Who Will Rescue Our State Economy?



photography by Bob Capazzo

Barron’s magazine, the business and financial weekly published by Dow Jones, may not be on everyone’s regular reading list, but a recent cover story should have caught the eye of newspaper editors throughout Connecticut. It received too little attention. Entitled “Best & Worst Run States,” it listed Connecticut as the very worst.

Citing mounting pension shortfalls and high state debt across the country, the study ranked the financial strength of states on the basis of their debt and unfunded pensions as a percentage of their gross domestic product (GDP). The state with the strongest fiscal position was South Dakota, where these liabilities amount to just 1 percent of its GDP. In contrast, Connecticut’s combined liabilities are 17 percent of GDP. Of this, 7.9 percent is debt, primarily capital debt comprised of general obligation bonds backed by the full faith and credit of the state. The capital debt of $19.5 billion inherited by Governor Dan Malloy at the beginning of 2012, but accumulated by Democratic-controlled legislatures over many years, places a burden of $5,569 on every man, woman and child in the state.

Unfunded pension obligations represent 9.2 percent of GDP and threaten to burden the budget, and ultimately the taxpayer, even more. Only $10.1 billion of the $21.1 billion (or 48 percent) is funded. And this does not include long-term obligations for retiree health-care coverage. An even more dismal picture: Savings for this did not begin until 2007 and only $50 million of the $17.9 billion obligation has been funded. According to Keith Phaneuf, Connecticut Mirror’s highly respected reporter on state budgetary matters, Governor Malloy has taken steps to address these fiscal problems. He has managed to win modest concessions from the unions—known to be the toughest, most intractable municipal unions in the country. State employees contribute 3 percent of their pay to a health-care account, with the state matching these payments in 2017. Other concessions include raising the retirement age for some classes of employees and modifying cost of living pension adjustments. Phaneuf also points out that Malloy has secured legislative and union approval for an added $3 billion in pension contributions between now and fiscal 2023 for an ultimate savings of $5.8 billion.

All steps in the right direction, says Senator Scott Frantz, but with unfunded liabilities in the tens of billions of dollars, it’s light years from solving the long-term problem. In spite of Malloy’s austerity program, spending has grown by 5 percent during his current term. Senate Minority Leader John P. McKinney says that Malloy and the Democratic majority in both House and Senate relied too heavily on taxes to close the budget gap, approving more than $1.6 billion in state and local taxes, a record increase. According to the Tax Foundation, Connecticut is no longer considered a tax-advantaged state over New York or New Jersey. We now have the third highest state and local tax burden in the country, at 12 percent of per capita income.

We have reached and gone beyond the limit of solving our fiscal problems by taxation. We are no longer competitive in attracting the business and industry desperately needed to halt declining employment opportunities. In 2010 more than 4,700 jobs were lost in manufacturing, marking the nineteenth straight year of such losses. Even our vaunted hedge fund industry was not immune, as Edward Lampert announced taking his $9 billion fund to Miami.
Faced with high taxes and overregulation, Malloy is paying an exorbitant price to attract new companies and retain existing ones. His “First Five” program provides forgivable twenty-year loans and tax abatements for companies relocating here and for others to remain. It has attracted or retained nine companies so far, but according to Senator Frantz, former chairman of the Connecticut Development Authority, the high cost per job created has saddled the state with even more long-term debt.

In spite of Connecticut’s great attractions, wealthy residents continue to opt for the sunshine solution. Three years ago a study documented the extent of this steady exodus. When they go, there go their contributions to taxes, to our social services, schools and colleges, and local communities. Gone too are the estate taxes they might have paid had the high rate not driven them from the state.

The chance of states going bankrupt may be slim, but according to the Mirror’s Phaneuf, state bonds are priced as though there was no risk at all. So, the downgrading of Connect-icut’s general obligation debt last January was unusual and should be a wake-up call.

The question is: Can a Democrat-controlled House and Senate ever have the political will to break the stranglehold of the municipal unions and special interests that have helped create such an onerous tax structure—one that involves 347 different sources of revenue?

Never has there been a greater rationale for a more balanced legislature. A fiscally responsible majority, especially in the Senate, is desperately needed, but is unlikely to be found in the ranks of an historically free-spending Democratic Party. Malloy might even secretly welcome a Republican Senate majority that would help him clean up our fiscal mess.

