by Jon Pelto from Wait, What
Earlier this week, the CT Mirror ran a story entitled “Debate intensifies over CT’s credit card,“ while CT Newsjunkie’s story was State On Pace to Exceed Malloy’s Self-Imposed Debt Limit.
Since the stories contained quotes from State Senator John McKinney, a potential candidate for governor and rather defensive statements from Governor Malloy’s media operation, some readers may have misinterpreted the issue as being primarily political in nature.
However, the truth is far from that.
If you skipped over the stories about the state’s bonding and tomorrow’s state Bond Commissioner meeting, go back and read them very, very carefully.
They highlight what is surely one of the most important fiscal issues facing Connecticut and the failure of our elected officials to take the matter seriously. The course they are on will literally destroy Connecticut’s economic future.
The short version of the issue is as follows;
Tomorrow morning the Connecticut state Bond Commission will meet to borrow an additional $395.5 million in general obligation bonds.
With two more Bond Commission meetings left in the year, this new borrowing will “put Gov. Dannel P. Malloy within $20 million of his self-imposed $1.8 billion bonding limit.”
As CT Newsjunkie reported, at the first Bond Commission meeting this year Malloy said, “I can’t imagine that we would exceed $1.8 [billion], but we may be substantially less than that.”
But here we are…. At $1.8 billion and counting.
The $1.78 billion number actually exceeds last year’s amount of borrowing by nearly $400 million.
As State Senator John McKinney observed, “The governor, who two years ago set the record for the largest tax increase in state history, has today set a new record for the highest amount of borrowing in state history…This level of borrowing and these broken promises show a lack of leadership, a lack of fiscal responsibility, and a lack of consideration for the taxpaying public.”
McKinney’s statement was brushed aside by the Malloy administration who went on to claim that borrowing more money is not a drag on the state’s economy.
But that attitude overlooks a far more serious issue.
The drag on the economy is not so much a concern today, but the $19 billion in bonds the state must be off over the next twenty years will have significant and far-reaching ramifications.
Across the country, the average state per capita debt burden for state funded bonds is about $1,400. In Connecticut, the state per capita debt burden is just about $5,100.
And that is just the amount owed for bonds.
According to the state of Connecticut’s own numbers, over the next few decades, Connecticut taxpayers will have to come up with nearly $64 billion in addition to the funds necessary to pay for the State’s annual expenditures.
Besides the $19 billion in existing outstanding debt, Taxpayers will have to deal with the following obligations;
State Employee Retirement System (SERS) $ 11 billion
Teachers’ Retirement System $ 11 billion
State Post Employment Health and Life Benefits $18 billion
Teachers’ Post Employment Health Benefits $3.0
Generally Accepted Accounting Principles Deficit $1.5 billion (a major portion of which the state intends to borrow)
Like having to use a bigger and bigger portion of one’s salary to pay off the minimum balance on their credit cards, the state’s extraordinary debt is requiring more and more of the state budget to be diverted from services to debt payment.
Ten years ago, about 8.5 percent of the state budget went for debt service. Today that figure is over 10 percent and growing. In this year’s state budget, about $2.2 billion is going for debt service.
Compare that $2.2 billion to Governor Malloy’s claim that he improved education funding by providing about $50 million in new funds for Connecticut’s Education Cost Sharing Formula.
As Keith Phaneuf wrote in his CT Mirror article earlier this week,
“Financing for state government’s capital program basically follows a three-stage process:
- The legislature has sole authority to “authorize” bonding. Every two years lawmakers adopt a schedule of projects that may be financed with long-term borrowing.
- The bond commission — a 10-member panel of administration officials and legislators chaired by the governor — has sole authority to pick which projects will be financed.
- And when a state agency or some other entity is ready to actually carry out a project, the state treasurer’s office is empowered to issue bonds on Wall Street to raise the funds needed to cover expenses.
So while bond commission action doesn’t necessarily mean money will be spent right away, it does represent the state’s intention to move forward at some point with a project.
And given that Connecticut has one of the largest bonded debts, per capita, of any state in the nation, McKinney said Malloy should be more restrained about assigning projects to the credit card.”
To that, Malloy’s press operation shot back at McKinney saying, “The work supported by the bond commission creates jobs for Connecticut residents. It also allows the state to invest in local projects like schools, parks and senior centers. Senator McKinney should explain which important investment in job creation and quality of life improvements for residents in all of our towns and cities he does not support.”
While investment in “shovel” ready projects to create jobs is undoubtedly an important priority, the rather flippant response from the Malloy administration reveals the same lack of appreciation that previous governors have shown – Democrat, Republican and Independent – all of whom have pushed up the state’s indebtedness and undermined the long-term health of Connecticut’s economy.
The underlining problem is that many of today’s politicians will be long gone when the children of today’s taxpayers are given a bill that they can’t possibly pay.
For more about this issue, start by reading the CT Mirror story here: http://www.ctmirror.org/story/2013/09/23/debate-intensifies-over-cts-credit-card and then the CT Newsjunkie story here: http://www.ctnewsjunkie.com/ctnj.php/archives/entry/state_on_pace_to_exceed_malloys_self-imposed_debt_limit/#more.
Then when you have your courage, go check the General Assembly’s Fiscal Accountability Report which you can find here: (Especially look at pages 26-32): http://www.cga.ct.gov/ofa/Documents/year/FF/2013FF-20121115_Fiscal%20Accountability%20Report%20FY%2013%20-%20FY%2016.pdf