Thursday, May 05, 2005

Open Forum

So... there's a lot of small stuff going on. The cell phone bill, the anti-tailgating initiative, incremental budget progress, Rell putting a good word in for greyhounds, Dan Malloy cleared of wrongdoing, etc.

The Malloy thing is interesting, but I doubt he'll be able to make much of an impact. Then again, I know very little about him.

8 comments:

tkd27 said...

Question for all out there, but especially Ghengis, as he's written about the spending cap and seems to be against the Democrats proposal: State Rep. Brendan Sharkey came to speak to the New Haven Democracy for Connecticut group this past Wednesday and talked a bit about our state budget ordeal. He brought up a few facts.

One: The constitutional "spending cap," though it was adopted by voters, was never implemented by the General Assembly.

I did some research. It seems to me that this is true. Further, it seems like the General Assembly has successfully side stepped having to accept the cap as law, and is therefor free to ignore it at will. Am I absolutely wrong on this?

Two: There is federal grant money our state would be entitled to, but misses out on because we are try to stay as close to the cap as we can. As a result, Connecticut is the second to last state as far as receiving federal aid.

Whatever the status is of this cap, what must we do to abolish it so that it is not even a club the Republicans can use to beat down our budgets? Would it have to reversed by voter referendum? Is that the only thing we can do?

Please respond and discuss. I really want to understand this issue fully.

Thanks :)

Genghis Conn said...

Sorry for the late reply...

The cap was approved by voters, but a section of the cap which determined by how much the cap would be raised each year was never agreed upon by the legislature.

Frankly, I'm not sure of the legal status of the cap. It was approved by voters--can the legislature ignore it? It seems not, since it is in the constitution.

I don't think we want the cap reversed. Budgets in the 1980s grew by 9-10% per year, causing significant problems. It should perhaps be more flexible, and allow figures other than the governor only to declare what can exceed the cap (perhaps a combination of House and Senate leaders plus the governor), but I like it as a safeguard against reckless spending.

Let's talk instead to the federal government about other ways to get federal aid instead of reversing our constitution.

To clarify my position on the budget--I think there are merits in the positions of each side. I don't like overspending as a rule, and I think the Democrats initially did a poor job of explaining their position (they have since rectified that), but I also believed that the governor's plan was too stingy. I'm looking forward to a compromise.

tkd27 said...

Ghengis,

***

In November 1992, state voters, by a wide margin, adopted an amendment to the state constitution to cap state budget expenditures. The amendment set up a framework for the spending cap, however it required implementation by the legislature.



After ten months without legislative action on this issue, in September 1993 state Rep. Mark Nielsen sued the legislature for not implementing the constitutional cap. The trial court dismissed the lawsuit for lack of subject matter jurisdiction. An appeal to the state Appellate Court was transferred to the state Supreme Court where it was dismissed in January 1996. In the court's opinion, the legislature is responsible for implementing the constitutional cap.



In October 1993, the Federation of Connecticut Taxpayers took this issue to federal district court, alleging that four state fiscal officers violated the spending cap amendment. That court held that this was an unsettled state law issue and dismissed the case for lack of subject matter jurisdiction. The United States Court of Appeals upheld the decision in June 1995.

***

This is from the CGA website. I interpret this to be that the legislature DID ignore it, and the courts, being the final arbitrator, let them get away with this. I tend to disagree with the cap, but at the same time I can't believe it was never adopted after a voter mandate to do so.

As to the federal aid, the way Representative Sharkey explained it to us, it seems Connecticut is eligible for reimbursement on funds we spend in certain areas, but we are not, if we follow the spend cap, allowed to SPEND the money. Grant money therefor just sits and is never claimed by Connecticut.

Maybe I'm getting something wrong, but I believe that is the way it was represented to me...

MikeCT said...

For info on problems with the spending cap, see this fact sheet(PDF).

As folks point out above, since federal funds that the state spends count against the cap, there is a built-in incentive to turn away federal money, since an increase in federal revenues could push the state over the cap.

Since debt payments don’t count toward the cap, there is an incentive to increase state debt and fund operating expenses through bonding. Hundreds of millions in corporate tax breaks (most of which by policy are secret) also don’t count toward the cap (what’s good for CBIA is good for CT).

Because of the cap formula and rules, allowable growth in state budget spending lags growth in the economy and personal income. So when revenues and the economy improve, the cap does not allow us to spend what we can afford and to recover from cuts made in the lean years.

As far as current budget debates, there is nothing revolutionary about exceeding the cap. CT exceeded the cap four times under a Republican administration. It also de facto exceeded the cap in other years through increased bonding. The real issue is determining what the state needs and what we can afford.

