OP-ED | Greece, Puerto Rico … Connecticut?
The financial news from around the world is dire, and some are saying Connecticut may be in the same boat before long. That’s not likely, but we ignore the lessons of Greece and Puerto Rico at our own risk.
If you haven’t been paying attention, the two big stories are that debt-ridden Greece is teetering on the edge of being shoved out of the European Union, while the U.S. territory of Puerto Rico’s unpayable debts are causing economic ruin and population flight to the mainland. None of it is good news, and we’re likely to feel the fallout for a long time to come.
Some Republicans here in Connecticut see a parallel to our own debt troubles. Sen. Art Linares, R-Westbrook, said, “We’re doing the exact same thing [in Connecticut] that Greece and Puerto Rico did,” suggesting that if we stay on the path we’re on now, we’ll end up like them.
What happened in Greece and Puerto Rico, anyway?
It’s hard to simplify, but Greece is essentially the perfect storm of awful governance, bloated public sector salaries, terrible financial decisions, greedy bankers, IMF mismanagement, economic collapse, European indifference, and German insistence on the destructive and discredited theories of “austerity” as an economic recovery tool. Puerto Rico is somewhat similar in that they racked up a lot of debt without much of a plan to pay for it, and that hasn’t been helped by the ongoing economic disaster there. Both places are right on the edge of utter catastrophe.
Is that us? Is that our future?
Well, there are a few similarities. Our economy has been struggling for a long time — we never fully recovered from the crash of the early 1990s, and each successive economic downturn has weakened us still further. We also have a huge spending problem, and an ongoing cycle of tax hikes/service cuts followed by deficits followed by tax hikes/service cuts, etc. etc.
Our per capita, tax-supported (meaning we pay it off from property, sales, and income taxes) debt figure is not a pretty one — $5,081 for each of us in 2013. We were first among the states in tax-supported debt.
We also have large unfunded liabilities, meaning stuff we’re supposed to add money to but don’t, like pensions.
But this doesn’t mean we’re headed for the same cliff where Greece and Puerto Rico are standing. Connecticut’s debt, while bad, isn’t nearly at the terrifying levels of Greece and Puerto Rico. Puerto Rico’s taxpayer-funded debt per capita is twice ours, which amounts to a staggering 40 percent of GDP.
Also, despite the size of our debt, we still have a pretty high bond rating from ratings agencies. That means investors will buy our debt, which means we can finance things like train stations and busways. Puerto Rico’s bonds, on the other hand, have been classified as “junk,” so they can’t borrow their way out of debt.
Also, our debt often looks scarier than other states’ because we don’t have counties — the state takes on a lot of the debts like school construction that counties might elsewhere.
That doesn’t mean we’re in the clear, though. Neither Greece nor Puerto Rico got into this situation overnight, after all. Neither did Detroit or Bridgeport, two of many cities and towns that have declared bankruptcy over the past few decades. When governments spend lavishly without a real plan to pay the debt off, get hit with wave after wave of economic disasters, watch the middle classes vanish, and need to finance a crumbling infrastructure and a large number of other services, this kind of thing is all too real a possibility. And, like both Puerto Rico and Greece, Connecticut can’t declare bankruptcy.
We can do a couple of things to try to prevent this from happening here. First, we can get spending under control — we can’t just keep limping from crisis to crisis. Connecticut’s next budget must try for fiscal stability above everything else.
Secondly, we need to make sure businesses, and the middle class who rely upon their jobs, are comfortable staying here. I’m not saying we should hand out all kinds of goodies to businesses, but actually listening to them and trying to make their lives easier whenever it’s prudent to do so would be a good start.
Third, we can be more careful in which new debts we’re willing to take on. The State Bond Commission shouldn’t be a rubber stamp for the governor’s projects.
This way we can make sure we don’t find ourselves walking heedlessly into disaster.
Susan Bigelow is an award-winning columnist and the founder of CTLocalPolitics. She lives in Enfield with her wife and their cats.
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