nursing homes, in less community care — at least in some instances.

“I have no idea how successful we will be,” Barnes said, but the savings “could potentially be hundreds of millions of dollars a year.”

I asked Barnes whether this crisis is worse than the $3.5 billion hole he and Malloy inherited in 2011.  It’s not as big but the best cards have been played.

“I like to think I’m a little smarter today than I was back then,” Barnes said. “It’s a challenge but we have the benefit of a group of commissioners who have had an opportunity to understand…what’s driving their costs.”

The takeaway: This is not a 1-year crisis, it’s an era of slogging.

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38 thoughts on “State Budget Crisis, 2013-16: Nowhere To Hide

  1. alan

    The problem is that state spending is almost all on salary and benefits, and state liabilities are almost all pension and healthcare(deferred salary and benefits) for the public sector. This includes teachers who are almost as numerous as state employees and have almost as many retirees. Many of these contracts were structured during the glory days, when the Hartford/New Haven had hundred of thousands of worker at protected quasi govt entities like insurance companies, SNET, defense and banks which were on every corner. A peson could literally get out or high school(or college), get a job, work 35 years, and get a pension whether it waa private or public sector. Those days are 25 years over now but we still have job security/pension, etc in the public sector and nothing in the private. People esp downstate in competitive positions know nothing about tier 1, layoff protection, buyouts or all this inside Hartford stuff that is literally killing the state. We really need a mad and engaged private sector, but the private job market is so demanding now that nobody expect investment types like Foley, Obitsik, etc can even thing about running. Malloy, Barnes etc are career govt employees so have no clue either. No answers from me but total frustration

  2. Jack

    The State has been pushing the “keeping the elderly out of the nursing homes” since the late 1980’s. I am glad Edith is optimistic but there are minimal savings in that bucket. The State is hamstrung by the deal with the unions. It had an opportunity to reform the pension and medical coverage and all the Governor got was a two year wage freeze. It will not be enough.

    1. Jack

      The only opportunity to get some significant savings is to get wage and pension reform at the municipal level and then reduce the education grants accordingly. I wonder how that will go over with the teacher’s union?

      1. CT teacher

        It doesn’t matter because you assume the money is going towards salaries. Class size is larger every year. The money from race to the trough goes towards testing, testing, testing, complicated evaluation schemes that require more consultants, evaluators. So we lay off more teachers to hire more administrators to get rid of bad teachers. The money from the Feds does not get directed towards teaching and learning. It gets spent at the top and more educrap. We are top heavy, bottom weary and test crazed.
        Just wait until each district finds out how much it is going to cost to implement the new assessments that begin in 2015. The costs will far exceed the money from the Feds. Be informed, don’t assume and beware.

        1. alan

          why would class sized get larger. IN my town of Fairfield there are only 8200 students down from 15000 in 1975. The head count is now 790- used to be 810 in 1975. This is true in Milford, Stratford, West Haven, Hamden and i bet West Hartford and other large Ct town/cities. There is a drought in students everywhere ..why say something that is untrue and easily researched

          1. CT teacher

            I do have research….the kids in my room…20 – 25 – 28 – 30 increasing by period (x5) every year. Cut teachers, class size gets bigger. I see them everyday. What do you see or do you see children?

  3. sue

    Hey Alan,
    DANNY BOY does have a clue. He is a SOCIALIST like his mentor BARRACK. You don’t get IT. HE DOESN’T CARE. He will do whatever BARRACK tells him to do so he can get that federal judgeship post I have been writing about for the last year. DANNY BOY will start taxing groceries, totally eliminate the property tax credit and raise the gross receipts taxes on natural gas from 4% to 7, 8 or 9% yes there is a hidden tax on natural gas you fools. He will raise the gross receipts tax on electricity and gasoline once again and McKINNEY and the gutless republicans will get in bed with him ’cause he’ll throw them some bones e.g some bonding. He bought off McKINNEY with his jobs bill by giving Fairfield, CT $10 million to cover the cost overruns with the corrupt plague train station.

    1. Jack Teller

      It’s spelled Barack. I’m a Republican, too, but just screaming “socialist!” at the top of your lungs is why we were swept state- and nationwide earlier this month. Sit down, stop ruining our party, and leave the talking to people who know what they’re talking about.

      1. Johngaltwhereru

        Republicans were swept in this State for reasons far more serious than people calling Obama a Socialist.

        By your logic, Republicans should have run the table due to the moronic things people said about Bush.

