[Youth-list] Spending cap op-ed

[Michael Sullivan]

http://www.courant.com/news/opinion/op_ed/hc-geballe0226.artfeb26,0,4362426.
story?coll=hc-headlines-oped 

Fix The Cap, And Budget Will Follow 

SHELLEY GEBALLE

February 26 2007

Voters may have approved Connecticut's constitutional spending cap by a wide
margin, but certainly weren't consulted when the definitions under which the
cap operates were adopted. With 16 years' experience, we now understand that
these definitions, included in a 1991 statute, thwart the cap's goal of
keeping Connecticut's spending consistent with growth in our state economy -
and also has encouraged budget gimmicks, increased borrowing, cost shifting
to towns and future generations, and a reluctance to seek new federal funds.
It's time to repair these definitions. 

The two definitions that most merit rewriting are "increase in personal
income growth" and the budget "base."

Rather than using a measure of personal income growth that reflects current
growth, the statutory cap uses a five-year average. Most states with caps
use a much shorter average. Personal income also is defined in a way that
excludes capital gains income, understating Connecticut's total personal
income.

The state's budget "base" is defined as the amount appropriated in any year,
rather than the amount that the cap would have allowed to be expended in
that year or even the amount spent, counting surplus funds. 

Together, these definitions cause public spending to consistently lag growth
in the state economy. In times of recession, reduced state revenues result
in state spending below what the cap allows, which reduces the budget base
for spending cap calculations in subsequent years.

As the economy improves and state revenues increase, the cap's allowable
growth rate actually declines for a time; the slow growth in personal income
in the recession years is included in the five-year average, perpetuating
the recession's impact long after it's ended. This year, for example, the
five-year average includes the recession years of 2002 and 2003, resulting
in only 3.31 percent allowed growth - the lowest rate since the cap was
passed. 

So, the state budget growth is curtailed in times of recession. Then, when
the economy recovers, services can't be restored because an artificially low
spending growth rate is applied to a depressed budget base.

Indeed, Connecticut's total state and local spending has declined as a share
of Connecticut's economy - from 9.8 percent of state GDP in 1994 to about
8.75 percent in 2003 (fourth lowest among all states). If spending now were
the same share of our GDP as in 1994, Connecticut's state and local spending
would be about $1.76 billion greater. 

The cap's definitions have spawned an increase in spending that is
"off-cap," leading to less budget accountability and some greater long-term
costs. 

For example, because debt payments are not counted under the cap,
Connecticut has relied increasingly on bond funds - its credit card - for
current operating expenses as well as capital projects. We now rank as the
fourth highest in state debt as a share of personal income, and third
highest in per capita state debt. As bonded debt has increased, so has debt
service. If debt service now were roughly comparable to 1990 (when 5.4
percent of spending was for debt service), there would be an additional $964
million available for other state expenditures. 

We're increasingly using special, non-lapsing budget accounts funded with
revenues directly deposited to the accounts. Since funds from these accounts
are not "appropriated," but are distributed by a statutory formula, this
spending is outside the cap. This maneuver also avoids annual legislative
scrutiny of the use of these funds, reducing budget transparency and
accountability. There are more than 50 such off-budget accounts; the latest
example is the Citizens' Election Fund. 

These and other measures to evade cap constraints have long-term adverse
consequences to the state.

Connecticut now has a choice: To continue with the ill-considered 1991
statutory definitions that are creating these problems or to amend the
definitions to better serve the goals of the spending cap. Three modest
mid-course corrections are: 

Replace the five-year average of personal income growth with a more current
and comprehensive measure of personal income growth. 

Define the budget base to be the spending that the cap would allow in a
given year (or, alternatively, a true total of all spending in that year,
including surplus and carry-forward funds).

Exclude new federal funds from the cap in their first year (but add them to
the budget base) to eliminate the current disincentive to seek new federal
funds.

These re-definitions would implement what the voters intended - ensuring
that Connecticut's spending keeps pace with its economy, while reducing the
use of gimmicks that undermine the integrity of our state budget.

Shelley Geballe is president of Connecticut Voices For Children, a statewide
research and policy group. 
Copyright 2007, Hartford Courant 
 

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