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Report Details CT’s Fiscal Challenges

by | Apr 19, 2013 9:30am
() Comments | Commenting has expired
Posted to: Business, The Economy, Jobs, Labor, Taxes

Courtesy of Connecticut Center for Economic Analysis (Click to enlarge) An accountant and an economist tossed cold water on Connecticut’s financial outlook this week when they released a report detailing the “deep fiscal hole” policymakers have dug the state into over the past few decades.

The report by Fred Carstensen, an economist and director of the Connecticut Center for Economic Analysis, and former U.S. Comptroller David Walker who heads the Comeback America Initiative, found that Connecticut has “some of the highest — if not the highest — total liabilities and unfunded obligations per taxpayer of any state in the nation.”

According to the report if you add up the unfunded pension liabilities, retiree health care, and bonded debt, the cost per taxpayer in Connecticut is $37,693. The only other state that comes close to that is New Jersey where the per-taxpayer liability is $36,480. According to Truth in Accounting Connecticut’s per-taxpayer burden increased to $50,900 in 2011. That’s the when all the debt and assets are combined on a per capita basis. Click here to find out how they did their calculation.

“Beginning in the 1990s, state employee retirement programs were expanded considerably,” the report released this week found. “For several years now, elected officials have not made the necessary contributions to fund the promised benefits.”

That changed last year when Gov. Dannel P. Malloy implemented a plan he hopes will get the funds to achieve 80 percent funding in 2025 and 100 percent in 2032. In order to get there he’s increasing the actuarially required contribution by about $125 million.

But Carstensen and Walker pointed out that Malloy’s plan may not be enough.

“These steps were much too modest and came at the price of a four-year, no-layoff commitment to state employees,” the report says. “In addition, the state’s major labor contract, covering benefits, is not scheduled to reopen until 2022. This appears unrealistic because Connecticut’s current fiscal path is unsustainable.”

Unfunded pension debt isn’t the only thing making Connecticut less competitive as a state. There’s also the tax burden.

Carstensen and Walker pointed out that while Connecticut is perceived as being a high-tax state, that’s not entirely fair or accurate.

At the state level, Connecticut ranks 18th in the nation in state taxes collected as a percent of personal income. If local government taxes are factored in, Connecticut’s tax burden ranks 13th in the nation, below that of New York, New Jersey, and Rhode Island.

The report found that the state has relied too heavily on certain industries over the past two decades, which may have caused higher unemployment rates than the national average.

“For the past several decades Connecticut’s economy has been heavily reliant on the financial, insurance, and real estate industry (FIRE), with approximately 32 percent of its economy in the industry, compared to 21 percent of the nation as a whole,” according to the report. “Thus, Connecticut was disproportionately impacted by the financial crisis. But even before 2007, the industry did not experience employment growth, due in part to accelerating productivity resulting from increased use of information technology.”

Also the lack of meaningful participation in the information technology revolution by the manufacturing industry hurt the state’s competitiveness.

“These two issues, overreliance on financial services and a decline in key industries, contribute to a relatively weak small business sector, with very few young and innovative firms, which are the primary engines of job creation,” the report concludes.

Carstensen and Walker said they wrote the report not to “criticize current or past policymakers’ decisions, or to dwell on negative aspects of the state’s challenges. Rather, the purpose is to present information to facilitate a productive discussion about how to create a better future in Connecticut.”

To that end, the two offered a series of recommendations.

The first is that Connecticut must put its finances in order, especially with regard to restructuring pension and healthcare plans to make them fair, affordable and sustainable. The second is that the state must take steps to attract businesses in the sectors that can grow Connecticut’s economy in the future — such as digital technology, biomedical innovation, and pharmaceuticals. The third is the need to create a culture of transparency, accountability, and transformation at all levels of government in order to address economic inefficiencies and disparities that arise, in part, from the fact that Connecticut is one of only two states without county government.

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Comments

(12) Archived Comments

posted by: HandyManny | April 19, 2013  9:48am

I would think ranking 13th highest state in tax burden would qualify as being a high-tax state…not sure why that isn’t a fair and accurate statement

posted by: rankandfile | April 19, 2013  10:27am

What is the basis for their statemment “Beginning in the 1990s, state employee retirement programs were expanded considerably,”? In 1984 Tier 2 was created, in 1997 Tier 2a, in 2011 Tier 3. Each of those reduced retirement benefits, none expanded them. Maybe the payouts for pensions increased as people began to retire, but those numbers will actually go down in the future as retirees from the reduced benefit plans begin to retire.

posted by: Noteworthy | April 19, 2013  1:07pm

Does anybody in the legislature read these reports besides taxpayers? No wonder they just passed the spending plan they did.

posted by: BrianO | April 19, 2013  3:53pm

This is a very deep and far reaching problem, not addressed by complaining about one isolated cause. 

