The CT spending cap as written: An

unmitigated disaster
Fred Carstensen
Professor of Finance and Economics
Director, Connecticut Center for Economic Analysis

The purpose of the spending cap should be to limit taxation on Connecticut taxpayers.
But as written, it actually cost the state jobs, undermined tax revenue, and surely raised
taxes on Connecticut taxpayers.

OMG. How did that happen?

The legislative spending cap, now suspended, included almost everything, including the
kitchen sink and most federal reimbursements. Thus the focus, necessarily, was on
limiting all spending that fell under the cap, regardless of the source of the dollars. That
meant that there was no reason to seek out federal dollars to which Connecticut was
entitled or for which it might be competitive.

Worse, it meant that federal dollars, which were typically restricted in their use, were to
be avoided; those dollars eliminated the discretionary power of the governor and
legislature. Better to spend Connecticut taxpayer money as they wished rather than secure
those federal dollars whose use was prescribed.

This antagonism to federal dollars then fed back into an overt hostility to creating and
maintaining good data.. (Socio-economic data is of little value if you cannot use it.) So
for five years Connecticut was the only state in the nation without a liaison with the U.S.
Census Bureau (who cares about your demographic dynamics if you can not use that
knowledge to determine for which federal dollars you qualify?) When resurrected, the
Office of Policy and Management refused to make any significant investment in building
a strong center because the data would be of little use.

Even today, Connecticut has among the worst administrative data of any state, and its
liaison office with the U.S. Census is perhaps the poorest funded of any in the nation.

Adding to this perverse framework for state budgeting, the absence of quality
data systematically undermined the ability of municipalities to secure the federal funding
to which they might be entitled or for which they might compete. So the legislative
spending cap not only undermined the aggregate state budget, but also sharply limited the
ability of municipalities to secure federal support directly.
The final insult of the legislative spending cap was that, by including federal funds under
the cap and thus creating a strong incentive to avoid them, Connecticut lost out on
thousands of additional jobs, higher household incomes, and improved state revenues
those federal dollars would have generated.

The federal contribution to Connecticuts budget is among the lowest of any state; the
foregone federal dollars are now probably well north of $1 billion annually (No one
knows exactly, because there is no effort to find out for what Connecticut qualifies).
Because avoiding those federal dollars has diminished and continues to diminish the
states economy, the spending cap has lowered employment, lowered tax revenue, driven
higher taxes on Connecticut taxpayers, forced reductions in critical public services, and
meant foregoing strategic investments.

The spending cap as designed has been an unmitigated disaster, fiscally and
economically.

The Commission now evaluating the spending cap should revise it so that it benefits,
not punishes, Connecticut taxpayers.