Committee for a Responsible Federal Budget

Spotlight on the States: Connecticut

Apr 4, 2011

The next state we turn to in our Spotlight on the States series is Connecticut – a small state that’s had some pretty big budget problems.

Many newly-elected state governors campaigned on platforms of smaller government and made pledges to control spending and not increase taxes. So it should come as no big surprise that many governors have proposed state budgets for FY 2012 that aim to reduce deficits mainly through spending cuts with little to no new revenue (for example: Ohio, Florida, Wisconsin, New York, New Jersey) or, in some cases, even cutting taxes.

Connecticut Governor Dan Malloy (D) made no such promise and he’s taking a different approach as he addresses his state’s fiscal problems. Gov. Malloy embraced fiscal responsibility immediately upon taking office - on his first day he signed an executive order mandating that Connecticut follow Generally Accepted Accounting Principles (GAAP). Facing a $3.2 billion deficit (a little less than 17 percent of the FY 2011 budget), Gov. Malloy introduced his biennial budget on February 16th. The budget totals $19.7 billion for FY 2012 and includes $1.8 billion in spending cuts as well as $1.5 billion in increased revenue. Specific proposals in the budget include:

Revenue Increases
Proposal

FY 2012 Savings ($millions)

Changes to individual income taxes (eliminating property tax credit, creating five new marginal tax brackets, introducing 30% EITC, etc.) $880
Changes to state sales tax - including expanding base through elimination of exemptions and raising the rate from 6% to 6.25% $466
Imposition of provider fees on hospitals and intermediate care facilities $315
Corporate and insurance tax changes – including extending the 10% corporate tax surcharge for 2 more years $75
Permanent and revamped municipal real estate conveyance tax $53
Increase in taxes on cigarettes and alcohol $64
Additional 1% tax on hotels and car rentals $7
 Spending Reductions 
Proposal

FY 2012 Savings ($millions)

Reduction in state workers' salaries and benefits $1,000
Various Medicaid reforms $143
Various changes in Municipal Aid $133
Department of Social Services reforms $138
Reduction in Higher Education block grants $71

 

Income tax reforms in the budget proposal include enacting an EITC to offset the changes in sales taxes for the most vulnerable families (at a cost of $110 million a year) and restructuring the personal income tax by adding five new brackets.  

The day before he released his full proposal, Gov. Malloy said he knew full well that some would criticize the spending cuts and others would criticize the tax increases, and that "everybody's gonna be upset - that's a certain reality." While his proposal has been criticized--especially for the tax increases--Gov. Malloy has also been praised for his budget’s balance between spending cuts and tax increases. In an editorial titled "Connecticut’s Better Budget", the New York Times says that Gov. Malloy’s budget "spreads the pain more evenly" than other state budgets and that "he recognizes that budgets cannot be balanced fairly in the short term, or at all in the long term, without having new money coming in." The one question that remains is whether the governor will be able to get the $1 billion in concessions from state workers that he seeks.

Whether or not one agrees with the specific policies Gov. Malloy wants to put in place, the relatively balanced approach to his state's budget should be admired. 

PS: Click here to try and balance the Connecticut budget yourself and then try your hand at the federal budget here.