November 12, 2018
Other Voices

It’s time for a state board of finance

R. Michael Goman

For most people, reducing government spending is a dull topic.

We readily agree that something needs to be done, but we're at a loss as to exactly what to do.

Balanced-budget amendments and the like sound good but have proven ineffective, as they are easily bypassed by those motivated to find loopholes in the law. That's because the people we elect to make the laws also control the spending.

The current state of Connecticut's finances proves that concentrating the power to spend, tax and borrow in the hands of one group of people — the state legislature — simply doesn't work very well.

In reality, our system is rife with conflicts of interest. There is a clear misalignment of goals between politicians and taxpayers, only some of whom, incidentally, even bother to vote.

We shouldn't be surprised that things have gone this way. Many politicians first look after their self-interest when they hand out more money to more groups. Our democracy incentivizes them to behave this way since that's how they get re-elected.

We must stop encouraging unsustainable spending and begin to return our state toward a better financial standing. This requires separating those who decide how to spend the money from those who have overall control of the state's finances. That means establishing a better system of financial checks and balances.

Think of this as analogous to the board of an organization versus those who run the company day to day. The board serves a critical role in the management of the organization, overseeing the condition of the company's balance sheet, holding operating people accountable for utilizing the company's resources productively, and establishing limits on spending. Perhaps most importantly, the board represents the stakeholders, ensuring that the operating people don't put the organization into jeopardy by borrowing and spending beyond what the company can sustain.

Such separation already exists in most Connecticut towns. The town council (or board of selectmen) and the town's board of finance are separate, with the finance board charged with overall control of the purse strings.

The board of finance decides how much town residents can be taxed, how much the town can borrow and how much the council, selectmen and board of education can spend. These local structures are a proven way to check local government spending — virtually all Connecticut towns run a balanced budget each year.

If we adopted this system at the state level, we would elect people to a legislative branch of government and also a state board of finance. Each would have very distinct and separate responsibilities.

The state's finance board would determine what total tax burden the economy could afford to support. It would then set overall debt and budget limits but exercise little control over the details of how the money was spent.

The legislative branch would continue to decide how to spend the budgeted money, but it would no longer control the total amount available to spend by raising taxes or authorizing borrowing at will.

Would such a finance board be elected or appointed, and for how long? I'd suggest a blend of elected and appointed members so that the board has people with the requisite skills as well as general representatives of the electorate.

Importantly, board terms should be lengthy since most financial oversight and planning efforts benefit from a long-term horizon. Think of this state board as a sort of "supreme court" of finance, overseeing and protecting the state's financial condition.

No doubt this would be an unpopular idea among many politicians since it would limit their ability to tax and spend. It would require a change to the state constitution, and political leaders who are committed to doing what's right for our state. Most of all, it would require an engaged electorate that demands this change be made to restore fiscal sanity.

Whatever the method, we need a better system of financial checks and balances — and the sooner, the better.

Connecticut's next generation is counting on us.

R. Michael Goman is a principal of Goman + York Property Advisors LLC, an East Hartford-based real estate advisor. Goman is also a member of the Simsbury Board of Education.

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