CT News Junkie | OP-ED | State’s ‘Permanent Fiscal Crisis’ Unsustainable

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OP-ED | State’s ‘Permanent Fiscal Crisis’ Unsustainable

by | Jun 5, 2015 5:30am
() Comments | Commenting has expired
Posted to: Analysis, Business, The Economy, Jobs, Opinion, State Budget, Taxes

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In a late-spring ritual that has become all too familiar, lawmakers in Hartford scramble under deadline to craft a presentable budget to satisfy constituencies that want the state to spend more money, while not imposing sticker shock on those who have to pay for it.

This time taxpayers lost out, thanks to a midnight deal struck last Sunday between General Assembly Democrats and Gov. Dannel P. Malloy that calls for a variety of new taxes — about $2 billion worth — to fund a budget of more than $40 billion over the next two years.

With some revisions and after exhaustive debate, the package was passed narrowly, without Republican input, on Wednesday by both houses near the close of the session.

Among the revenue-raising schemes embraced by lawmakers was an increase in income taxes on the wealthy, sharp increases for businesses, hospitals, and cigarette smokers, the doubling and then tripling of a tax on computer and data processing, and allowing the lottery commission to offer Keno, a highly addictive form of electronic gambling.

Lawmakers countered that the deal also included property tax relief and that harsher forms of taxation were considered but rejected. Funny how lawmakers were quick to point out how much worse things could have been. Is it supposed to make us feel better that they could have taxed everything in sight, but instead decided to tax only that which was within reach? It’s sort of like your mother saying she could have given you castor oil but opted instead for force-feeding you a box of gnarled prunes.

The deal struck over the weekend came on heels of the publication Saturday of a scathing editorial in the Wall Street Journal comparing Connecticut’s fiscal misfortune to that of Illinois.

The editorial enumerated the Nutmeg State’s many woes: one of only six states to lose population in fiscal year 2014; a poll during that time indicating more than half the state’s residents would leave if they could; an anemic economic growth rate of less than one percent in 2013; and a tie with wretched Rhode Island for the worst job creation record since 2008. Finally, the Journal’s conservative editorial board also excoriated Malloy for breaking his promise not to raise taxes again during his re-election campaign last year.

NBC subsequently sent a crew to Hartford to interview legislative leaders. Morning Joe host Joe Scarborough, who lives in New Canaan, blasted state Democrats for the tax increases, and wondered aloud how any state, rather than offering tax incentives, would actually enact a tax on corporations on their out-of-state earnings, as the so-called “unitary reporting” tax would do.

Unitary reporting is a complicated part of the tax legislation, likely too complicated for a soundbyte, but as I understand it that is not how the legislation would work. It’s more of a disclosure requirement. Companies would have to disclose finances from other states so that Connecticut can verify how much of their income is truly from Connecticut for taxation purposes.

Regardless of how Scarborough described it, unitary reporting is typically going to mean a heavier tax burden for those companies and thus will make Connecticut a less friendly home for corporate HQs. As such, the business community hates this part of the legislation.

But Republicans in the Nutmeg State gleefully seized on the WSJ editorial as yet more evidence that Connecticut is an economic basket case, which it basically is. Anytime you’re living in a place that matches up with Illinois or Rhode Island — two of the most mismanaged states in recent history — you know it’s time to re-evaluate whether you want to continue to live there. Maybe that’s why a recent Gallup poll found that 49 percent of Connecticut residents would leave the state if they could. Only one state had a higher percentage than us: you guessed it — Illinois at 50.

The tax increases caught the business community by such surprise that three of the state’s largest private employers took the extraordinary step of putting out statements decrying the increases and hinting they might pull up stakes and move.

Like so many other governments on the national, state, and local levels, Connecticut has yet to address the fiscal conundrum that vexes it. Wages in the private sector — which funds the government — are largely stagnant. Moreover, so is economic growth in Connecticut. In 2013, the last year for which such data are available, the state’s economy grew by an anemic 0.9 percent.

Meanwhile, the cost of running the government continues its inexorable march upward. It doesn’t take an economist like Fred Carstensen to see that our system is completely unsustainable or, as Malloy budget chief Ben Barnes put it, in “a state of permananent fiscal crisis.”

Did the Malloy administration ask state employees to consider reopening their contracts, as it did during our last crisis four years ago when the unions made minor concessions? Why do I ask that? Because, as both Willie Sutton and the quotable Barnes have said, “That’s where the money is.” As far as I can tell, the subject was never even broached this year — at least not publicly.

