After months of political clashes between legislative leaders and the Governor, Connecticut’s fiscal position for the current year remains $515 million in deficit , according to the most recent update from State Comptroller Nancy Wyman. The next fiscal year, which begins July 1, is another $686 million in the red . But these titan sums are trifles compared to what is yet to come.

According to current state forecasts included in the Three Year Budget Report that accompanied the Governor’s midterm budget adjustment proposals this week, fiscal year 2012 is projected to be $2.7 billion in the hole and the following year will be $2.4 billion to the negative . The use of one-time revenue sources, tax increases, federal stimulus dollars, and a reckless amount of bonding has obfuscated this reality in the near term budgets, but with those single shots exhausted, policy makers must now confront a real picture of the state’s finances.

The problem has lent itself to solutions that fall into one of two camps: either raise additional revenue to pay for the state government Colossus or pare it back down to an affordable level.

Some legislative leaders have returned again and again to what they sometimes euphemistically term “revenue enhancement”. But even with the additions from the recently-adopted income tax increases, the state is still projected to take in $1 billion less revenue in FY10 than they did in FY07 or FY08. Closing the structural gap with tax increases would require a 20% across-the-board tax increase. With a state whose population has gotten steadily older while job growth has been basically flat for twenty years, it seems clear that relying on tax hikes to solve the problem just isn’t going to work.

This leaves the onus squarely on spending.

Every spending reduction inevitably meets with the hue and cry of its constituent group, as was seen in last year’s battle over the state’s various advocacy commissions. Though combined the six advocacy commissions represented just $4 million in an $18 billion budget, the Governor’s proposal to eliminate them prompted a flurry of tearful testimony and legislative chest-thumping. The Governor has recommended them for elimination again this year.

But those battles will pale in comparison to the fights ahead if the size of government is to be truly reduced. Putting out services to competitive bidding on a wide scale seems like a logical solution that has met with appealing results in other states. The State of Washington, for example, reformed their personnel system in 2005 by allowing state agencies to competitively contract for services previously provided by state employees, which yielded some dramatic savings. Spinning off some government functions to the private sector also has to be on the table. One study showed that privately-run prison systems, for example, have allowed some states to reduce corrections’ budgets by as much as 10%.

It will take the political tenacity of a junkyard dog to implement such significant reforms. A cursory review of the current political leadership doesn’t leave much room for optimism on that front. Their strategy to this point has been largely to ignore the problem in hopes it will go away. Deciding how to solve a $500 million deficit has been painful enough. One can’t help but shudder to think about the political bloodshed necessary to close $5 billion in deficits.

Heath W. Fahle is the Policy Director for the Yankee Institute for Public Policy.  This Op-Ed ran originally on Connecticut News Junkie on February 5, 2010.