Politics & Government
Economist says Connecticut’s revenue surge is misleading
Klepper-Smith points to low job growth, unfunded pension liabilities, people leaving the state
Donald Klepper-Smith Ned Lamont
Dannel Malloy William O’Neill John Rowland
Bob Godfrey Ryan Fazio M. Jodi Rell
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By Scott Benjamin
When was the last time that Connecticut had a state budget ledger that was in this ballpark?
Find out what's happening in Brookfieldfor free with the latest updates from Patch.
According to CT Hearst columnist Dan Haar: A projected $1.5 billion surplus for the current fiscal year and another $1 billion to make a payment on the large pension obligations.
Maybe the ledger traveled to shallow center field at Fenway Park in the mid-1980s when Gov. William O’Neill (D-East Hampton) rebuilt infrastructure following the Mianus River Bridge collapse and signed the Education Enhancement Act.
Perhaps it at least traveled to the edge of the outfield warning track at Yankee Stadium in the late 1990s when Gov. John Rowland (R-Middlebury) sent tax rebate checks and there was enough money to freeze tuition costs at the state colleges and universities.
The current ledger appears to have traveled from the Home Run Apple at Citi Field to the backstop behind home plate.
State Rep. Bob Godfrey (D-110) of Danbury, currently the deputy speaker pro tempore and a member of the lower chamber since 1989, recently told Patch.com that when the General Assembly opens its session on February 9, the grocery list will include consideration of at least a temporary reduction in the sales tax, a child tax credit, a property tax credit and more funds for the non-profit providers. He acknowledged that not all of them may be accomplished.
Wasn’t it just four years ago that the state Commission on Fiscal Stability & Economic Competitiveness reported that Connecticut’s economy – which was once considered the kingpin of New England – contracted by eight percent between 2008 and 2016 and the pensions for the state employees were alarmingly only 29 percent funded?
Didn’t former Gov. Dannel Malloy (D-Essex), who is now barley three years out of office, encounter continual fiscal short falls even though he increased taxes twice and trimmed the full-time state executive work force by 13.1 percent during his eight years in office?
Economist Donald Klepper-Smith of DataCore Partners said in his 40 years of work the present “misconceptions” about Connecticut’s economy “are unprecedented.”
“We’re living off of Uncle Sam,” he exclaimed in a phone interview with Patch.com in reference to the $2.6 billion – equal to more than 10 percent of the state’s annual budget - in federal pandemic-stimulus funds that the state will be receiving into 2024.
Last October Marc Fitch :of the Yankee Institute wrote that “according to the Office of Fiscal Analysis, Connecticut’s 2024-2025 budget cycle will again see deficits, this time totaling roughly $2 billion. That estimate does not include any programs the state establishes using ARPA funds that may continue after the federal money is gone.”
Klepper-Smith - who chaired the economic team for former Gov. M. Jodi Rell (R-Brookfield) - commented, “We’re living off of borrowed money, and at some point we have to become self-sustaining,” He said as of October the state had 104,000 fewer jobs than it had in 2008. The Bureau of Labor Statistics recently reported that Connecticut’s job recovery from the pandemic has been slower than that in neighboring New York state and Massachusetts.
Connecticut’s current unemployment rate of 5.8 percent is far higher than the 3.9 rate nationally.
Klepper-Smith noted that the U.S. Census Bureau has reported that the sate added 5,337 people between July 2020 and July 2021, but that was the first time in more than a decade that Connecticut didn’t have more people leaving than entering its borders. United Van Lines recently reported that Connecticut ranks fourth in the country in outmigration.
Klepper-Smith said, the state suffers from, “The Three T’s - taxes, traffic and temperatures. The senior citizens are going elsewhere.”
He added, “Once the stimulus money ends, there’s going to be hell to pay. The business cycle has not been repealed. At some point we will enter another recession.”
Riding a strong economy, O’Neill scored a landslide re-election in 1986 and then increased taxes in 1989. He announced in March 1990 amid a declining balance sheet that he would not seek a third full term. A year later under Gov. Lowell Weicker the state established an income tax.
In 2003, five years after Rowland first distributed rebate checks, the state was recovering from a national recession and Rowland and the General Assembly increased 27 taxes or fees.
State Sen. Ryan Fazio (R-36) of Greenwich recently told Patch.com that between pension and health care cost for state workers the state government has "about $100 billion in unfunded liabilities," over the coming generation.
However, with inflation raging at 7 percent a year, Klepper-Smith said he does support a proposal by the Republican state senators to temporarily trim the sales tax from 6.35 percent to 5.99 percent.
“Let’s provide some financial relief,” he remarked. “I think that helps the economy.”
Elected officials and economists have indicated that the state’s fiscal policies have improved over the last decade after the pension obligations were reportedly structurally under-funded for each year from 1939 through 2010.
A Wall Street Journal editorial last spring praised Gov. Ned Lamont (D-Greenwich) for standing up the General Assembly’s “Never Enough Caucus” and not increasing taxes in the two-year budget for the fiscal cycle that started last July.
Malloy fully funded the state’s pension obligations in each of his eight years in office. Lamont has continued that practice.
Godfrey said, “I do think that under Malloy, we did start to turn things around.”
Through the provisions of the 2017 bipartisan budget agreement $1.7 billion was used to pay down the pension debt during the last fiscal year. Godfrey said the General Assembly is expected to discuss making another down payment during the upcoming session.
Malloy got a less expensive hybrid pension package for new employees in the 2017, which was praised by CT Hearst political columnist Ken Dixon.
Still as of the Fall 2020, Fitch Ratings reported Connecticut’s state employee pension debt was the second highest per capita in the country.
“The pension debt is going to be a problem for years to come,” Klepper-Smith declared.
He also said the state is not doing enough to attract small businesses, noting that the Tax Foundation ranks its business climate as the 47th worst in the country.
“I don’t think Connecticut has an interest in maximizing economic growth,” commented Klepper-Smith. “I think it has an interest in preserving the status quo.”
For years, critics have said that too few members of the General Assembly have ever owned their own business. Lamont is the first governor since O’Neill, who served from 1980 to 1991, who has been a small business owner, having operated a digital television service for more than 30 years.
Land developers have said that Connecticut is in content with maintaining its revolutionary look.
The Associated Press recently reported that according to “a consultant’s report released in July by the Boston Consulting Group commissioned by the Lamont administration, found that 72% of more than 8,000 executive branch state employees eligible to retire in 2022 are seriously considering it. More employees than usual are eligible for retirement because the average age of the state’s workforce is on the rise.”
Some observers believe that Lamont will try to pare the state work force by not replacing some of the retirees.
Said Klepper-Smith, “The state government needs to become more efficient in the same way that the private sector has been doing years.”
Nationally, the Federal Reserve Board appears poised to fight inflation through higher interest rates, starting in March.
Klepper-Smith commented, “If they increase rates, I think it would hurt the housing market,” which, according to The Wall Street Journal, in 2021 experienced a 15-year national high in home sales.
Resources:
Bob Godfrey interview, Patch.com, January 22, 2022
https://www.ctinsider.com/colu...
https://www.ctpost.com/news/article/Ken-Dixon-The-case-for-Dan-Malloy-13231441.php
https://patch.com/connecticut/brookfield/fazio-supports-trimming-sales-tax-inflation-surges
https://apnews.com/article/bus...
https://yankeeinstitute.org/20...
