Budget Survey Is A Warning To State
National Group Calls Connecticut's Fiscal Health Precarious

December 17, 2004
By DAVID LIGHTMAN And CHRISTOPHER KEATING, Courant Staff Writers

WASHINGTON -- While the economy is boosting most states' fiscal pictures, Connecticut's budget health is precarious, a national survey of the states reported Thursday.

The 2004 Fiscal Survey of the States found that Connecticut's year-end budget balance is well below what's considered adequate to withstand an economic downturn or runaway spending.

"States like Connecticut have real issues to deal with," said Scott Pattison, executive director of the National Association of State Budget Officers. His group and others, which represent state interests in Washington, issued the report.

In recent years, Connecticut has had major budget shortfalls, prompting the state legislature to raise virtually every major tax to close the gap. Those increases have included hikes in the personal income, corporate and cigarette taxes under then-Gov. John G. Rowland.

Due partly to those tax increases and an improving economy, officials are now projecting a surplus in the current 2005 fiscal year of about $250 million, according to the legislature's nonpartisan fiscal office. But Republican Gov. M. Jodi Rell, citing one-shot revenues that were used to plug this year's gap and projected 15 percent increases in health care spending, says the budget deficit for the fiscal year that starts in July 2005 could be as high as $1.3 billion.

Perhaps the most vexing problem in Connecticut and elsewhere, said Pattison, was Medicaid.

For the first time, the survey found, state spending nationwide on the health program for the poor and disabled will top elementary and secondary education. Some 21.9 percent of all state spending across the country will go for Medicaid, the survey estimated, compared to 21.5 percent for education.

State spending on schools nationwide has consistently been in the 20 to 25 percent range, but Medicaid expenses have climbed from about 10 percent in 1987.

The Medicaid growth has created pressure on state budgets like Connecticut's. Traditionally, a state is seen as healthy if it has a year-end balance of about 5 percent of its budget left.

Twenty-three states will fall into that category this year.

Then come the bottom 16 states, including Connecticut. Its 2004 balance as a percentage of expenditures is estimated to be 1.6 percent in Fiscal 2004 and 2.2 percent in Fiscal 2005.

That's scary, said Pattison. "Balances tend to be a barometer and a red flag on future fiscal issues," he said.

But state budget director Marc S. Ryan said Connecticut's fiscal health would have looked better had the numbers been calculated a different way. The state, for example, officially ended the 2004 fiscal year with a surplus of $300 million, but an additional $225 million in surplus was thrown into the next year in order to balance the next budget. As a result, the additional $225 million was not counted in the national survey.

"They don't take into account the gross surplus," Ryan said Thursday. "They look at the net surplus."

Regarding Medicaid, Connecticut has traditionally offered a better package of benefits than the national average. The state, for example, offers dental care for adult Medicaid recipients, which is not required by the federal government. Overall, $2.9 billion of Connecticut's $14.3 billion budget for the current fiscal year is spent on Medicaid.

What's needed, said Raymond C. Scheppach, National Governors Association executive director, is strong federal action, perhaps tax credits for long-term care or ending "dual eligibility" of patients for Medicare and Medicaid.

But "with the federal deficit, there will probably be no [big] help right now," he said.

So while the fiscal report found states in better shape than in recent years, Pattison advised watching what's happening to those still trying to work their way up to the 5 percent year-end balance.

What has happened to states this year, he said, is akin to the person who gets his first raise in three years, "and then the boss comes in and says your health care is going way up."