Connecticut State Budget

February 19, 2011

A few days ago Governor Malloy unveiled his budget. Reaction has been mixed. At the heart of his plan are two separate proposals: $1.8 billion in new revenue and $2 billion in concessions from state employees. The budget also includes $758 million in spending reductions.

One good thing Gov. Malloy is doing is plugging the exemptions for various special interests in the state sales tax. These “tax expenditures” unfairly subsidize specific products and industries that were lucky enough to have lobbyists fight for them.

Criticisms largely stem from individuals that believe there should be greater revenue increases or greater spending cuts. Gov. Malloy has struck a careful balance by increasing tax rates to be comparable but competitive with neighboring states. Following the suggestion of Jon Olson and others advocating for tax increases may cause the rich to flee the state. This contention is supported by a report from Boston College’s Center on Wealth and Philanthropy. A report from Princeton suggests that the impact of new taxation on migration is negligible. Taxes and money are not the only factor that individuals consider when choosing a place to live but it is reasonable to presume we are competing for individuals in the tri-state area that work in New York City. Rational rich people will choose the locale with the lower taxes and absent conclusive data it is better to be safe than sorry.

Rep. Cafero and other Republicans have criticized the budget for not cutting spending enough. The CT Mirror explains that this is due the structure of Gov. Malloy’s budget cuts:

The biggest cut in the Malloy budget technically involves a "lapse" or relatively undefined savings still to be achieved. The governor announced this week that it would come from state employee wage and benefit concessions as well as other savings tied to rank-and-file labor and management.

The Mirror article does a great job articulating the hurdles faced by the administration in obtaining these concessions and suggests that they may not get it all.

Overall the Malloy budget is a good one but it is not the final budget. We will likely see tweaks especially to deal with an inability to obtain the entire $2 billion in concessions from the unions. Connecticut already runs a fairly lean governmental operation and there is little room to make major structural changes without impacting a safety net or causing local property taxes to rise.

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