Connecticut, home to great wealth, may be sinking into a fiscal mire
May 26, 2017
Home to Yale University with its $25-billion endowment, numerous high-flying hedge funds and top-drawer celebrities ensconced in opulent estates worth tens of millions of dollars, Connecticut possesses great wealth and boasts the highest per capita income of any American state.
But look a little closer and it’s a fiscal train wreck. The Constitution State is among the worst states when it comes to business costs, economic climate, growth prospects and regulatory burdens. Ground zero for this train wreck is the capital, Hartford.
The administration of Gov. Dannel Malloy, a Democrat who has been in office since 2011, projects a budget deficit of more than $5 billion over the next two years, thanks to generous pension benefits and the burden of servicing its big debt, plus falling tax revenue due to the exodus of large employers and residents reaching retirement age.
Its budget woes, as well as concerns that they will be repeated year after year, helped lead General Electric in 2015 to consider moving its headquarters out of the state. Last year, it did exactly that.
The state’s population is falling: Its net domestic out-migration was nearly 30,000 from 2015 to 2016. In 2016, it lost slightly more than 8,000 people, leaving its population at 3.6 million. Indeed, recent national moving company surveys underscore the trend, showing more people leaving Connecticut than moving in. In 2016, the state also saw a population decline for the third consecutive year, according to Census Bureau estimates.
One of the companies, United Van Lines, reported that of all their Connecticut customers, 60 percent were leaving compared to 40 percent who were moving there. Only three other states had higher rates of people moving out – New York, New Jersey and Illinois. One out of five of those leaving said they were retiring.
“Connecticut has $11.3 billion available assets to pay $74.9 billion worth of bills,” its report on the state said. “Connecticut would need more than $20,000 from each of its taxpayers to pay all of its bills.””
As a partial solution, Malloy and state employee union leaders agreed earlier this week on a tentative proposal calling for concessions by the worker groups of about $700 million for the next fiscal year, and slightly more than $800 million for 2018-2019.
The plan, which faces a vote by member unions, would freeze wages for the next two years, but then give raises of a base of 3.5 percent the following two years.
The concessions, which Malloy had pushed for, were controversial among union groups.
The Services Employees International Union’s Local 1199, which represents 7,000 state workers, has taken a very vocal stance against the governor’s proposed cuts and employee layoffs. The union has denounced the governor’s proposal for cuts as heartless, and says it will hurt those who already struggle and are the state’s most vulnerable, including children and the disabled.
The SEIU recently aired a television ad taking aim at the governor and legislature, and pushing them to look to the state’s high-income earners as a source for closing the budget gap.
“They’re asking a lot of middle class workers,” said Jennifer Schneider, an SEIU spokeswoman.
“You have a lot of wealthy people in the state. Democrats and Republicans have proposed concessions from state workers. It comes out to about $30,000 per person. That’s salary combined with health insurance and other benefits. It’s an astounding amount for just middle-class workers to be handling. Everyone should be part of the solution, not just the middle class.”
There are calls from various segments of the state that say Connecticut cannot afford to continue granting such generous benefits – including health care and retirement packages – to government workers.
We’ve had a significant growth in fixed costs – things like Medicaid, pensions for state employees and teachers. These expenditures continue to grow quite rapidly.
State Senate Republican leader Len Fasano says his GOP colleagues are ready to work with Democratic lawmakers to address the crisis, but that before there can a remedy, there needs to be an admission by Democrats about the role that their flawed policies played in Connecticut’s financial mess.
“We have to tackle our [retirement] liability,” Fasano said, adding that their benefits and contributions “should be in line with the private sector or local unions.”
Health insurance for many state-level public employees, Fasano said, have no deductible. Further, pensions, which are based on earnings, generally take into account overtime income earned during an employee’s final years. Finally, unused sick and vacation days, which can accumulate for years, are often paid out when a government worker retires.
“State workers who are going to retire rack up a lot of overtime to rack up their pension,” Fasano said. “I don’t blame the state workers for using these benefits, but we have to change it.”
Malloy has threatened to lay off thousands of public workers if he can’t secure concessions from the unions.
It’s not just the expense side of the state ledger that needs surgery; tax revenue presents just as big a problem.
Malloy administration officials say the volatility of the financial markets making budgetary planning difficult, and the decision of some Connecticut-based companies to move out has cut revenue.
Chris McClure, public information officer for the state’s Office of Policy and Management, said the causes of Connecticut’s budget crisis are “multifaceted, not a single event caused it.”
“We’ve had a significant growth in fixed costs – things like Medicaid, pensions for state employees and teachers. These expenditures continue to grow quite rapidly,” McClure said.
Already the state’s richest residents pay a huge portion of state revenue: The top 1 percent of the wealthiest residents, McClure said, already account for about 30 percent of state tax revenue.
“But it doesn’t translate into a fixed revenue for the state because their income is generated from investments. It’s volatile, based on the investments,” he said.
There have been some tax proposals that don’t target the rich, but it’s hard to imagine those making a dent in the problem. Some state legislators suggest legalizing marijuana as a new tax source, as well as new tolls and a new casino. Other legislators and economic analysts say one remedy is to start taxing services, such as dog grooming.
“An overly heavy reliance on wealthy people to provide for a large portion of individual income tax revenues is dangerous,” Morgan Scarboro, a policy analyst for the Tax Foundation, a nonprofit in Washington, D.C., said. “If the state was to levy a lower rate tax on a broader base, the revenue volatility partly stemming from high-income taxpayers wouldn’t be as severe.”
State administrators are convinced that cutbacks are inevitable. “We’re trying to figure out what has worked, and what hasn’t,” McClure said. “We want to put the state on the best track, having a predictable year-after-year outcome. We’re trying to keep the budget at about $20 billion, even if that means cutting… Some programs, [such as the] jobs training program, are fantastic, but to pay for that over Medicaid” is not feasible.
Read the article HERE.
Yale News, Rebecca Karabus, September 8, 2016, “CT leads in refugee resettlement”
HELLLOOOOOO! The tapping sounds you hear are conservatives tapping on Democrat-run glass houses. How many ways do conservatives and especially the middle class breadwinner’s have to say enough is enough? How much more can be drained out of the wealthy or businesses before they LEAVE? Obviously Connecticut has reached their limit.
So New York, California, and a few other states might want to start rethinking their brash and irresponsible programs. Tightening the belt and fasting a bit take on a whole new meaning if there are fewer to do the tightening. Just sayin’.
Recently I sort of argued on a site with a liberal…I say sort of because I refuse to get dragged into their “snowflake” ignorant rants…but the guy would NOT accept that I knew what I was talking about on Democrat run cities, towns, and states……..ummm yahooooooo…I wasn’t lying but then no one is dumber than a dumbarse that refuses to learn and research for themselves and yet is determined they still know best.
You can bet your last bippy though that nary a liberal fake news network will tell the truth on this issue especially if it requires them to actually research and investigate rather than write a fake script.