Tuesday, November 5, 2013

Bonding, The Budget And Corporate Welfare

When Mark Twain said ““Never put off till tomorrow what may be done day after tomorrow just as well," he might easily have been talking about bonding.

Usually a state sells bonds to pay for long term capital projects. But like any political practice, the selling of bonds may be subject to abuse. The use of bonding to pay off current expenses that ought to be discharged through tax increases or spending decreases is considered a “no, no” among agencies that rate state bonding. The practice, however, is a “yes, yes” among politicians who want to avoid either the unpleasant option of raising taxes or the equally unpleasant option of cutting spending. The beauty of bonding for such politicians is that it allows them to escape the wrath of voters who understandably resent tax increases imposed to pay for current budget expenses and improvident spending. The downside to bonding abuse is that current expenses are carried into the future, a benefit for cowardly politicians charged to the future generation on a “buy now pay later” plan.

Bonding puts off until the day after tomorrow payment for obligations that ought to be met today by those responsible for incurring debts.

Bonding for current expenses was one of Mr. Malloy’s bêtes noire when he was running for the governor’s office, and a change from a modified cash basis system to a Generally Accepted Accounting Principles (GAAP) system was the candidate’s answer to budgetary skulduggery that had led to unmanageable budget deficits.

Pointing to the delinquencies of his two Republican predecessors, Mr. Malloy was compelled, he said, to institute the largest tax increase in Connecticut history, second only to the tax increase that followed Governor Lowell Weicker’s income tax. Requiring revenues under GAAP to be counted in the year they are received necessarily created a budget differential of some $1.2 billion. Initially, Mr. Malloy had planned to bridge the gap through budgetary savings. The recovery that Panglossian Democrats in the General Assembly hoped might flood the state’s treasury with sufficient funds to pay down the differential never materialized, and Mr. Malloy now has decided to pay down the $1.2 billion gap through bonding. The funds generated through bonding will be dedicated to this purpose unless, according to one news account, “there’s an emergency,” in which case the money may be used for some other purpose following a three-fifths vote in the Democratic dominated General Assembly. It is not unheard of for governors in Connecticut to declare budget emergencies. 

During the fag end of the last legislative session, the Democratic dominated General Assembly ordered Connecticut State Treasurer Denise Nappier to borrow $750 million to facilitate the conversion to GAAP.  The decision to borrow rather than saving the money to pay down the differential will cost the state more than $200 million in interest over the life of the bonds.

The Malloy bonds naturally “improved” the state’s cash flow and, for the first time in many moons – prior to the elections too -- state Comptroller Kevin Lembo was able to predict a small budget surplus.  Cash flow is improved whenever taxes are increased or bonding is used to generate funds that are not made available in a depressed economy.

No political skullduggery here – just business as usual in a state addicted to chronic spending.

On the Republican side of the political barricades, Mr. Malloy’s decision to pay for the  differential by bonding rather than by the means he had first settled upon – save money in the state’s piggy bank and use it to convert to GAAP – produced  a forceful objection from Republican Party gubernatorial hopeful  John McKinney.

“Appropriating real dollars to reduce the state’s GAAP deficit,” Mr. McKinney said, “would have been an honest and direct way of dealing with the problem, and I would have supported those efforts. But that’s not what the governor is doing. Instead, he is borrowing in order to kick that commitment down the road another two years.”

For Democrats, GAAP has become the equivalent of a budget chastity belt. However, it is never an adjustable belt that assures chastity. A chastened big spender would understand that budget deficits are caused by the disposition to spend. And there is little or no acknowledgement among members of Connecticut’s spending class that spending must be curtailed or that excessive regulation – which always drives up business costs – must be pared back. Everywhere, big spenders await the “rising tide that will lift all the boats,” an expression employed by President John Kennedy in his well-known speech to the Economic Club of New York in 1962, in the course of which Mr. Kennedy said:

 “The final and best means of strengthening demands among consumers and business is to reduce the burden on private income and the deterrents to private initiative which are imposed by our present tax system – and this administration pledged itself last summer to an across-the-board, top-to-bottom cut in personal and corporate income taxes to be enacted and become effective in 1963.”

Mr. Malloy has instead used what little money he found in Connecticut’s debt ridden budget to advance a destructive crony capitalist program, which involves giving rare tax dollars to companies he bribes for the pleasure of doing business in the state, including profitable mega-companies or smaller companies that use abused taxpayers to finance their moves from one town to another.


Lifting all the boats is not a progressive specialty, and it is doubtful that John Kennedy could be elected dog catcher circa 2014 anywhere in progressive, crony capitalist Connecticut.

No comments:

Post a Comment