Tuesday, May 10, 2005

Budget Surplus: What Should be Done with It?

The projected budget surplus may reach $700 million, according to some legislative fiscal analysts.

This could really save Rell and the Democrats from budget Armageddon. What should be done with it?

Well... we have an awful lot of debt. In fact, we're one of the worst states in the country when it comes to our bonded debt (currently $13 billion). We should try to pay down as much of that as is feasable, to save ourselves money in the future.

The teachers' retirement program is dangerously underfunded, as is the retirement program for state employees:

The actuarial value of the teachers pension fund assets is about $9.847 billion, while the actuarial accrued liability is $15.071 billion, according to the nonpartisan legislative analysts. That leaves an unfunded liability of about $5.224 billion, or 34.7 percent of the total. In other words, the state is funding 65.3 percent of what it needs for the pension fund.

The state funds an even smaller percentage of the state employees pension. According to OFA, the actuarial value of the state pension fund is roughly $8.230 billion, while the actuarial accrued liability is about $15.129 billion, leaving an unfunded liability of $6.890 billion. That means the state funds just 54.5 percent of what's necessary to cover the total. (Breen)

Cities and towns desperately need money, too, and it's almost certain that some of the surplus will go their way. Both Rell and the Democrats support sending at least $100 million to municipalities.

I'm very relieved to see that no one is talking about tax cuts (at least, not yet).

If the state government is smart about this surplus, it could really be a boon. Let's try to learn from the disaster that the federal government made out of their surplus, and manage this one wisely. Paying down the debt and more fully funding retirement programs is a good way to ensure that we'll be on firmer financial footing in the future.

Source
Breen, Tom and Keith Phaneuf. "So there's a surplus -- what about state's debt?." Journal-Inquirer 9 May, 2005.

8 comments:

Anonymous said...

The surplus will be wiped out if we lose Groton, though.

The Lord giveth and He taketh away...

stomv said...

Send $100M to the cities and towns, $200M to the teachers pension, and the rest to the gov't employees pension fund. Not unreasonable.

Me? I'd try to get some of that money and build renewable energy generation with it. If the state (or towns) build some renewable energy power plants, it could serve to reduce the annual budgetary requirements for gov't, lower electricity prices, and stave off the erection of a new coal/oil/natural gas fired power plant.

Heck, see if you can use the site of the (soon-to-be-closed?!) Groton base to build some of the power plants. You've got infrastructure, and you can keep some jobs that way.

Genghis Conn said...

stomv,

I'd like to see them pay down the debt a bit, too. It's really been pretty back-breaking, and the more we pay off now the better off we'll be later.

Hmm. What sorts of renewable energy plants did you have in mind?

stomv said...

Well, some munis run their own power companies, such as Los Angeles. There's tons of literature about these kinds of things.

My claim is that CT could invest some of the surplus in infrastructure that the state will certainly need in the future, and ensure that the infrastructure needed (power generation capacity) is also a benefit to air quality and to local employment.

Now, CT could build windmills, solar, other green-e, or any combination. Off the cuff, I'd suggest a combination of wind and solar. For wind, build some turbines if there are good spots, perhaps in the Sound or in the northwest portion of the state. Since the marginal cost of generating wind power is $0.00, any electricity generated by wind will result in money going straight into government coffers as a source of revenue. Additionally, since the supply on the 5 minute spot market will be higher (during windy times), the spot price will be reduced, thereby lowering electricity prices for CT citizens.

Establish a fund that pays for putting solar cells on top of all new construction gov't buildings, serving to offset the electricial draw during the week, and feeding back into the grid during weekends and off hours. Retrofit older buildings when cost effective.

These sorts of approaches will help CT increase its electricity generation capacity, which is essential to reduce brownout problems. It does so without building a coal/oil/natural gas fired plant, which emits smog and greenhouse gasses, as well as radioactive particles and increases the demand for foreign oil or natural gas (inflating prices).

Finally -- it would seem that the Groton base might be a place that some of this could take place. I don't know if wind power could be installed there, but there might be some way to leverage the Groton base somehow... which would also probably aid in any green-e bill's passage.


Ultimately, CT fulfilling it's pension obligations yields a rate of return with risk -- and so does investing in renewable energy infrastructure. I don't know which is more promising financially, but I do know that both investments also yield other social goods: in the case of the pensions, it helps CT keep its promise for soon-to-be-retired citizens, and in the case of energy, it helps CT keep the grid meeting electrical needs without pumping toxins in the air.

Which is better? That requires more than a quip on a blog to find out.

tkd27 said...

How can you have a surplus and a debt? Is this Enron style creative accounting? The left pocket has a surplus, the right pocket has a debt, so all we talk about is the former?

What's the logic behind this?

opster said...

I heard that the 200mm that Ms Rell added to the town accts and to the pension jacked the 2005 budget up enough so that the dems budget does not break the cap anymore- true?

stomv said...

^ the surplus is the budget surplus -- the state took in more money in taxes than they spent in some time frame (quarter? year?)

the debt is in two forms: bonds (to build schools, roads, etc) and pension obligations (teachers, gov't workers).

It's as if you earned $10,000 more than you spent in the past year, but still owe $20,000 on your car and $100,000 on your home. You had an annual surplus, but still have debt.

tkd27 said...

stomv, okay, I get it. Still - it doesn't make sense going around talking about the huge surplus we have when you look at it like that.

Using the family budget analogy, if you spent your family's entire "surplus" on a big screen TV, a pool table and leather couches, you'd end up defaulting on your mortgage and your car loan.

A portion of the surplus, IMO, should go to pay down the deficit.