Politics & Government
Noted Connecticut economist says fiscal guardrails should be kept
Klepper-Smith points to data that state still suffers from a monthly outmigration of residents
By Scott Benjamin
The late Lew Rome said during his 1982 campaign as the Republican nominee for governor that there is no more important document on any chief executive’s desk than the budget.
However, state Rep. Bob Godfrey (D-110) of Danbury, who was initially elected in 1988, has said that when a governor delivers his budget it is dead on arrival. In other words, it will be revised by the legislators.
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Gov. Ned Lamont (D-Greenwich) will deliver his budget on Wednesday, February 5, for the two-year cycle that with the new fiscal year in July.
Questions abound.
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The state’s fiscal guardrails were established in 2017 and have been praised for creating greater fiscal stability. They also have received two thumbs down in some precincts because they have constricted spending on programs.
Godfrey has predicted there will be an effort to alter the guardrails in this year’s budget vote. Lamont and the General Assembly extended them in 2023 for another five years.
Mark Pazniokas of CT Mirror recently reported that Lamont said at a Connecticut Business & Industry Association forum that he is committed to maintaining the spending cap component in the fiscal guardrails. The Republican legislative leaders expressed dismay that the governor didn’t offer a bold statement on maintaining the volatility cap on January 8 during his State of the State address. Lamont’s press office said he remains committed to that component, which has provided money for the rainy-day fund and larger payments on the state employee pensions.
Donald Klepper-Smith of Datacore Consulting, who chaired former Gov. M. Jodi Rell’s (R-Brookfield) economic team, said the Tax Foundation has listed Connecticut as number two in “state and local debt per capita.”
“Now is a time for caution,” remarked Klepper-Smith. “The collective data tells me that it strongly argues for maintaining the fiscal guard rails.”
In a phone interview with Patch.com, Klepper-Smith said Connecticut Labor Department figures indicate that, “Economic growth has started to moderate dramatically. to moderate dramatically,” Connecticut is lagging behind all other New England states.”
He said that the national average for economic growth from October 2023 through October 2024 was 1.4 percent, while Connecticut had 0.5 percent economic growth.
“Connecticut continues to be an outmigration state,” commented Klepper-Smith, who now lives in South Carolina. He still has clients in Connecticut and will be the presenter at the Greater Danbury Chamber of Commerce Economic Forecast breakfast on April 25.
He said that in April 2024 there were 24,206 fewer taxpayers than four years earlier.
“The state is losing 117 people per week,” Klepper-Smith remarked.
“Since World War II, the average economic expansion has been five years. We are approaching that,” he said. “At some point a recession is inevitable.”
Paul Hughes of the Waterbury Republican has reported that Lamont has said that there will be tax cuts in his proposed budget.
In 2023, state officials approved a bipartisan reduction in income tax rates for the middle income and lower income. It was the first major cut in the income tax in 28 years.
Given the current circumstances, can the state maintain the guardrails and also reduce taxes again?
State Sen., Eric Berthel (R-32) of Watertown and Godfrey have proposed lowering the sales tax from 6.35 percent to around 5.99 percent.
Klepper-Smith said “there are risks to that proposal since the business cycle being on the downside and noting the cyclical nature of the sales tax, I would not touch it. The risk would be to lower it now, only have to raise it down the road, which would be much harder on consumers.”
There also is a new administration at the White House.
Klepper-Smith commented, “We don’t have any definitive answers” on what the Trump Administration will do. “One in every five dollars in Connecticut’s budget comes from the federal government – 17.6 percent.”
Additionally, the proposed Trump tariffs “could prove to be inflationary,” he said.
On another topic, the new contract for the state employees is being negotiated and should be approved in 2025.
Financial columnist Red Jahncke of Greenwich wrote recently that it is the state employee salaries and not the fiscal guardrails that have put a “squeeze” on spending. Jahncke stated that the state employee salaries have been increased by $1.1 billion since Lamont took office six years ago. That computes to a 33 percent boost over that span.
The leaders of the collective bargaining units for the state employees contend that the contract signed in 2017 will ultimately provide $24 billion in concessions by 2037.
State Senate Republican Leader Stephen Harding (R-30) of Brookfield and state Sen. Ryan Fazio (R-36) of Greenwich support at least a two-year wage freeze on the state employees’ salaries.
Commented Klepper-Smith, Connecticut “historically has been very generous with its [state] employees. They typically earn about 42 percent more on average than their private sector counterparts.”
On a separate subject, Hartford Courant columnist Kevin Rennie recently stated that, “Connecticut remains one of the top three most expensive states in the nation for electricity consumers.”
Klepper-Smith commented, “The costs of electricity are currently a deterrent to economic growth. If you don’t solve that problem, you’re going to have tremendous outmigration in the long run.”
“It is siphoning off dollars that could be spent elsewhere,” Klepper-Smith added. “It is undermining business confidence, it is undermining consumer
“I would strongly recommend a special session to address that,” remarked Klepper-Smith.
Harding indicated to Patch.com via e-mail that the Republicans, who petitioned for a special session last summer, are aiming to get their electric rate reduction program approved before the current regular session adjourns on Wednesday, June 7.
On another topic, Klepper-Smith predicted that Connecticut-‘s three major defense contractors – Lockheed Martin at Igor Sikorsky in Stratford; Raytheon at Francis Pratt and Amos Whitney in East Hartford; and General Dynamics at Electric Boat in Groton - would remain vibrant for many years.
“Defense will continue to be a primary engine of economic growth in Connecticut,” he remarked. “We have some of the highest value per worker in the world.”
Resources:
Phone interview with Donald Klepper-Smith, Patch.com, on Monday, January 20, 2025.
E-mail interview with Donald Klepper-Smith, Patch.com, on Tuesday, January 21, 2025.
E-mail message from Stephen Harding, Patch.com, Wednesday, January 22, 2025.
https://ctmirror.org/2024/11/1...
https://www.the-red-line.com/2025/01/15/a-double-whammy
https://patch.com/connecticut/brookfield/godfrey-predicts-democrats-will-try-do-add-education
https://ctmirror.org/2025/01/15/lamont-ct-spending-cap-budget/
