Budget Deficits, Big and Small: Another Tale of Two Governors

November 7, 2016 Posted by Joe Horvath - No Comments

Good news for Gov. Paul LePage appeared on the recently-released pages of Maine’s Structural Gap Report. Since LePage took office, the state general fund’s structural deficit will shrink $1 billion by 2019, and projections show that Maine is on pace to enjoy a $55 million surplus in 2017. In the end, however, good news for LePage is good news for taxpayers. Maine, while still in need of reforms to compete with the rest of the country, can serve as a model for many New England states.

One such state that should look to Maine is Connecticut. The Constitution State has shown a considerable lack of constitution when it comes to reigning in wasteful government spending and tax increases. If Connecticut and its residents are going to turn around its sluggish economy, then it should consider the kinds of reforms proposed and enacted by Maine over the past few years.
The Cato Institute recently released the 2016 edition of its Fiscal Policy Report Card on America’s Governors. From it, one thing becomes clear: LePage has been a positive force on reforming Maine’s fiscal policy.

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Source: http://us10.campaign-archive2.com/?u=d9b82b67aeac532cfffe801d0&id=9d1b37d0e4&e=194c388458

“[Governor LePage] has held down spending growth,” per the report, “and state government employment has fallen 9 percent since he took office. LePage has been a persistent tax cutter. In 2011 he approved large income tax cuts, which reduced the top individual rate and simplified tax brackets.”

Of course, Maine has not been without political controversy, and at times the governor’s relationship with the legislature could be described as “icy” at best. From a policy perspective, though, the path to fiscal responsibility and economic competitiveness has been a success. Although more incremental than LePage would perhaps like, the results are undeniable, and the Cato Institute recognized those results by awarding LePage the highest grade of any governor in the nation.

This is where Connecticut can learn its lesson. A previous column in the Maine Wire noted following:

Connecticut broke records for tax hikes during multiple legislative sessions and continuously failed to reign in its budget or slow the growth of government. As such, Connecticut is among the worst states in the nation for pension funding ratio and per capital pension debt. The state has also become anti-business, a regulatory minefield that scares off entrepreneurs and established corporations alike.

The Cato Institute’s report agrees with the above, giving Gov. Malloy a failing grade. In fact, only five governors performed worse than Connecticut’s. Of Malloy’s performance, the report notes:

In 2015 [Governor Malloy] signed legislation increasing taxes more than $900 million annually. He increased the top individual income tax rate from 6.7 percent to 6.99 percent, and he extended a corporate income tax surcharge of 20 percent. He increased the cigarette tax by 50 cents per pack and broadened the bases of the sales tax and income tax. He also increased health provider taxes and other taxes and fees.

Despite all the tax increases, Connecticut still faced a large budget gap in 2016 because spending keeps rising and growth is sluggish. Connecticut’s economy has lagged the national economy, and the state’s fiscal future is very troubled. It has some of the highest debt and unfunded retirement liabilities of any state on a per capita basis.

While the synopsis is grim, it is important to note a few facts regarding Malloy. While serving as the mayor of Stamford, Connecticut, he was regarded as a relatively responsible fiscal moderate. Additionally, the General Assembly has consistently pressed hard for the above tax increases, which have hit working families hard and driven both businesses and individuals out of the state. Lastly, Malloy’s tone has recently changed, and he has called for regulatory reform, budget reform and echoed calls for spending restraint typically only heard from his opponents.

The question remains, of course, whether this shift in tone results in a shift in policy. Leadership is sorely needed in Connecticut, a state where unwieldy state payroll drives debt, and that debt drives tax increases. Since Connecticut Comptroller Kevin Lembo projects a $42 million budget deficit for the current fiscal year, action should happen sooner rather than later.

If Mainers were to ever question the need for fiscal responsibility, they need only look at their neighbors to the south. Connecticut pays higher taxes, has taken on more debt and is seeing more domestic outmigration than Maine. Whereas Connecticut residents wish for restraint from Hartford, LePage and the state’s legislature have been delivering it in Augusta.

Joe Horvath is a policy fellow at The Maine Heritage Policy Center. A resident of Connecticut, he serves as the assistant director of policy for the Yankee Institute for Public Policy. Previously, he worked as a research analyst for the American Legislative Exchange Council Center for State Fiscal Reform. His work has appeared in Bloomberg BNA, Tax Analysts and the Hartford Business Journal.