A report from the CT Health Foundation finds that CT’s spending cap is among the most restrictive in the nation and suggests ways to fix the problem it creates for us. Here’s a telling finding: "According to projections from the General Assembly's Office of Fiscal Analysis (OFA), simply continuing current services would put the state $650 million over the cap in FY 2006."

So we’ve got to cut hundreds of millions in services the state is already providing just to stay under the cap. This fact sheet outlines a few cuts that have already been made in recent years (comparing current fiscal year and FY 2001:
* Need-based scholarships (15% cut) and Department of Higher Education (25% cut);
* OPM-funded youth development programs (86% cut); and
* Care 4 Kids child care assistance (36% cut).

And let’s not forget the health care denied to thousands of parents and children thrown off the HUSKY health insurance program. (The feds cover 50-65% of the cost of HUSKY, so you have to cut $2 to $3 to save $1 in state funds - but that federal revenue counts against the spending cap, so why should legislators care? This is the sausage making that masquerades as public policy.)

So we're spending more than we can afford? Apparently not, according to the fact sheet above, since the state has been ranked:
* 2nd most frugal in the nation (according to the quarterly Connecticut Economy);
* 47th (i.e., 4th lowest) in state and local spending as a share of personal income;
* 50th (lowest) in spending on transportation and on total wages for state and local government
employees;
* Below average in year-to-year state spending growth, just slightly more than inflation; and
* 49th (lowest) in the nation in state and local spending on education as a share of personal
income

The missing piece is our regressive and outdated revenue system, in which hundreds of millions in taxes have been shifted from the wealthy and corporations to the rest of us in Connecticut over the last 15 years. CT’s middle-class and low-income residents pay twice as much a share of their income in state and local taxes as the wealthiest 1% of residents (a share that has been increasing). The share of state revenues from business taxes has been cut in half - from 15% of the state budget in 1995 to 7.2% now. The state gives away hundreds of millions each year in corporate tax breaks that none of us (public or legislators) are allowed to know about.

Also, for a comparison of what is really proposed in the Gov’s budget and in the Appropriations & Finance Commitee budget, see this analysis. (PDF)

ctkeith said...

Thank You MikeCt,

Ct. is as bad as W when it comes to screwing everyone but the wealthiest.
The figure I was given for tax "carveouts" for Corporations and special interests was between 4-6 billion anually.I hope to hell this was an exageration but I'm afraid it's not.

MikeCT said...

Some CT corporate and wealth tax facts:

Between 1987 to 2005, the state revenue loss due to corporate tax credits climbed from $2.7 million to $175.3 million (from 289 corporate tax returns claiming credits to 9,655).

In 1999, 38 of Connecticut’s largest 95 corporations paid no corporation business tax at all. In 2003, the majority of corporations paid only the Alternative Minimum Tax of $250.

In 2005, the state will lose an estimated $425 million due to these and other business "tax expenditures."These reductions are in addition to a reduction in the tax rate from 13.8% in FY 90 to 7.5% in FY 02.
Source 1
Source 2

Connecticut could have raised an additional $158 million in the current fiscal year if the we did not phase out the estate tax on large estates and if rates remained at levels prior to the federal changes of 2001. Our neighboring states have retained their estate taxes, but this is the home of Fairfield and Litchfield counties after all.

CT's 5.0% top bracket personal income tax rate is relatively low compared
to neighboring states (New York 7.7%, New Jersey 8.97%, Massachusetts 5.3%, Maine 8.5%, Vermont 9.5%). Among states with a broad-based personal income tax, Connecticut’s top bracket rate is sixth lowest (tied with Alabama and Mississippi).

Genghis Conn said...

tkd27 and mikect,

Great information! Thanks for doing all the research on this. That .pdf is especially helpful.

Genghis Conn said...

Okay, I've taken a look at your research and done some of my own. Here are a few conclusions I've come up with:

1. The state spending cap was necessary to curb state spending, which was increasing by and average of 11% each year from 1987-1991. If the cap and income tax had not been implemented, the state would be in much more serious debt than it is already.

2. The cap should be made less restrictive to allow exemptions for specific services, federal grants, etc. It should not be done away with, however, since it has helped the state recover from the crisis of the O'Neill administration and helps to prevent that sort of crisis from happening again.

3. The legislature should agree on the appropriate definitions and fill out the framework the amendment provided. The voters approved the cap 13 years ago--it should be fully implemented. It is apparently being used by the governor's office as a club to batter back spending... but in vague and sometimes contradictory ways.

A clearly-defined, flexible cap seems reasonable to me. Removing the cap seems rash, and doing nothing about it smacks of denial.