    2. Ken

      Jack – I’m a (lifelong) Republican too and I disagree with you. We were swept in this State because there are more people WANTING “stuff” than there are people PROVIDING “stuff”. Malloy and Obama ARE Socialists and people need to be reminded of that fact as often as possible. Eventually they’ll get it and throw them out.

      As someone “who knows what he’s talking about”, it may come as a surprise to you that Republicans DIDN’T get “swept” nationwide… Republican won the House of Representatives. Look it up.

  4. wally

    I can save the state more than $3 hundred million per year. The state can’t lay off union employees, because of the deal Malloy cut. But there are about 6,000 state supervisors, managers, directors & commissioners of all sorts who are not in unions. They all make more that $125K per year each. That’s more than $750 million per year in salaries. Most of them are stuffed suits who do nothing. Get rid of half of them.

    1. Scott2014

      While cutting some managers would help, Where do you get your numbers of 6000? The only number I have seen is there are 3000.

  5. pete

    Hey I got it. Let’s let the liquor stores stay open 24/7/365. That’s sure to bring in like what $1 BILLION in new taxes. Oh it won’t.

  6. CT teacher

    And stop making sweetheart deals with political cronies and hacks…where is the $40,000 SUV Kennedy was driving while making over $300,000 and on a 8 week paid vacation also known as “working remotely”. How much did Malloy spend on securing the mansion…$250,000? Trips to China, California, etc…special security and state troopers. Lots of waste and most of it at the top, not the lowly front line workers. Cut from the top Dannel and company.

  7. Dr. Aki Bola, Esq.

    Have the non-essential state workers go home, and stay there unpaid until those $200M in suggestion box ideas and $200M teeth cleaning savings are itemized. The taxpayers got jobbed. Again.

  8. cmon man

    putting it back on state employees is just an old excuse that unintelligent people fall back on. the old days of huge pensions and huge pay has gone. most are paid exactly the same amount as the private sector, if not less. putting them on the unemployment line. yeah, there’s a solution. wake up and smell the coffee. spending has to come down, that’s for sure.

  9. Anonymous

    Guess the state workers and their pensions are more important than the other 3.5 million citizens of this state. Good choice?

  10. Jack

    Medicaid will bankrupt America just give it a few more years. Wally said it in his post, the state could lay off half the 125k plus managers and not miss a beat. Look at Uconn and the 227K Communications guy Herbst just hired. Give me a break. Something will change, the only question is when. Malloy will never win a second term because the old days are never coming back. Time to cut the layers of non value added bureaucrats in state government. Higher education is loaded with overpaid metric and test score manipulators. The people who actually work for the private secter in CT have no time to follow the corruption.

    1. msavage

      “Higher education is loaded with overpaid metric and test score manipulators.”

      It’s not just higher education anymore. Public education is increasingly becoming loaded with these types, as well as “consultants” who are not actually employees of the districts. Money and resources are being sucked away from the actual folks in the trenches–the public school teachers, for example. Why attack a teacher earning a starting salary of $40K–someone who is in the classroom every day working with our kids, then going home and putting in another few hours grading papers, preparing lesson plans, etc? What ABOUT folks like the new PR person just hired by Herbst (from out of state, of course)for more than a quarter of a million dollars?

  11. larry davidson

    This was all so predictable two years ago..unrealistic assumptions tied to a budget tht was a house of cards. Then to get through the mid term election, malloy and barnes out and out lied…they knew this disaster was coming..its not like anything dramatic suddenly happened…and shielded the truth from ct voters to get through the election. Malloy and barnes are arrogant thugs..corrupt and dishonest to the core..by taking state employees off the table and making their benefit packages untouchable through 2022, they have assured that ct will be insolvent. And if you use realistic returns on investment for the state pension..something like 3.5% not the 7.5% used by malloy..the unfunded pension promises are unsolvable…now add the loss of revenue as out of state casinos come on line and baby boomers retire and move out of state.
    I said this two years ago, but none of you brilliant democrats in all your arrogance would listen…ct is insolvent…the state is bankrupt…it is a zombie enterprise….cafaro et al..malloy rub your face in it..its his problem..his mess..let malloy and the democrat legislature twist in the wind…we will hoist them up by their own petard!

  12. Dave

    Say all you want about Malloy and the Democrats, and 99% of the comments are spot on. The problem is that the voters in Connecticut are either so blind as to whats going on, or they just don’t care. How else can you explain them voting in the same tax and spend morons back in time after time. And they do it all with a smile on their face.

