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Deep State Cuts: Wrong Move In Tough Times

ANDY FLEISCHMANN

March 01, 2009

Why do so many people who support the federal stimulus package clamor for our state government to make cuts — including key investments in schools, roads, bridges, health care and public safety? Cuts like these will deepen the recession that the federal stimulus seeks to moderate.

If you believe it makes sense for government to stimulate the economy to help reduce the severity of the current downturn, then — whether you're a groundskeeper, gas station owner or governor — you should join me in pushing Connecticut to alter its constitutional requirement to balance the state budget each fiscal year.

Many people believe that cuts in critical services and investments like the resident state trooper program and school construction must be made to keep the budget in balance. This requirement — in place since the state fiscal crisis of 1991 — drives Connecticut to cut expenditures and/or increase taxes at the precise moment when sound economic policy demands the opposite.

That's why I introduced legislation requiring state government to balance its budget over the course of the 10-year business cycle — not in a single fiscal year. This simple change will allow our state to pursue policies that reinforce — rather than undermine — the recently enacted federal stimulus plan.

In years like this one, the state would first eliminate unproductive and wasteful expenditures and tax credits. At the Department of Children and Families, for instance, programs and managers who have consistently failed children should finally be held accountable. In every agency, the appropriations committee's results-based-accountability method should be used to cut or overhaul ineffective programs. The finance committee should scrutinize every special tax break and eliminate those that don't help our economy.

Once we have done all we can to become lean and efficient, there will still be a major budget gap because state revenues are falling as the needs of struggling Connecticut residents rise.

We should address this remaining budget gap by issuing economic recovery notes — debt that we must pay off within the next 10 years.

Since World War II, it has taken 10 years or less, on average, for the economy to pass through a full business cycle — meaning that, in just a few years, we will be able to start retiring these notes. When the economy begins to rebound, revenues will rise significantly while costs linked to unemployment and social service needs will drop. Retiring all of the notes by 2019 will not be difficult.

As these notes are paid off, we must re-establish a rainy day fund that is twice the size of our previous reserve. Saving surplus funds during boom times is the single best way for state government to moderate the effect of a downswing in the economy.

As Nobel Prize-winning economist Paul Krugman recently observed, our priority during this recession should be to "make sure that the fiscal problems of the states don't make the economic crisis even worse."

For months now, we've heard the governor compare our state budget to that of a typical household, suggesting we should simply pare our spending just as any household would cut back on its soda purchases. Our state government, however, is nothing like a household.

It's more like a person who's fallen on hard times — someone who can bounce back fast if only he or she can make quick, crucial investments in education and training. Young people who take out student loans borrow against their future because they know that these investments will pay off many times over — just as economic recovery notes used for key state investments will.

It's probably best, though, to avoid simple analogies. State government is the largest, most multifaceted player in our state's economy, an entity with the power to lessen or deepen the effect of the current recession. By adopting a basic change to our system of budgeting, we can empower state government to do what it ought to: stimulate the economy during downturns, protect the most vulnerable and invest in key priorities that will put us in a strong position to out-compete the world in the years to come.