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February 8, 2016 Editorial

GE’s departure may be CT’s saving grace

General Electric's decision to move its headquarters out of Connecticut was viewed as a crisis by many, signaling the state's continued demise as a place to do business.

In reality, GE's move could be Connecticut's saving grace. Yes, losing a corporate headquarters bruises our state's ego and will cost us at least a few hundred jobs. But it may have provided the necessary tipping point pushing legislators to truly reform state government, or at least curb their insatiable spending habits that have forced two record-breaking tax increases in the last six years.

Last week, Gov. Dannel P. Malloy proposed a revised $19.87 billion budget for fiscal 2017, which included nearly $570 million in cuts to the general fund. Reductions are being proposed to sacred cows such as municipal aid and state-employee ranks. There was also minor business tax relief with the elimination of the personal property tax for companies with less than $10,000 worth of property.

Just as important, Malloy has pitched structural reforms, like the adoption of zero-based budgeting that matches spending increases to economic growth rates rather than what lawmakers hope to be able to spend (currently the budget assumes 5 percent annual growth in expenditures). He also asked lawmakers to join him in addressing Connecticut's unfunded-pension obligations, which stand to cost the state billions of dollars more annually in the future, potentially blowing a devastating hole in the budget. Malloy, state Comptroller Kevin Lembo, and state Treasurer Denise Nappier have all pitched pension-reform blueprints.

We urge all three to develop a plan that can garner labor-union and legislative support. The sooner Connecticut tames this ticking time bomb, the better.

Malloy has finally proposed a budget that begins to reflect our true economic realities. For that, we give him credit. But that doesn't mean we're fully on board with the plan.

In a major policy shift, Malloy wants to change the way state agencies are funded, providing them block grants instead of line-item funding that appropriates specific dollar amounts for personnel, operating expenses, contractual costs, etc. The change would give agency heads — all Malloy appointees — more latitude in determining how their funding is spent, a job usually left to the state legislature. We worry this gives the executive branch too much power and provides cover to lawmakers unwilling to make tough budget decisions in an election year.

Democratic legislative leaders must also incorporate structural reforms pitched by Republicans, including adopting a constitutional spending cap with teeth (which Malloy supports), requiring legislative approval for state-labor contracts, and removing pensions from collective bargaining.

Lawmakers can no longer be handcuffed by a budget oversaturated with fixed costs, the largest being personnel expenditures that account for nearly 40 percent of spending (including state employee salaries and benefits). We don't want to eliminate state employees' collective-bargaining power, but we can't let them dictate spending priorities to the detriment of all other taxpayers either.

Now the onus is on the legislature to respond to Malloy's blueprint. We expect there to be pushback, but lawmakers must pursue aggressive spending cuts and structural budget reforms. To resist them, would leave the state vulnerable to other GE-like departures.

The business community is watching.

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