Economists Conclude that More Borrowing Will Improve Economy, Create Jobs
Researchers at the Connecticut Center for Economic Analysis found that if the state released half of its $6 billion in unissued bonds, its economy — the only one in the country to shrink in 2012 — would improve.
In a report that will be released this morning researchers found that if the state Bond Commission approved $3.1 billion in borrowing, then it would bring state employment back to its 2010 levels. The numbers would be even higher if some of the borrowing was able to generate federal matching funds for various construction projects and other strategic investments.
“The impact is dramatic: it would increase aggregate employment from 16,000 to 28,000, and double or triple the rate of growth in output,” the report found.
Researchers suggested that to get to a point where the state can look at borrowing the money already authorized by the General Assembly, it should score the projects based on their impact both in the short and long terms.
“Buying school buses or building new schools has little or no long-term benefit; improving highways, where Connecticut is tied for the worst nationally with Illinois, and mass transit, which remains a serious barrier to competitiveness, have long-term impacts,” the report says. “Connecticut ought to score every approved bonded project for its short-term benefit (e.g. building a new school) and its long-term impact on competitiveness.”
Researchers suggested that no project should be projected to generate less than 60 percent in long-term competitive benefits and no less than 25 percent in short-term economic benefits.
Some the the investments researchers praised in the report include Jackson Laboratory, the genomic research lab being built on the University of Connecticut Health Center campus with $291 million in state funding, and the more than $800 million Bioscience Initiative on the same Farmington campus, which includes new research facilities and a private ambulatory care center.
It also praised Democratic Gov. Dannel P. Malloy’s administration for releasing some of these bond funds and at the same time criticized it for not releasing more.
“On many fronts, the Malloy administration, in sharp contrast to its predecessors, has been vigorously pursuing initiatives to change the state’s pernicious economic climate,” researchers said. “The most dramatic achievement has been luring Jackson Labs to the Farmington University of Connecticut medical school campus, greatly reducing the riskiness of the Bioscience Connecticut initiative, making its success the closest it is possible to get to a sure thing.”
When the Malloy administration entered office in January 2011, “there were more than $3 billion in approved but unissued bonds; the total now exceeds $6 billion,” the report says. “On the face of it, that possibly translates into thousands of foregone jobs.”
Fred Carstensen, director of the center, has said in the past that it is investments like the ones at the health center that will pay off for the state. The investment is expected to attract other private bioscience companies to the area and act as an engine for economic development in the region.
The center’s report, which is released every three months, also acknowledged that Connecticut has a long way to go in this ongoing recovery. Depending upon which economic indicators are used, Connecticut’s employment situation could improve under a model using the bank rate or the state could lose jobs under economic modeling using housing permits.
A conventional analysis “finds indications that the listless economic recovery in Connecticut is slowly strengthening, with performance potentially matching or even overtaking national growth rates.”
However, the state still faces several challenges. It’s an aging state and the only state whose economy shrank in 2012. Adding to those issues are the unfunded pension obligations of state employees, teachers, and retirees, and increased public pressure on public services.
“Connecticut’s ability to sustain growth in employment and output and create additional economic capacity to meet the state’s obligations (including paying interest and retiring bonds) will depend crucially on the sanguine use of funds on investments that sustain existing growth initiatives and create new opportunities, generating efficiencies, raising productivity, and generating amenity benefits to attract new employers and employees (particularly younger workers) to the state,” the report concluded. “. . .However, for the state to raise its economic trajectory and meet multiple challenges it faces in providing public services and honoring commitments that have been already made but are, as yet unfunded, Connecticut must take steps to promote real, sustainable growth.The sooner the better.”