Malloy's bet: Pain now will pay off later

With varying degrees of faith and enthusiasm, 102 Democratic legislators this week embraced the gospel of Gov. Dannel P. Malloy, who preached long and loud that a record tax increase was good public policy. Now, they're praying it was good politics, too.

Malloy, 55, a freshman governor with an abundance of confidence and dearth of political capital, is betting he can convince a dispirited public that higher taxes and balanced books are the difficult first step to fiscal redemption and economic recovery.

"I'm not nearly as jaded as some others, and I believe that the people of Connecticut are looking for fair, honest decision-making and transparency when it comes to how their money is being spent," Malloy said.  "I think they are looking forward to having a government that owns up to its obligations and begins the process of paying those down."

In other words, he expects to eventually be forgiven, if not actually rewarded at the polls in 2014, for taking away Connecticut's credit cards and insisting its taxpayers contribute more taxes to start paying off old debts and set aside money for pension obligations and retiree health costs.

"It's a calculation. I can't guarantee you what the results are. It's a calculation," Malloy said after publicly signing the budget Wednesday. "But having said that, it's the kind of calculation that would be impossible for me not to have made."

Connecticut's current fiscal state is a testament to the belief of his predecessors that strict fiscal responsibility is bad politics, that it usually is safer to please today's voters at the expense of tomorrow's taxpayers.

In a comprehensive 2007 study of retirement costs, the Pew Center for the States found that Connecticut scrimped on its annual pension contributions in nine of the 10 years examined. From 1997 to 2005, the state contributed between 66 percent and 99 percent of what the actuaries said was necessary.

A result of that political reality: When it came to long-term obligations, Connecticut last year had one of the worst balance sheets in the nation: $15.8 billion in unfunded pension obligations for state employees and teachers, $21.7 billion for retiree health care and $18 billion in bonded debt.

If the state fired every employee last year, closed every office and terminated every aid program, the state still would have to indefinitely appropriate more than $3.3 billion annually to meet its past obligations. Malloy is pledging to pay down those obligations before they cripple the state's ability to invest in infrastructure.

Actuaries might applaud, but Democratic legislators running for re-election next year are hoping for something with broader appeal than a sound pension fund: an improving economy that leaves the Connecticut treasury awash in money, allowing them to roll back some taxes before facing the voters.

"I'm not unlike other folks. I'd love to reduce taxes in the future," Malloy said Wednesday, surrounded by legislators after signing the budget.

They should not get their hopes up. Malloy tackled the same topic differently and more definitively in the morning, speaking to newspaper publishers, editors, editorial writers and other journalists. Rolling back taxes clearly is not his first or highest priority.

"My first priority is to put the state on a sustainable basis so that we develop a plan to begin the process of funding our unfunded obligations," Malloy said. If that wasn't clear enough, he added, "Our highest priority once we get this budget done will be to restructure our approach to our unfunded obligations. That comes first."

His supporters acknowledge that a vow to slay the monster of unfunded obligations may not be the best of political talking points, especially when neighboring governors are bragging about not raising taxes, even at the price in New Jersey of deferring $3.6 billion in pension contributions.

"The immediate politics are difficult," conceded Sen. Bob Duff, D-Norwalk, a supporter of Malloy. "But I think the long-term politics are good."

Duff has not been shy about bucking his party leadership on previous tax hikes. But not only did he vote for the Malloy budget, he showed up late Wednesday afternoon for the ceremonial bill signing (though he joked about managing to stay out of the photographs).

"The better part of the last two years, we've been kicking the can down the road. It's been terribly frustrating to go through these kinds of gyrations, making cuts that we knew would affect job growth or not having really any kind of direction, not having anything to show for it," Duff said.

The budget passed 19 to 17 in the Senate. If Duff had bailed on Malloy, the governor would have had to rely on Lt. Gov. Nancy Wyman to break an 18 to 18 tie, which is how another first-year governor, Lowell P. Weicker Jr., passed his first budget 20 years ago.

Duff said he is confident in Malloy's leadership. He believes that an unpopular tax increase is the first step to fiscal stability, which will help Malloy convince businesses that Connecticut is in responsible hands, a place in which to invest.

"It wasn't an easy vote," Duff said. "It at least has a blueprint to the future."