Government finance is now the greatest source of controversy in Connecticut, owing to billion-dollar deficits and an epic debt load that ensures high taxes for many years to come. In national politics, Connecticut is deep blue: Its entire congressional delegation is Democratic, and it hasn’t voted for a Republican presidential candidate in 28 years. But the GOP has recently notched strong gains in the state legislature. Though it’s far from clear which party will prevail, the fight for control of state government will depend on who can better respond to broad public recognition that Connecticut needs a new fiscal model.
Many Connecticut conservatives cite the adoption of an income tax in 1991 as the beginning of the state’s woes. Up to that point, the Land of Steady Habits had an inspired run, poaching businesses and residents from overtaxed New York. Connecticut governor Lowell Weicker, a former Republican who served as an independent, worked out a deal with lawmakers: Government would impose a spending cap in exchange for the tax hike. But the state never fully implemented the former.
After having been raised four times, the top marginal income-tax rate now stands at 6.99 percent, almost two points higher than the 5.1 percent in neighboring Massachusetts. The income tax has generated a flood of new revenues — $126 billion over 25 years, according to the Hartford-based Yankee Institute for Public Policy — but somehow state lawmakers neglected to direct adequate funds to the pension system. As a consequence, Connecticut’s state employees’ retirement system is funded at only 35.5 percent, one of lowest rates in the nation. Despite a slew of recent tax increases, state government now faces deficits of $1.5 and $1.6 billion in the next two fiscal years.
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No one seriously believes that the state can grow its way out of its fiscal troubles. In four of the last six years, the Connecticut economy has ranked among the five slowest-growing of all American states. Wounds are still raw from General Electric’s announcement in January 2016 that it would relocate its corporate headquarters from Fairfield, Conn., to Boston. State officials are anxious that Aetna, a large insurance company that’s been based in Hartford for over 150 years, might decamp as well. In 2016, the state registered a net decline in population for the third year in a row. Families and corporations are right to speculate over what Connecticut’s fiscal future means for them. Ever-escalating pension liabilities and a structural budget deficit make it seem like only a matter of time before even New York looks like a bargain compared with Connecticut.
Governor Dannel Malloy, a progressive Democrat, has stymied Republican calls for radical fiscal reforms. He recently persuaded the legislature to restructure Connecticut’s pension debt, in a deal that spells at least $14 billion in extra costs for taxpayers after 2033. In other words, Connecticut plans to atone for its legacy of pension underfunding through . . . more pension underfunding. Pension reform has been a struggle because of the strength of government unions, which represent 69 percent of the public-sector workforce. The current speaker of the house, Joe Aresimowicz, works for the American Federation of State, County and Municipal Employees, an amazing conflict of interest even by blue-state standards.
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When Malloy in early February released his budget proposal for fiscal year 2018, he technically made good on promises, which he had been making for months, of no new major tax hikes. But by cutting state aid to most towns and proposing that all localities start paying one-third of their teachers’ pension costs, which are currently a state expense, the budget will certainly lead to steep local property-tax increases if it becomes law.
Not all localities would lose out under the Malloy budget. Connecticut’s major cities stand to benefit handsomely from more school aid and other forms of financial assistance. That is the practical consequence of a redistributionary philosophy espoused by the governor: not only that wealthy households should fund safety-net programs for the low-income, but that affluent towns should send general-treasury support to their poorer urban peers. Malloy says that this is the right thing to do and that a brighter future for Connecticut requires that its cities be stronger.
The erosion of Connecticut’s suburban tax base is a more dire prospect than the continued weakness of its cities.
His urbanist vision is deeply flawed. Small-town Connecticut’s quality of life — the high-performing public schools, the classic housing stock, the opportunities for authentic local self-government — stacks up with that offered by any other American jurisdiction. Up to a point, it’s worth the price of tax bills that are higher than in most other states. At the same time, the suggestion that just one more “investment” would give Bridgeport, Waterbury, or Hartford the vibrancy of Boston or Houston is implausible. The erosion of Connecticut’s suburban tax base is a more dire prospect than the continued weakness of its cities.
What does this all mean politically? Since 2009, the Democrats’ advantage in the lower house of Connecticut’s general assembly has declined from 77 seats to seven. In this past election cycle, Republicans tied the Democrats in the state senate. Nationwide, Republicans claim 25 “trifectas” — control of a state’s governorship and both legislative houses. Within the next couple of years, Connecticut has a shot at becoming the 26th. A change in leadership will be necessary if Connecticut voters are serious about avoiding further decline.