CT Seen As Hiding Bad Budget News

In an article headlined “Bad Budget News? Some States Just Bury It.” Connecticut is one of two states selected as a poster child for what a national publication describes as “hindering transparency.” The Connecticut policy that brought the unwelcome attention was put in place last year.  As Governing explains:

“Connecticut ended its practice of current services projections. That’s a boring-sounding way of talking about how much programs will cost over time, assuming there are no policy changes. It’s a baseline against which to compare any proposed cuts or increases in spending.”

Ben Barnes, Connecticut’s budget director (Secretary of the Office of Policy and Management), said last year that it didn’t make sense to project shortfalls or surpluses into the future, Governing explains. “There’s no such thing, in my view, as a deficit or a surplus in years in which there is no appropriation in place,” said Barnes, whose photo accompanies the article.

Some legislators complained that the new rules would be a blow against transparency in the budget. The change was adopted anyway, the publication noted, adding that a majority of states already choose not to publish current services projections.

“There is kind of a tendency for policymakers to focus on the immediate and not the future,” Liz McNichol of the Center on Budget and Policy Priorities, told Governing. “This reduces the outside pressure to look beyond one year.”

The publication’s report notes that Connecticut “will have to fill a shortfall of more than $1 billion in its budget this year.”

The other state highlighted in the article is Kansas, where a state task force recommended that the department stop releasing monthly budget reports after numerous reports indicated that the state had fallen short of anticipated revenues.   The Governor’s administration also “decided to kill a quarterly economic report that was also habitually filled with bad numbers.”

Governing is the nation's leading media platform covering politics, policy and management for state and local government leaders.

PERSPECTIVE: The State Budget: What Do Demographics Have to Do With It?

by Alissa DeJonge A combination of factors are having a negative impact on state revenues, contributing to budget woes. The different age cohorts in Connecticut’s population tell an important story of one reason revenues are declining. State legislators need to examine Connecticut’s current and future demographics as they look to solve fiscal problems.

Much of the daily news centers on the state budget deficit and the lengths that legislators are attempting to go to find ways to balance it. There is a projected $220 million shortfall for this fiscal year that was addressed by legislators on March 29.[1] And the projected shortfall for the next fiscal year is approaching $1 billion.

Legislators are quite aware that revenues are not coming in to the extent originally anticipated, and that this trend has been occurring for the past number of years. Indeed, Senator Beth Bye, during a March 23 conference about broadband infrastructure,[2] discussed the revenue woes and the dire situation that Connecticut is facing.

What makes this situation particularly serious is the fact that the reasons there is a ‘revenue problem’ have been long in the making, and the trend is poised to continue.

Of course, the overall state economy continues to struggle. Connecticut is one of 10 U.S. states that has not regained all the jobs lost since the last recession.[3] If jobs are sluggish, so too are revenues back to the state. And wage growth, while seeing improvements in 2015, has been relatively flat since the end of the last recession, which also keeps state revenues in a static to declining state.[4]

However, the lack of revenues also involves overall demographic patterns. The figure shows population by age for Connecticut between 2005 and 2015, and projections extending to 2030.

• The age group over 65 is projected to increase 38% between 2015 and 2030. This will add much pressure to state services such as Medicaid and long term supports and services while at the same time reducing revenues because this large age cohort is no longer working.
• The Baby Boomer generation, those who are currently 45-64 years old, comprise the largest share of the state’s population. As they move from employment to retirement, the trend of increasing service needs and lessening revenues will accelerate.
• Generation Xers will fill many Boomer jobs, but they are a much smaller group, which means that state revenues are unlikely to regain their previous higher levels because fewer people will be producing outputs.
• The current Millennials (roughly ages 15-34 years) and the even younger Generation Z population have more people in their age groups then the Generation Xers. Therefore, demographic trends should eventually contribute to increasing state revenues. But it will be well over a decade before the Millennials begin to gain seniority and higher wages in the workforce and contribute more to the state revenues.

This figure shows how taxable income ebbs and flows by age group. The Baby Boomers are in the best position to contribute to state revenues right now. However they are retiring in a consistent fashion, and the next younger cohort, of which there are fewer people to begin with, is earning less than their mature counterparts. This sets up a long-term issue for state revenue potential, one that will not be mitigated until the larger Millennial age cohort gets into their more profitable working years.

