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Why Connecticut’s deficit keeps reappearing

Why Connecticut’s deficit keeps reappearing

 
By Ben Zimmer, The writer is the executive director of the Connecticut Policy Institute, a nonpartisan research institute on state policy.

Home | Connecticut Policy Institute

 

http://www.facebook.com/pages/Connecticut-Policy-Institute/181428331907876

 

Published: Wednesday, December 12, 2012, Journal Inquirer Newspaper http://www.journalinquirer.com/

 

 

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 Britain busway) 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.