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Legislatively Speaking
There are no easy answers

By Gordon Gibson, State Legislative Director

  JANUARY 2009 --

The General Assembly held a one day special session in November where everyone could agree on two issues: First, the State has major financial problems because of the economy and second, nobody has a solution to the first problem.  The State gets most of its current funds from the income tax and the sales tax.  When people’s incomes go down, so does the income tax they pay.  When people’s incomes go down they also tend to spend less, which means the State collects less sales tax.  Meanwhile, just like the rest of us, the State has to pay its bills.  Like many households, the State is looking for places where it can reduce spending, but there are only so many places where spending can be cut.  Thirty years ago the State tried to postpone some spending by making the highway trucks last longer.  The result was trucks that could not be depended upon to plow the roads.  
Today, as more and more people find their income reduced or they lose their jobs in a layoff, they turn to the State for help.  The unemployment and welfare offices are seeing more and more people applying for benefits and assistance.  Certainly they cannot cut back their services.
The State borrows money for large projects by issuing bonds, just like a person takes out a mortgage to buy a house or finances a new car with a car loan at their bank.  Issuing bonds to borrow money makes sense when the money will be used for something that will last many years, but, just like the average person, borrowing money to pay normal expenses just leads to more problems in the future.  When the State decides to issue bonds, they must be sold to investors to produce the money needed now.  The State must pay whatever interest rates the investors demand in the market.  If the State refuses the investors’ offers, the bonds are not sold and the State does not get the money it needs.  Again, just like the average person, the interest rate the investors demand depends on the State’s credit rating.  The lower the credit rating, the more risk the investors are taking and the more interest they demand for their increased risk.  When the State’s income goes down, so does its credit rating.
Working people are advised to have six months pay in the bank in case of an emergency.  Connecticut, like most states, has an emergency reserve fund known as the “Rainy Day Fund.”  Some people are saying the current economy is an emergency and the State should dip into its Rainy Day fund to solve the problems. But a state without reserves is like a person living from paycheck to paycheck.  A state without a good reserve fund will find its credit rating lowered and will have to pay even more interest every time it borrows money.  Unfortunately, Connecticut already has one of the worst credit ratings among state governments.  We do not need to make it any worse by spending our “rainy day” fund to cover normal operating expenses.
The 2009 regular session of the General Assembly will convene on January 7.  This will be a “long” session when any senator or representative can file any bill they want.  Certainly there will be many bills filed concerning the State’s financial situation.
By law, the General Assembly must pass a balanced budget to cover the two year period from July 1, 2009 to June 30, 2011.  Many public hearings and private meetings will be held in an attempt to put together a balanced budget that everyone can live with.  Two years ago the legislators looked to the lobbyists to help develop the budget that is now in place.  Most likely the legislators will again look to the lobbyists for help, as we are all in this together.
I try to end my columns with a positive, upbeat outlook.  I’d like to say that everyone will work together and we will wind up with a great solution to all the economic problems.  But this time I have to agree with the legislators at the November special session.  We have a big economic problem, and I have no idea what to do about it.  If any of you have a solution, your senator and your representative would love to hear from you.


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