    1. alan

      sad to say i was at a birthday party in Farmington where almost everyone was a govt employee. 4 hrs of people glued to Uconn v Louisville and talk of coach “geno”, “brady”, etc. That is the Conn cavone.

    2. Billy

      AS I recall – Malloy won because of the vote in Bridgeport – these people would be happy if the tax rate was 100%.

  13. Daybird60

    Core to the comments being made and assumptions on funding are the challenges that surround our “social contracts” expected in the comments presented. Union or no union-To us, the question that needs to be asked and answered is this-are the benefits promised by the State of CT to current enployees and retirees in line with the current realities from a variety of perspectives? $$ Ease of access. Too rich? Too lean? Is the State willing to change the paradigm and pull hospital systems and their doctor alliances into the mix to address the cost issue and make this a STATE issue? I’d like to see comments proposing solutions. Anyone game for that?

    1. larry davidson

      Its very simple..we don t have the money for the retiree pension and health benefits promised that were never funded on the state and municipal level and we have more state employees than we can afford. Look to indiana, michigan and a host of other states where fiscally responsible republican governors for the most part have put their states on a sustainable path in the midst of the economic malaise we are experiencing..or look to rhode island and the steps they have taken to restructure their state pensions….that would be a good start

  14. jschmidt

    When you start out spending 900 million more than you have what do you expect. Kill the busway, get rid longevity bonuses, take overtime out of pensions, freeze wages for 3 years, no new hires. And stop the first five- taxing all companies to benefit a few doesn’t work.

  15. ccbeachcomber

    The cruel joke here is Democrats’, and the author’s, claim “federal reimbursements for Medicaid will rise”. What a bunchy of hooey. These guys are banking on the feds continuing their streak of incompetence and leading the way in not living with a budget. Folks, look at the revenue numbers thrown around like cotton candy, revenue is not the problem. Someone needs to lead Obama by the hand to his desk, park the big airplane, tell him the BS campaign is over and it’s time to do some work for a change. The same goes for the jokers of this once great state. By all rights, this display of incompetence and mismanagement should be grounds for dismissal.

  16. Da Troof

    Even though Washington DC wont acknowledge we have a spending problem, we may be making progress in Connecticut now that Governor Dan has acknowledged it. Unfortunately, he has already made his deal with the union devils and can’t lay off anyone (or was that the plan?). Unsustainable state ee salaries, benefits, retirement and exploding Medicaid spending will be our demise if we don’t get a grip on it.

  17. old capitalist

    Nowhere to run – Unless you are a private corporation or people of means.

    Nowhere to hide – the bills will be paid by people who voted for higher taxes on the rich and corporations and clamored for more spending.

    No One is suprised, Atlas just keeps on Shrugging.

  18. Oracle

    I have yet to see a Connecticut state government, Democratic or Republican, executive or legislative, that has a coherent strategy for anything. Look at higher education: as people write comments about this article CSU and UCONN are hiring like mad. Hiring teachers who will add to the state payroll. Has anyone considered downsizing higher education? Huge numbers of students attend just to party. They poison the atmosphere in the classrooms. With fewer students class size would decline and instructors could give more attention to motivated students who need to enhance their skills. In the realm of k-12 education, the State Department of Education wastes millions of dollars on inept officials who bully local schools. The special masters the Department of Education appoints have only one agenda: to fool the public into thinking that if a district loses 108 teachers and paraprofessionals it does not need to spend any more money to improve the classroom experience for students. If Mr. Barnes wants new approaches to operating state departments, I suggest he try NEW approaches.

  19. Dave

    In Colorado now what a breath of fresh air, taxes low construction abounds, upbeat population who are politically savvy not like the steady habit population in CT.Denver is thriving great place for business and quality of life.

    Home purchase in progress and will be out of CT within 6-9 months. Do not worry there will be many more people who will be moving out of a State and expending their money elsewhere. The State that I grew up in and had high hopes for has turned into an entitlement State rated the worst for retirees in the country. It is a shame but not surprising that within a short period of time a group of incompetent politicians with limited intellect can destroy a State.

  20. Taxpayer

    If state employee costs can’t be cut then taxes have to increase. Isn’t the eventual ‘solution’ obvious? Malloy will raise tax rates by 25%, just like last time, bringing the top tax rate to 9%, or just a smidge under NY state’s top rate. That’s what he did last time when 6.5 was just under where NY taxes were scheduled to go before Cuomo agreed to 9.6%. So now Malloy has room; he’ll figure as long as he’s owner than ny or nj where are the rich going to go? Am I missing something?

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