 

Greenwich Agenda

  • Nigh Season: New Paintings By David Konigsberg

    2014.09.13
     @ Kenise Barnes Fine Art

    Dates: September 13 – October 31, 2014 Opening Reception: September 13, 6 – 8:30 PM  Public Invited   NIGH...

  • Undulate: Paintings By Julie Gross and Margaret Neill

    2014.09.13
     @ Kenise Barnes Fine Art

    GALLERY II Dates: September 13 – October 31, 2014 Opening Reception: September 13, 6 – 8:30 PM Public Invited...

  • Parties at the JCC Center

    2014.09.02
     @ Stamford JCC

    A place to celebrate birthdays and special occasions. Be a guest at your own party! The JCC offers a wonderful space for you and your guests to...

  • Greenwich Harbor Sunset Wine Cruise | Greenwich, CT

    2014.06.05
     @ Delamar Hotel Dock

    The boat "Prudence" departs from the Delamar Hotel Dock on 500 Steamboat Rd. All the wine is sponsored through VALS with food...

  • Laurel House Family Seminar Series

    2014.09.18
     @ Laurel House

    Thursday evenings, September 18, October 2, 16, 30, 6:30-8:00 pm Join us Thursday evenings for this four part Family Seminar Series as...

  • Isaia Fall Trunk Show

    2014.09.19
     @ Richards

  • The Many Faces of Multi Media

    2014.09.20
     @ Meli-Melo of Greenwich

    Dr. Julia Trebing, Director Creative Therapies in Stamford, CT exhibits her paintings at Meli-Melo Creperie & Juice Bar  during Sept...

  • SoulCycle GWCH for Make-A-Wish CT

    2014.09.20
     @ SoulCycle

    Make-A-Wish Connecticut is thrilled to be partnering with SoulCycle's Greenwich location for a charity ride on Saturday, September 20th!...

  • Wall Street Tennis Challenge

    2014.09.20
     @ Greenwich Country Club

    The goal of The Wall Street Tennis Challenge is to support the Ovarian Cancer Research Foundation’s efforts while spreading awareness...

  • Nam Cho Trunk Show

    2014.09.20
     @ Richards

  • Arts & Crafts on Bedford

    2014.09.20
     @ Bedford Street

    Shop at over 100 craft and artisan boutiques on Bedford Street, which will be closed to traffic for the weekend. Dine in our extended sidewalk...

  • Puttin’ On The Dog Festival

    2014.09.21
     @ Roger Sherman Baldwin Park

    Puttin’ On The Dog Festival Greenwich, Connecticut the place to be on September 21st for dogs and their owners...

  • Candy Fairies Book Reading

    2014.09.21
     @ Imagine Candy

    SCARSDALE, NY, Imagine Candy brings the acclaimed children's author Helen Perelman, the writer of the wickedly sweet Candy Fairies book...

  • Chizi's Tale Book Launch Party

    2014.09.21
     @ Tudor Investment Campus

    You and your family are invited to join Diane's Books of Greenwich and TUSK USA to celebrate the launch of Chizi's Tale: The True Story...

  • Chizi's Tale Book Launch Party

    2014.09.21
     @ Tudor Investment Campus

    You and your family are invited to join Diane's Books of Greenwich and TUSK USA to celebrate the launch of Chizi's Tale: The True Story...

  • SM&NC Farm Market

    2014.06.15
     @ Stamford Museum & Nature Center

    Sundays, June 15 – October 5, 10am – 2pm We're thrilled to bring back the SM&NC Farm Market — now on Sundays!...

  • "Israel and the U.S."

    2014.09.22
     @ New Canaan Library

    The public is invited to attend a World Affairs Forum Great Decisions event featuring Seth Anziska, Columbia University. Mr. Anziska will speak...

  • Holistic Health Practitioner Kevin W. Reese

    2014.09.24
     @ Meli-Melo

    Meet Holistic Health Practitioner Kevin W. Reese & Take Home a Signed Copy of His New Book! Kevin is a holistic health practitioner,...

  • Annual State of the Town Address and Luncheon | Greenwich, CT

    2014.09.25
     @ Milbrook Club

    Greenwich Chamber of Commerce Annual State of the Town Address and Luncheon will be held at Milbrook Club. Registration 11:30am; start at...


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