Until we address the systemic problems that bedevil our state, we will have to continue to enact record or near-record tax increases every few years. Then when economic activity slows as a result, we will have to raise them even higher, even as wages remain stuck and companies look elsewhere for hospitality.

At that point, my friends, the economic death spiral accelerates.

Contributing op-ed columnist Terry Cowgill lives in Lakeville, blogs at ctdevilsadvocate.com and is news editor of The Berkshire Record in Great Barrington, Mass. Follow him on Twitter @terrycowgill.

DISCLAIMER: The views, opinions, positions, or strategies expressed by the author are theirs alone, and do not necessarily reflect the views, opinions, or positions of CTNewsJunkie.com.

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(16) Archived Comments

posted by: Biff Winnetka | June 5, 2015  12:11pm

Great Op-Ed Terry.

posted by: whatsprogressiveaboutprogressives? | June 5, 2015  4:12pm

Even common laymen like myself who have never taken a class in finance or basic checkbook balancing, know that this budget and the one crafted 4 years ago ,stink to high heaven. Anyone who pushed and/or voted for this budget is clearly anti business and working
person. Where I once thought people were anti-business and capitalism, I now know that they are .
Like we’ve seen in other states and cities, this form of fiscal irresponsibility will catch up to those in the government sector in the form of job cuts and .10 on the $1 for your “settled” pension bankruptcy award from a judge. But in order for it to get to that level in the public sector, the private sector, who funds this Jurassic monster, will have all but disappeared. And similarly the public sector, like the dinosaurs will disappear.
Obviously exaggerated a bit, but I think you get the parallel.

posted by: justsayin | June 5, 2015  6:21pm

Anyone remember the gov promise for GAAP? I guess he lied then to.

posted by: DrHunterSThompson | June 6, 2015  11:35am

think about it, we have:
1) a governor that lies - the most despicable of traits.
2) a senate president who has completely lost touch with the modern economy and who’s better days are clearly far behind him.
3) a house speaker that is weak, ineffective, and lacks any vision.
4) a house minority leader that is simply lost .......... wow, lost ..........
5) a senate minority leader that is really our only hope, but is ignored by everyone.
we are so screwed.

HST

posted by: art vandelay | June 7, 2015  5:03am

art vandelay

@ABC,
The solution you suggest is virtually impossible for a number of reasons.

1. The majority of Committee Chairmen especially from important committees like Finance, Appropriations, Education & Bonding either run unopposed in their districts or with very weak opposition.  They are guaranteed these seats every two years.

2. Same holds true for leadership positions in the House & Senate.

3.  If these seats are vacated like Toni Harp’s was, the Democrats will always fill them with a leftist progressive Marxist/Socialist like Beth Bye on Appropriations.

4.  A Democrat Party candidate will always get the backing of the only viable 3rd Party the Working Families. 

5.  The Republican Party Central Committee is weak with members who have no clue as to how to win an election in an urban city like Hartford, Bridgeport or New Haven.  The Republican Party is nonexistent.

6.  If by some miracle the Republicans did win a majority in the House and Senate, they would have a very difficult time establishing a strong conservative platform.  Like the Republicans who finally took control of the House in 96, they were more concerned with keeping control than proposing legislation.  The end result was that they lost it in 08.  The same would hold true in this state.

As you can see ABC, it’s not that simple.  You can’t just “Vote the Bums Out”.

posted by: Biff Winnetka | June 7, 2015  9:34am

There are plenty of Republican majorities in the legislatures of red states.  Why there and not here?

Because the Looney Dems running/ruining CT are only the SYMPTOM of Connecticut’s problems.

The CAUSE of Connecticut’s problems is the majority of people who live here.  What they WANT the Dems gladly deliver.

Only when the people of CT abandon their radically progressive views and return to their Connecticut Yankee roots will conditions in CT begin to improve.

That day is coming.  But it will be the day AFTER Connecticut crashes.

And this budget was a major leap closer to Connecticut Crash Day.

posted by: Biff Winnetka | June 7, 2015  9:56am

Connecticut will not be a highly functioning state in the lifetime of any current middle aged CT resident.  It will remain at the bottom of all the good polls and at the top of all the bad polls.

For those of us with finite lifespans who wish to enjoy the fruits of our labors unhindered by the Looneys and Malloys of the world there is only one option.

MOVE.

