Gov. Lowell S. Weicker and rating officials yesterday warned that Connecticut could slide back into fiscal trouble if the state constitution is amended to cap spending.
The amendment, which appears as Question Tow on the Nov. 3 state ballot, would rule that state spending cannot increase more than "the greater of either the national increase in the consumer price index or the five-year average increase of personal income for Connecticut residents before taxes."
The cap would not apply to debt service, emergency relief to municipalities, or court-ordered and federally mandated programs.
The amendment was placed on the ballot after being approved by both houses of the state legislature. But the legislative support has not swayed Weicker.
"The governor has been opposed to mandated caps his whole career," said spokeswoman Avice A. Meehan. "When he was a U.S. senator he strongly opposed the Gramm-Rudman-Hollings Act." The legislation mandated a balanced federal budget.
Meehan explained that Weicker's opposition to the Connecticut amendment is twofold.
"First, he feels that there is no substitute for legislative courage," she said. "The people elect politicians to represent them, and a cap is just a way to avoid making tough decisions. Governing is more than relying on mathematical equations.
"Secondly, the governor feels the cap is illusory," she continued. "The three exempted areas account for $1.5 billion in expenditures in the current fiscal year."
The total state budget for the 1993 fiscal year, which ends next June 30, calls for expenditures of $8.08 billion.
"The cap refutes the belief that unexpected increases will occur," Meehan said.
She also said the governor "found it interesting" that a survey by the National Association of State Budget Officers found that states with a cap increased expenditures by 6.55% and those without the cap increased expenditures by 6.57%.
"I agree that the cap really doesn't have that much impact one way or the other, immediately," said Claire G. Cohen, executive vice president at Fitch Investors Service Inc. "But eventually, gimmickry in the creation of debt can get a state in trouble."
Cohen pointed to California's Proposition 13 as an example of legislation that had a negative long-term effect on the state's position.
"Connecticut has done well and deserves a lot of credit for making hard choices to solve their problems. It would be kind of sad to see them return to past practices," Cohen said, adding, "I'm inclined to agree with the governor on this one."
George Leung, vice president and managing director at Moody's Investors Service, said the legislation's wording has a "great deal to do with how effectively it works."
"The legislature, if given too much latitude, could easily redefine what an emergency situation is," he said. "That is the danger of the legislation.
"There appear to be enough provisions and exclusions in this amendment to increase concerns about the use of gimmickry," Leung said. "I think it could create problems for the state."
Richard Marino, a director at Standard & Poor's Corp., said, "A cap can have a positive effect in that it forces states to operate under strict guidelines. But it's really a wait-and-see situation for us as far as ratings go."
Marino said the ratings agency would be concerned if a large amount of operating expenditures were financed through the issuance of debt, particularly general obligation bonds.
"The state will still have to issue GOs," he said. "It all depends on how the legislature handles the limits."
Standard & Poor's rates Connecticut general obligation debt AA-minus. Moody's rates them Aa, and Fitch has affixed a AA-plus rating.
One group concerned about the negative short-term effects of the cap is the Connecticut Education Association, the union representing teachers in the state.
"The state has been increasing support to its schools," said Robert Eagan, president of the association. "Right now, the state provides 39% of funding and localities provide 61%. We feel the cap would end the increased support."
Eagan said the governor has promised to increase funding so the ration is 50-50. "But that will be next to impossible with the implementation of the spending cap," he added.