This requires a broad overarching policy approach that takes no prisoners and plays no favorites.  Fundamental and imbedded revenue shortfall and increasing social service needs.

posted by: Michael | April 20, 2013  3:01am

rankandfile tells the truth. Into the 1990’s, other states were still making their public employee pensions more generous. Connecticut began the process of reversing that with Tier II, effective July 2, 1984. More tightening up with Tier IIA, effective July 1, 1997, which is also the date that all state employees had to begin paying some health insurance premiums. In 2009, began the 3% deduction to the Retirement Health Insurance Trust Fund that affected new hires and the newer employees. In 2011 started the Tier III pension plan. And, starting this July, all employees will have to contribute to the Retirement Health Insurance Trust Fund, reaching 3% in 2015, and is suppose to last for 10 years per employee, but I predict that it will become a forever deduction. Also beginning this July, to keep the retirement age where it currently is, another deduction, up to .72 percent. One of the ways to build up your pension is to puff up your timesheet. More concessions coming in early 2015. In the meantime, the best way for Malloy to take a whack at state employee costs is to lay off management, but Malloy, the General Assembly and public seem to like the 6-figure management more than the 5-figure unionize employees.

posted by: DirtyJobsGUy | April 20, 2013  11:28am

The state employees commenting here may be right but it doesn’t matter.  The state is heavily in debt no matter what the cause.  As a 30 year resident (but non New England native) I painfully chuckle when I hear our state officials talk about how our “Quality of Life” will keep businesses here.  NE people don’t travel much outside of the region and miss the fact that there are lots of nice places to live (with equal or better schools liberal trolls!) that have much lower cost of living and taxes.  We are living off of past glories here and need to Cowboy up as they say out west.

posted by: Commuter | April 20, 2013  12:19pm

The basis of their statement might be the ridiculous terms of the 20 year deal that Rowland made with the unions. Rowland sold the taxpayers and the GOP out in truly historic fashion.

BTW, Tier 2 and 2a preserved the absurdly expensive Tier 1 package, which was also never funded and is an enormous piece of the unfunded pension liabilities we have to pay today, without the benefit of compounded investment growth we should have gotten over thirty years. Now we have to pay much closer to $1 taxpayer dollar for every $1 dollar of benefits going out. An enormous cost.

Hopefully revenues will pick up and we can pay down more of these unfunded liabilities and get market growth working for us.

posted by: Commuter | April 20, 2013  8:06pm

The basis of their statement might be the ridiculous terms of the 20 year deal that Rowland made with the unions. Rowland sold the taxpayers and the GOP out in truly historic fashion.

BTW, Tier 2 and 2a preserved the absurdly expensive Tier 1 package, which was also never funded and is an enormous piece of the unfunded retirement liabilities we have to pay today, without the benefit of compounded investment growth we should have gotten over thirty years (not to mention employee participation). Now we have to pay much closer to $1 taxpayer dollar for every $1 dollar of benefits going out. An enormous cost.

Hopefully revenues will pick up and we can pay down more of these unfunded liabilities and get market growth working for us.

But there is not one Republican - including Foley - with the guts to tell the truth. Foley says he won’t touch state employees benefits. All he says you have to do is “flat fund” everything. No wonder he’s rich.

posted by: BrianO | April 22, 2013  8:25am

The details of how we got here are substantially less important than acknowledging that we are at a point where we have an expense and revenue structure that are fundamentally misaligned.  Too much expense with nowhere near enough revenue that can be reasonably forecast.

Prior administrations rejected an expense structure directly tied to revenue forecasts.  Policy decisions were made year after year with no regard to whether we could pay for the direct expense and what the long term consequence of our decisions would be.

For example, our decision to abandon meaningful economic development efforts for our poor and middle class at the same time we have built the regions most developed prison and criminal justice system has deeply impacted social service needs in our cities.  Why do we spend more on prisons than higher education when crime is at a 45 year low?  No good policy reason.  It’s all politics.  What do we have now?  A corrections system that was deemed to be understated by 34% when audited by an independent third party and rapidly expanding poverty and the highest educational achievement gap in the nation.

Politically, we are a state of disconnected special interests that is not unified.  We need a crisis to unify us…and we have one.  We just won’t admit it yet.  We are still playing the blame game.

posted by: Commuter | April 23, 2013  6:36am

Of course it matters how we got here, BrianO. Most of your comment addresses how we got here.

posted by: SocialButterfly | April 23, 2013  3:35pm

Commuter:  Stop sandbagging the Republicans in every blog on your frequent flyer miles as a commuter. Aren’t you getting tired of writing the same hate tripe?  Start telling a true story about about the womderful job that Gov. Malloy and his controlling Democratic General Assembly is doing—in leading this state to fiscal oblivion.  You won’t challenge the woeful Democratic leadership because you voted for this motley crew.

posted by: Commuter | April 24, 2013  5:28am

“hate tripe”? There’s nothing hateful in what I wrote at all. Are you really going to keep stalking me in the comments of newsjunkie? That’s kind of sad.

If you want to defend Tom Foley, Larry Cafero, or John McKinney, go ahead. None of them is a true conservative. All of them are just posers looking for a way to get elected governor. None of them offers specifics on what spending they would cut. In fact, Foley just went on TV and said we don’t have to cut anything, just flat fund it all. Hell, even Harp and Walker are more fiscally conservative than that. I don’t hate these people and there’s nothing hateful in what I’m writing, just facts and fact-based opinion.

And I think a lot of what BrianO is saying above is right and contributes to the discussion.