The new buzzword around the State Capitol is “lock box,” and it may be music to the ears of Connecticut business executives who have lost faith in state government’s ability to be fiscally responsible.
Gov. Dannel P. Malloy during his State of the State speech last week proposed the creation of a secure transportation lock box that would ensure every single dollar raised for transportation is spent on transportation, now and into the future. That idea was pitched in response to lawmakers’ penchant over the years to raid the state’s special transportation fund to help fill deficits in other parts of the budget.
That practice has caused the state to significantly underfund its transportation infrastructure, saddling Connecticut with billions of dollars in unfunded highway, road, and bridge projects, which the business community has identified as a key threat to future economic development.
Meanwhile, Comptroller Kevin Lembo wants to create a new reserve system that would require automatic deposits into the state’s rainy day fund whenever the most volatile tax revenue streams produce one-time excess revenues. While Lembo didn’t use the term lock box, his plan would essentially have the same effect, requiring lawmakers to set aside a portion of future budget surpluses for economic downturns, rather than spend that money on new programs.
Both Malloy and Lembo are proposing smart concepts, however, the specific details of the proposals will have to be weighed carefully before the business community can offer up its full support.
We’ve backed the adoption of a constitutional amendment that would forbid lawmakers from raiding the special transportation fund. That practice is one of the key reasons Connecticut is now thinking about bringing back tolls to raise money for a chronically underfunded transportation budget.
Any lock box, however, must have real teeth. The CT Mirror reported last week that states that have tried the lock-box approach have still seen some of their transportation funds diverted for other means. We also need Malloy and legislative leaders to outline where this transportation money will be invested. There are numerous projects, several with $1 billion or more pricetags, waiting in the pipeline, including reconstruction of the I-84 viaduct in Hartford. Taxpayers need to know which projects are at the top of the priority list and why. Money should be invested in initiatives that will have the greatest impact in promoting safety and economic development.
Lembo’s reserve system proposal offers a partial solution to the state budget’s susceptibility to economic downturns.
The income, corporation business, and inheritance and estate taxes, which collectively makeup a substantial part of state revenues, mirror the cyclical ebbs and flows of the stock market and overall economy. In good times — when unemployment is low, workers are receiving wage increases and bonuses, and investors are earning dividends and capital gains — Connecticut’s coffers swell with an oversupply of money. But too often lawmakers have decided to squander those funds rather than save for recessionary periods, causing the state to experience budget shortfalls in bad economic times.
The state, for example, is facing a $1.3 billion deficit for the next two fiscal years, but only has about has about $500 million in its reserves, which equals just under 3 percent of the general fund. The state can build its reserve by up to 10 percent of the general fund, but has never reached that level of savings.
By requiring lawmakers to set aside a certain percentage of budget surpluses for the rainy day fund, the state can safeguard against future deficits. However, lawmakers must also determine if the current levels of state spending are appropriate. Many in the business community would argue the state is spending too much money, and that building up sizable reserves during good times only protects the state’s huge money dispensing apparatus.
What everyone can agree on, however, is that the continued threat of budget deficits must end. It’s a drag on the state’s economy.
