As we finish our Halloween candy and start preparing for Thanksgiving, each of the fifty states has now passed its required budget.  As forty-nine of the fifty states require a balanced budget, which means the politicians can’t always resort to gimmicks and kick the can down the road like they do in Washington, D.C., the process of budgeting in state capitals takes considerable time and careful deliberation.  This year, for Connecticut and Pennsylvania, passage occurred way behind schedule. 

In Connecticut, the state legislature’s compromise budget was hammered out without the involvement of Governor Dannel Malloy (D), who chose to sign most of it anyway, while using his line-item veto to remove a hospital tax.  The budget was supposed to be approved by July 1, and then by October 1, but legislating takes a while.  Like most budget compromises, it includes a bit of everything.  One positive part is that there is no increase in the state income tax or sales tax.  After years of hiking taxes again and again, Connecticut’s political class appears to realize that these increases have been punishing taxpayers and driving businesses out of the state.  A second positive part of the budget is that it includes a real spending cap.  Voters approved one in 1992, but thanks to political tricks it was never implemented with any strength.  That now will change, and pension costs for public sector employees will be included in the cap.  Down the road, this change could be key to getting legislators to address the state’s massive unfunded pension liabilities.  The budget also makes substantial cuts to wasteful energy conservation programs and does not include a proposed tax on cell phone bills.

One negative aspect of Connecticut’s budget compromise is a new tax on ride-sharing services like Uber.  Another is an increase in the cigarette tax, a declining and volatile source of revenue.  Also, the state is bailing out its capital city, Hartford, to the tune of $40 million.  The leadership of the city of Hartford has mismanaged its finances so grossly that it ran to the state to avoid defaulting and going bankrupt.  Unfortunately, legislators rewarded the city for its self-destructive behavior.

Moving south, Pennsylvania also wrapped up a contentious budget process.  As in Connecticut, the good news is that there were no across-the-board increases in income taxes or sales taxes and a very bad proposal for an additional 5 percent hotel tax was not included.  (Philadelphia’s combined state and local hotel tax would have been the highest in the country had it been adopted.)  Rather than raising taxes, the legislature and Governor Tom Wolf (D) decided to expand gambling and borrow against the expected revenue that the state will receive from the 1998 tobacco master settlement, through which states receive payments from tobacco companies to help cover the costs of smoking-related illnesses.  It is never ideal for government to divert resources away from their stated purpose, but that is what Pennsylvania has done here.  While it is easy to scrape together funds here and there to cover a shortfall one year, the tricks will run out eventually, unless Pennsylvania’s legislators address their fundamental problem, overspending. 

The 2018 state legislative sessions will soon begin, and legislators will once again face the challenges and opportunities of budgeting.