Gov. Dannel Malloy
and his team have placed blame for the state’s $415 million deficit on a
hodgepodge of scapegoats — from the policies of his predecessors to gridlock in
Washington to
European bond markets.
Notably absent from this list is the most obvious and important explanation of
all: misguided fiscal policies coming out of Hartford.
The first driver of the current deficit is that tax revenue has fallen short of
expectations. Malloy and his team have blamed this on global and national
macroeconomic forces, and this might be sufficient to
explain why growth across the United
States has lagged. But it doesn’t explain
why Connecticut’s recovery has been far slower
than that of the U.S.
as a whole.
Since Malloy’s election, Connecticut has
gained 10,000 jobs, 9 percent of the roughly 115,000 jobs Connecticut lost when the economy turned
down in 2008. During the same period, the U.S. has gained 3.4 million jobs,
about 38 percent of the 9 million jobs lost during the recession.
This lag is a consequence of our state’s approach to economic policy. We spend
$800 million per year on business tax credits, most of which offer terrible
return on investment — for instance, $1 million per job to bring Jackson Labs to the
state. All the while, our leaders in Hartford
have raised taxes on middle-class taxpayers, making it more expensive for
businesses to hire and costlier to live in the state.
The state’s direct spending has been equally unproductive. Our leaders continue
borrowing billions of dollars for politically motivated, high-profile
construction projects that create good photo-ops (like the Hartford-New Britainbusway) while neglecting unglamorous but low-cost
investments that could yield real returns.
A soon-to-be released Connecticut Policy Institute paper on vocational
education points out that since 2009 Connecticut
has invested more than $1 billion in new technical high school facilities and
plans to spend an additional $500 million. Meanwhile, positions pertaining to
data-gathering, analysis, and planning that would cost a fraction of this sum
are unfilled. This makes it impossible for the state to ensure that it is
actually getting value out of its large facilities investments.
With policies like these, it is no wonder that Connecticut spends $2.3 billion per year
servicing its debt and yet has seen almost no revenue-generating job growth.
Unfortunately, lagging revenue and inefficient borrowing are
only the tip of the fiscal iceberg Connecticut
is rapidly approaching. What lies below the surface is even scarier — the
state’s $60 billion of unfunded pension liabilities. As these obligations
become due in the future, paying them will cost the state billions more per
year.
Connecticut
can reduce these liabilities by freezing cost-of-living adjustments, increasing
employee contributions, and modifying the pension benefits formula for as-yet
unvested pensions — solutions that have been adopted in other states under both
Democratic and Republican leadership.
Yet in the most recent collective bargaining agreement with the state employees
union (SEBAC), the governor promised not to reopen negotiations for the
duration of his term while getting almost nothing in return. As a result, his
deficit-mitigation plan has focused on cuts to social services for Connecticut’s neediest
residents.
Malloy likes to say his predecessors dug Connecticut
into a ditch and he is trying to drive us out. The first part of his analogy is
correct. But the second part is dead wrong. The governor is not driving us out
of anything — he is driving us into an even deeper ditch.
The upcoming legislative session provides a good opportunity to get serious
about reducing pension obligations and more sound fiscal management of the
state. The recommendations contained in papers published by the Connecticut
Policy Institute and other sensible state research organizations provide clear
roadmaps for how to begin doing so.
If this doesn’t happen, we can expect Connecticut’s
deficit to remain an ever downward spiraling game of whack-a-mole — popping up
anew no matter how much we wish it were gone.
The writer is the executive director of the Connecticut Policy Institute, a
nonpartisan research institute on state policy.