As Connecticut government leaders celebrate the end of the last fiscal year with a final report showing a budget surplus of a billion dollars or so, we the people should be planning for a major tax increase in the not too distant future.
Lost in all the back slapping budget hoopla at the Capitol are a few scary facts — fiscal chickens waiting to come home to roost.
State Comptroller Nancy Wyman has been the most vocal critic of the budget approved by the General Assembly this year and she has met with some criticism for shining a light on the secret legislators and others were hoping to keep.
A major flaw in the no tax increase budget Republicans claimed to have “won” in the last session, is the use of nearly $800 million of the surplus to fund new and on-going programs. The use of the surplus in this way is a budget time bomb for the rest of us.
Surpluses are one time events. You can’t count on surpluses every year and even if you could, you can never bet that they will be the same size every year. That’s why it’s generally a bad idea (almost always a bad idea) to use surplus tax revenue to fund new or continuing government programs.
A year without a surplus means drastic spending cuts — which never happen in government — or tax increases to make up the difference.
Blind Faith
Why lawmakers and the Rell administration agreed to this budget deal is unclear. Perhaps they feared the political consequences of a budget stalemate running into the summer or fall. Maybe they are just hoping the good times roll on and there is no need to raise taxes in the future.
History is not on their side. Both the budget crisis of 1991 — that led to the imposition of the income tax — and the budget crisis of 2003 that led to massive state employee layoffs were preceded by spending sprees comparable to what we have seen this year (the 2003 crisis was also preceded by the 9/11 terrorist attacks and the economic downturn that followed).
Privately, lawmakers of both parties are worried about what they have done. They know the history. Though they scorn her for saying so out loud, they know Wyman is right. They fear they have set themselves up for a budget crisis, perhaps as early as next year, which happens to be a legislative election year. Political observers, reporters and lobbyists are equally aware that economic downturns are inevitable and the legislature has dug the state a billion dollar hole. All are watching for the first sign of trouble.
The February proposals to increase income taxes across the board faded in the spring as tax revenues grew unexpectedly, but any one looking to predict the future should look back to those early plans as a starting point. They are a precursor of things to come; higher taxes for everyone — not just millionaires.
Republican legislators got a lot of credit this year for holding off major tax increases, but they were complicit in the decision to break the spending cap and spend as much of the surplus as they thought they could get away with. Neither party can truly claim the high ground on the issue of fiscal responsibility. Politically, incumbents are betting the budget will stay in the black long enough to return them to the Capitol in the fall of 2008.
As was the case two times before in the last twenty years, the truth may begin to emerge only after the next legislative elections. When it comes to your own budget, start planning now for hidden expenses.n
Dean Pagani is a former gubernatorial advisor. He is V.P. of Public Affairs for Cashman and Katz Integrated Communications in Glastonbury.