Go Red.  South of the Mason Dixon or West of the Mississippi.  The Northeast is toast.

posted by: shinningstars122 | June 7, 2015  11:23am

shinningstars122

Terry why do you continually over simplify the state budget crisis in the wore out narrative of only the state workers and teachers?

Plus we have heard enough about that poll…it is time to move forward and your perpetual ” get off my lawn” stance is growing tiresome.

Yes the pension obligation, which are only 10% of this budget, that have been ignored for 2 decades are an serious issue but how about writing about the current size of the state work force and compare it to years past?

Or the benefit package for new workers?

These numbers have been shrinking and it would be beneficial to document that for your readers.

If you look at the budget the biggest expense is in social services and many of these are now privatized and this is where the taxpayer is getting railroaded.

This is a big issue which you, and other columnists, continually choose to ignore.

Plus mandating budget savings goals that can be implement by the state work force and their managers in the next fiscal year should be a top priority.

In the private sector we call this the shared fate mentality.

It is in the state workforce best’s interests to be the best they can be and be part of the solution and more importantly excel at their work more than the private sector would.

Consider if if every one tried to save 10 to 15% per department that would be significant but you also have to deal with the flip side of the private sector always overcharging government for their services.

That is a major area of government spending that is unsustainable Terry but try tell that to a state contractor.

posted by: gerardw | June 8, 2015  5:56am

“gnarled prunes.” Sums it up very well.

posted by: Terry Cowgill | June 8, 2015  1:19pm

Terry Cowgill

@shinningstars122:

First of all, I said nothing about teachers, so I don’t know where you got that one.

Secondly, op-eds by their very nature contain somewhat simplified arguments. It’s almost impossible to explore any topic in-depth (or to your apparent satisfaction) in 800 or so words.

Thirdly, I asked the question about reopening state labor contracts for the same reason Willie Sutton robs banks or Ben Barnes wants to tax hospitals: That’s where the money is.

posted by: SocialButterfly | June 8, 2015  3:30pm

@shinningstars122: You appear confused in your many narratives and appear to be confusing readers as well. Please get to the hidden point in your never ending short stories.

posted by: M_Dietrich | June 8, 2015  3:37pm

M_Dietrich

The money is in social services. And if it’s impossible for the Governor or legislature to make real changes to our social programs because of the extreme public outcry, the price should not be borne by a specific group of people who are, by and large, middle class, working taxpayers. Could changes be made to how state employees are compensated? Absolutely. For instance, I firmly believe (and I gather most people commenting here would agree) that no state employee should make more than $150,000 or get a six-figure pension. But opening up union contracts will not likely see changes to the top tier of state employee earners, but will instead drastically harm people earning modest salaries who live, like some commenters would have the world believe all other private sector employees in CT live, paycheck to paycheck.

posted by: shinningstars122 | June 8, 2015  9:01pm

shinningstars122

@Terry when you bring up state workers benefit packages this inevitably includes pensions.

Remember the state and municipalities funds teacher’s pensions as well so that is part of the equation too.

@Abc the average state pension is around $30,000 without including benefits.

@Terry if you looked into what I suggested you might be surprised as there is serious money on the table when it comes to outsourcing of state services to private contractors.

Pensions is just the easy one and not the only silver bullet to control long term spending.

posted by: Terry Cowgill | June 9, 2015  8:32am

Terry Cowgill

@shinningstars122:
Yet again, you are putting words into my mouth. I’ve written nothing here about pensions.

posted by: Bluecoat | June 9, 2015  11:31am

So what is the plan by either party to reign in and redesign benefits packages?
Have we reached the point of no return?
Seems like Herb Stein’s law of economics, which is, “If Something cannot go on forever, it will stop”, is in full play here in CT, with no plan to reverse course until we are all bankrupt.
The size and scope of the bureaucracy of CT must be slowed, shrunken, and made less intrusive, and everyone knows it, but no party here has the courage to do anything about it.
Addin 135 more State employees to the payroll is an insult. Creating a Transit Development Authority Commission for political appointees in also unwarranted and idiotic.

posted by: shinningstars122 | June 9, 2015  8:55pm

shinningstars122

@ABC the ctsunlight had that data up on their site and the average for 2013 was $32,962 or $634 before taxes… a criminal amount for a senior person to live on but that’s what Willie Sutton want to attack I mean rob.

You can scroll through the pension section and find individual pension payouts as well.

As Chico Escuela once said “UConn has been berry berry good to me”