Tuesday, November 03, 2015

Connecticut’s Future Ain’t What It Used To Be

As leading politicians in Connecticut – including Republicans, so far frozen out of budget negotiations by Governor Dannel Malloy -- gather together to decide collectively how to shore up sagging state revenues, a recent report issued by state comptroller Kevin Lembo contains a fly in the ointment.

Mr. Lembo is predicting a $118 million budget deficit. No surprise there; deficits have been a recurring feature in budgets sent by Mr. Malloy to the Democratic controlled General Assembly. Rather than call a special session to fix the problem, Mr. Malloy has relied on his rescission authority to patch the repetitive holes.  Mr. Malloy’s last budget cuts came a bit too close to the bone and disturbed Democratic leaders in the General Assembly, who in the past had winked at Mr. Malloy’s two massive tax increases, the largest and the second largest in state history.

Mr. Malloy’s first and largest tax increase was imposed on a promise that in the future he would not resort to tax increases to balance the state budget, a pledge followed by yet another massive tax increase. Fool me once, as the saying goes, shame on you; fool me twice, shame on me. Mr. Malloy apparently wants to avoid fooling yet a third time “some of the people all of the time,” as Honest Abe Lincoln once put it.  As further deficits began to appear like stubborn weeds in Mr. Malloy’s carefully manicured lawn, he deployed his rescission authority to balance budgets -- temporarily. Democrats in the General Assembly favor rescissions because it spares campaign conscious members of that august body the necessity of solving Connecticut’s problems permanently; final solutions,  especially those involving spending cuts, are always painful and politically inconvenient.

Mr. Lembo’s latest report shows the income tax bringing in less revenue to state coffers – not because jobs are less plentiful, but rather because high paying jobs in the state are being replaced by lower paying jobs.

"Part of the slow wage growth,” Mr. Lembo said, "can be attributed to the distribution of job gains by the employment sector during this recovery. The financial services sector pays wages more than 50 percent above the statewide average for all sectors. However, the financial services sector remains 14,900 jobs or 10.2 percent below its pre-recession level… At the same time, the leisure and hospitality sector that pays wages 46 percent below the statewide average for all sectors has added 19,000 jobs or 13.7 percent. Until the overall growth in the state employment numbers results in higher wage growth, which is consistent with an expanding economy, the withholding portion of the income tax will continue to present significant budget challenges."

So then, the income tax is bringing in less revenue because salaries have deteriorated, and because gas is cheaper, thanks to fracking, and because the recession in Connecticut has been extended, thanks to repeated tax increases and burdensome regulations, always costly for businesses, and because the lack of political stability in budget making puts a strain on business planning – and because the Democrat dominated General Assembly is unwilling to meet the problem of diminishing revenues through always painful and politically inconvenient long-term spending cuts.

The Progressive one party state claps only with one hand: Permanent tax increases good; permanent spending decreases bad. And the result of this suicidal idiocy may be seen in Mr. Lembo’s numbers. Because of their own budgetary uncertainties, made more uncertain by uncertain and undependable state budgets, businesses in Connecticut are cautiously delaying expansion -- or moving out of state altogether, taking with them the high paying jobs Connecticut needs to balance its budget books.

Mr. Lembo knows this; Ben Barnes, the Willie Sutton of budget maestros, knows this; the leaders in the General Assembly, both Democrats and Republicans, know this. And they know how to settle permanently Connecticut’s ever expanding pension liability, probably underestimated at $48 billon in 2012: You raise the retirement age for all state workers by one to two years, hire fewer workers and reduce the state payroll through attrition, reduce benefits and change from a defined benefit pension system to a 401(k)-style defined contribution pension system plan for new hires.

 And they know how to advance business activity in the state: You rescind rather than adjust the new business taxes imposed by the current tax starved General Assembly. And, perhaps most importantly, you adjust your thinking and set a new course: Think – “A rising tide lifts all the boats,” a maxim observed in the budget breech not by Ronald Reagan but by President Jack Kennedy who, way back in 1963, successfully cut marginal tax rates to improve the national business climate and pump up revenues. The increased revenues, by the way, enabled succeeding President Lyndon Johnson to launch his “Great Society” programs, which became the springboard for a Democratic Party insurgency in both the South and the Rust Belt North.

Ironically, Mr. Malloy may be the only person in Connecticut who can save the state from the worst tendencies of its politicians. 
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