Revenue expectations are not what they used to be. In the 1960s, the economy consistently grew between three and five percent each year, and Americans assumed that it would continue to grow at that pace.  As a result, government was able to fund additional programs as economic and tax bases kept expanding. Today the economy is growing at only around two percent each year. This economic trend reduces the ability for the government to fund programs, and all demands cannot be met, with the current revenues coming in.[5]

If you multiply the taxable income per return by the number of people in each demographic group in both 2015 and 2030, excluding inflation, there would be a four percent decrease in the projected total amount of taxable income in the state.  This illustrates the effect of demographic trends on taxable income. Without even considering job trends, wage trends, or other long-term economic factors, the demographic shifts of the population are going to make it even more challenging for state governments to raise revenues.

The state revenue problem will not resolve itself with this legislative session, or even the next. While the current revenue problems are a combination of many factors, the demographic influence is significant and should not be overlooked because it can provide insight for decades into the future.

Since there are a number of longer term, structural issues that will continue to affect the state’s ability to raise revenues for many years, stakeholders and policymakers will have to adjust to this new economic reality. Prioritization of programs with specific intended targeted outcomes is the approach to the state budgeting process needed now.

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Alissa DeJonge is Vice President of Research, Connecticut Economic Resource Center Inc. (CERC).

PERSPECTIVE commentaries by contributing writers appear each Sunday on Connecticut by the Numbers.

LAST WEEK: Freedom's Just Another Word For... 

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[1] http://www.nbcconnecticut.com/news/local/Vote-on-State-Budget-Deficit-Expected-Tuesday-373779281.html (Accessed March 29, 2016)

[2] High-Speed Broadband Internet Infrastructure Informational Conference: A Toolbox for Municipalities (March 23, 2016)

[3] http://www.usnews.com/news/business/articles/2016-03-25/job-totals-trail-pre-recession-levels-in-10-us-states (Accessed March 29, 2016), from U.S. DOL calculations of jobs changes, December 2007 – February 2016.

[4] http://www.washingtontimes.com/news/2015/oct/8/comptroller-connecticut-wage-growth-continues-to-l/ (Accessed March 29, 2016)

[5] Robert Samuelson, Trump’s Wrong – We’re Hugely Well-Off (Op-Ed), The Hartford Courant, March 28, 2016.

Connecticut Not Alone; Six States Have Held Special Sessions on Budget

Connecticut, with a special legislative session a distinct possibility in the coming weeks, would not be alone in needing legislators to return to work on a state budget after their regular session had adjourned.  The states of Alabama, Alaska, Minnesota, Washington and Wisconsin all have conducted special sessions on budget issues this year, and New Mexico had a special session to discuss capital budget and supplemental appropriations, according to the National Conference of State Legislatures (NCSL). Alabama’s special session – the first in five years - was held over the summer, convening on July 13 and ending in disarray in mid-August, with a second special session on the state budget convened and concluded in mid-September.  Among the budget cuts, according to published reports: the Alabama Department of Environmental Management saw its appropriation drop from $1.2 million to $200,000, and the state’s hospitals, nursing homes, smokers and students took a hit.

Alaska’s two special sessions to deal with that state’s budget, as well as other issues, ran for just under a month, adjourning on June 11, costing the state nearly $900,000, according to published reports.  That state’s deficit was driven by lower-than-expected oil revenue.

Minnesota had a two day session in June to work on the state budget, capital investments, and other issues and Washington State had a series of special sessions in April, May and June.  Wisconsin’s special session on budget and other issues convened in July.  Some in that state are urging another special session be convened this fall.

A number of states have had special session on other issues, including Congressional redistricting, Medicaid expansion, prison construction and the state’s child support system.

Democratic legislative leaders and Republican legislative leaders are scheduled to meet with Connecticut Gov. Dannel Malloy on Monday, Oct. 26, for their first budget discussion, in the run-up to an anticipated special legislative session to close the state’s projected budget deficit.

There are two main types of legislative sessions in states across the country, according to NCSL —regular and special (sometimes known as extraordinary). A regular session is the annual or biennial gathering of legislators, the starting date (and often, the length) of which is set by constitution or statute. Unlike regular sessions, there is no specific timing for special (or extraordinary) sessions. They occur intermittently to deal with the specific issues or topics.  Usually, the scope of a special session—that is, the topics that may be taken up—is limited to the issues specified in the notice calling for the special session, the NCSL website explains.

In 34 states, including Connecticut, a special session of the legislature can be called by either the Governor or the legislature.  In 16 states, only the Governor has that authority.  Connecticut’s regular legislative session, according to the state constitution, runs from early January to early June in odd numbered years and early February to early May in even numbered years.