An Introduction to the Connecticut State Budget for 2004-2005

The Connecticut Conference of Municipalities (CCM) is interested in the state's budgetary health, so that the conference can estimate how much money the state will transfer to local towns and municipalities. To determine the fiscal health of any state, the first place to examine is expenditures on prescription drugs for the state's Medicaid program. Rising prescription drug costs are the single most important explanatory factor for the increases in health care costs, health insurance premiums across the country, and state budget deficits. Connecticut is no exception.

Prescription Drug Formulary. With little or no public fanfare, Connecticut took an important step in gaining control over escalating drug costs when the state legislature passed a preferred drug formulary. The formulary requires pharmaceutical companies to provide the state with "supplemental rebates" above and beyond those already mandated by federal law for prescription drugs provided under the Medicaid law. The pharmaceutical industry is suing to stop the U.S. Department of Health and Human Services from approving these kinds of rebate plans; the pharmaceutical industry contends the states are violating federal law by establishing drug formularies based upon the cost of drugs, not the efficacy of the medications. But the whole point of a preferred drug formulary is to contain costs, so naturally the price of drugs---on and off the formulary---should be relevant.

Connecticut had to take some step to contain its cost of providing state-supported prescription drugs. A presentation at a 2001 meeting of the International Society for Pharmaceutical Economics and Outcomes Research, available on the Internet at http://www.ispor.org/ meetings/va0503/presentations_pdf/poster/PHP17.pdf, showed the national average cost for the top five maintenance drugs prescribed through Medicaid was $1200/person. However, the cost in Connecticut for these same top five Medicaid-supplied drugs was $2,732/person. Clearly, Connecticut needed a range of different financial controls to bring its prescription drug costs in line with the national average. The two main forms of price controls adopted in Connecticut were the drug formulary and the prior authorization plan.

The preferred drug formulary and the prior authorization plan apply to Connecticut's Medicaid, General Assistance, and ConnPace programs. The state legislature exempted a certain class of drugs, i.e., atypical anti-psychotic drugs, from the preferred formulary. In Connecticut, a pharmacist shall not dispense any initial maintenance drug prescription for which there is a generic substitute without obtaining prior authorization from the state's Social Services department. These two price control measures have enabled Connecticut to exercise modest control over state spending on prescription drugs. That is good news for Connecticut taxpayers and the CCM.

Burgeoning Health Care Needs. But Connecticut still faces challenges on the health care front. The National Alliance for Mental Illness reports Connecticut has (1) 6000 people who are homeless and mentally ill, (2) almost 2600 people with serious mental illnesses in nursing homes, (3) over 12% of the CT prison population with serious mental illnesses and over 70% with addictive disorders, and (4) emergency rooms overflowing with children and adults in crisis with no place to go. "Yet, the [Governor's budget] has proposed eliminating all medical help for poor, single adults, slashing medical insurance for working poor families, cutting community health centers, and several more pages of reckless cuts and fees imposed on people who survive at less than 50% of the federal poverty level," according to the Connecticut chapter of the National Alliance. Traditionally, neither the county nor the municipal governments have been required to pay for medical services for the poor and those without insurance. However, county and municipal facilities will feel the impact, directly and indirectly, of state budgetary cuts in health care services.

Governing.com. Outside of health care expenditures, Connecticut is facing the same budget deficit environment as the other forty-nine states. The downturn in the economy has meant less tax revenues were collected from all sources. At this point, Connecticut needs to focus on reshaping its tax and spending habits in a way that induces future economic activity, rather than focus on even more ways to tax the citizens of Connecticut. In this regard, Connecticut has received very poor advice from Governing Magazine and its associated web site, governing.com.

In a special report entitled "Grading State Tax Systems," governing.com offers a prescription of forcing income taxes on states that don't have them and raising these taxes for states that do. The report is not an objective piece of public finance analysis. It is propaganda for a pro-tax, bigger government services, bigger government spending agenda. The report ranks every state without a state income tax as ipso facto unfair and regressive in its tax structure. The absence of debilitating state income taxes in no way establishes the unfairness of a state's revenue tax stream, as evidenced by the fact that polls show both rich and poor, Democrat and Republican, young and old, favor the status quo over the introduction of a state income tax. The ipso facto conclusions of governing.com are nothing more than unsubstantiated ipse dixit.

The governing.com report emphasizes that elected officials should never give the taxpayers an opportunity to vote on tax increases or new forms of taxation. Instead of government of the people, and by the people, and for the people, the governing.com report adopts the position that government should come at the people and try to sock them with as many taxes as necessary to achieve a desirable level of local and state public services. Never, never give the citizens a chance to vote on tax increases, governing.com advises its readers, because citizens will routinely and consistently vote to keep taxes down. The premise of the governing.com report is un-American, un-democratic, and unsupportable.

Connecticut's income tax. Consider the report's unabashed endorsement of Connecticut's state income tax: "What's more, there's a widespread belief on the part of many voters that any change is going to hurt them. A little more than a decade ago, that was precisely the situation in Connecticut, which did not have an income tax but did have high taxes on all sales, corporate profits, utilities and estates. There were recommendations to acquire an income tax, but governors Ella Grasso and William A. O'Neill both took 'the pledge' to make sure that such a thing would never sully the liberty-loving citizens of the Nutmeg State. Residents who would have clearly benefited from the new tax dreaded it, believing those who predicted that once it was installed, it would just be raised and raised again until it didn't pay to get out of bed and go to work in Connecticut."

"As existing taxes skyrocketed, Governor Lowell Weicker pushed for the new tax. He was burned in effigy, but he and a courageous group of legislators worked to bring the new income stream into existence in 1991. And, despite all the dire predictions, the income tax seems to have given Connecticut a balanced tax system for the first time. 'In 1990, we had a sign on the door, don't invest here, don't form a corporation here and don't retire here,' says Connecticut state Senator William Nickerson, the ranking member of the Finance, Revenue, and Bonding Committee. 'Tax reform took away significant disincentives.'"

Today, the budget crises in Florida, Tennessee, and Texas are in fact far less perilous than most of the states that have state income taxes. In fact, governing.com would have egg on its face to learn that Tennessee begins its second year of budget hearings under Democratic Governor Phil Bredesen with a $150 million surplus, not a deficit, from last fiscal year.

Similarly, governing.com goes on to state, "Today, Florida, Tennessee and Texas are all facing serious financial problems. They don't have an income tax. And leaders in these states have taken 'the pledge' to make sure they don't get one." The governing.com piece offers these types of assertions without any proof. Today, the budget crises in Florida, Tennessee, and Texas are in fact far less perilous than most of the states that have state income taxes. In fact, governing.com would have egg on its face to learn that Tennessee begins its second year of budget hearings under Democratic Governor Phil Bredesen with a $150 million surplus, not a deficit, from last fiscal year. True to his frugal management style, Bredesen has pledged that all of the surplus funds will be used to replenish the state's reserve funds, which were largely depleted in budget wrangling in prior years.

The remainder of this article can be found at http://riskmgmt.biz/lawnews/ctbudget.htm

Dr. Michael A. S. Guth, Ph.D., J.D., is a consulting economist, legal brief writer, and law newspaper Editor-in-Chief. He writes a variety of articles on constitutional law, elder care, consumer credit card debt, appellate court term reviews, and law and society. See http://riskmgmt.biz/ for an introduction to his legal work, and http://riskmgmt.biz/lawarticles.htm for a listing of many of his articles. Dr. Guth writes legal articles and briefs for other law firms, and he assists pro se parties (those without a lawyer) in preparing documents they can file in court such as motions pertaining to child custody, visitation interference, and child support defense.

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