A windfall in tax receipts from last year's buoyant stock market run has created a tantalizing mirage of fiscal stability for Connecticut. Don't be fooled.
Although the higher-than-expected tax receipts do indeed offer a brief respite, we shouldn't delude ourselves into believing our state's fiscal challenges are suddenly solved. Nor should we kid ourselves that our fiscal problems were caused by the Great Recession and ensuing slow recovery.
The Great Recession merely unmasked, once again, the pernicious triple threat to Connecticut's economic viability. We spend more than we can afford and invest too little in our infrastructure, all the while repelling the wealthy and the entrepreneurs with our onerous tax policies. They opt for elsewhere, the downward spiral intensifies and we gradually slip into the "economic cul-de-sac" that development strategist Michael Gallis warned us about more than a decade ago.
Our state is far from alone in facing these problems. Last month, the State Budget Crisis Task Force headed by two respected authorities on public finances, former Federal Reserve Chairman Paul Volcker and Richard Ravitch, former lieutenant governor of New York, issued its final report. Created in the wake of the financial crisis, the task force analyzed the overall financial health of six populous states in depth and the other 44 more generally. The task force spoke broadly and bluntly about the common problem: "The existing trajectory of state spending, taxation, and administrative practice cannot be sustained. The basic problem is not cyclical. It is structural."
Under the Malloy administration, Connecticut has taken steps to begin funding previously unfunded long-term obligations, bring greater transparency to state finances and make infrastructure investments. Let's hope that's just the beginning, because the underlying problem is indeed structural and requires a comprehensive review and redesign of key spending programs.
Most economic forecasts for Connecticut agree on one point: Large deficits resume with a vengeance in 2015 when projections indicate a state budget deficit of $1.1 billion or more as embedded spending increases outpace revenue growth. Those numbers worsen as we finally, and appropriately, step up to fund our unfunded promises.
If we fail to curtail spending, our competitive position will erode further, and the day of reckoning will be more than a speck on the horizon. Our good intentions, along with state government's natural inclination to look kindly on those who support them, must be tempered by the principle of affordability. We can't count on further stock market windfalls, federal stimulus largesse, Indian gaming or some other deus ex machina to ride to our rescue again.
Let me state the obvious once again on behalf of my family and many of Webster's customers: as a state we have been living beyond our means for at least a generation, making promises we'll be hard-pressed to honor, and putting the bill on the credit card of future generations. I'm embarrassed to think what my children will think of me years from now if I just let this happen.
The problem is so serious that Webster Bank felt it imperative to join forces with four regional chambers of commerce, The Connecticut Mirror and the Connecticut Institute for 21st Century to kick-start a public dialogue on the need for actions to put the state on a long range trajectory for sustainable tax, spending and investment policy. The first in a series of forums on the topic is Tuesday morning at the Society Room in Hartford, and I hope that people will take advantage of this opportunity to engage a panel of thought leaders.
Much has been written about the sacrifice and hard work of our parents' generation that was immortalized by Tom Brokaw in his book "The Greatest Generation." I'm continually struck by their dedication to future generations and the common good. Now, we are being called to act, to rise to the challenge and to put self-interest aside with the goal of putting our fiscal house in order. It is the time for our state's leaders to build a consensus and take action. We owe it to future generations to leave the state of our public finances on a sounder footing than we inherited it.
James C. Smith is chairman and chief executive officer of Webster Bank.