John Kennedy, a president who was more conservative than most people are willing to acknowledge, is famous for having said that a rising tide lifts all the boats. He meant that in periods of economic growth increasing business activity favors everyone, rich and poor alike. The same tide that lifts yachts lifts dinghies. The same inrushing tide that makes gold plated investors squeal with delight also fills the coffers of state and national treasuries, portions of which are distributed to the needy.
Governor-elect Dan Malloy, waiting anxiously to step into Governor Jodi Rell’s shoes, has been insistent on the point that the tide will not rise anytime soon in Connecticut, one of the last of the smaller boats to be lifted as recessions recede on the crest of rising waters. During the last recession in the early 90s, it took Connecticut a full ten years to recover jobs lost in the state during the recession. That was more than a decade ago, and since that time, times have changed considerably.
The former insurance capital of the world took a hit because insurance companies, now roughly battered by a recession as well as a command economy engineered in Washington DC, took a hit. Connecticut’s treasury relies on wealth producers in the finance industry. When financial houses took a hit during the current recession, the tide that filled Connecticut’s treasury when the good times rolled receded, resulting in a massive budget gap.
In the good old days, Republican governors and a Democratic majority in the legislature recklessly increased spending, more than doubling the budget within the administrations of three governors. Betting that the good times would last forever, Democratic legislative leaders and the outgoing governor fiddled while Connecticut burned. They are fiddling still – waiting and hoping a high tide might rescue them from the necessity of telling the interests they so generously represent that they must do more with less.
Unspecified structural changes in Connecticut’s operations and finances should have been implemented long ago, Mr. Malloy told the House Democratic majority in a recent speech.
"They should've been done earlier. They should have been done by the governor. They should have been done by the legislature. Now I have to do them." Democrats, he noted, have pinned their hopes on a recovery. But reality dictates a different course. “We've got to turn the corner on that, and our aspirations are undoubtedly going to be delayed."
Recognizing that the state budget has for years over promised, Republicans who acknowledge that some tax increases may be necessary this time around will favor permanent spending cuts and temporary self lapsing tax increases. Democrats, as usual, will favor temporary spending cuts and permanent tax increases, preferably levied on those they imagine “can afford to pay.”
The coming political struggle will turn on these pivots, Republicans very likely will favor a broad based income tax less subject to downturns in the economy, while Democrats will favor, as usual, a more volatile progressive tax on so called “millionaires” who earn more than $250,000 per year.
It remains an open question whether Mr. Malloy will be able to navigate successfully in these roiling waters. Speaker of the House Chris Donovan listened patiently to Mr. Malloy’s remarks, but it is well known that he and his House caucus have not in the past bowed their necks to inevitable structural changes involving significant long term union sacrifices.
Mr. Malloy will present his first budget to the Democratic dominated General Assembly in February. Acknowledging there will be disagreements between the new governor and his caucus, Mr. Dovovan, who appears to have some reservations concerning a possible bailout from Washington under a regime no longer dominated by a national Democratic veto-proof majority, has expressed his willingness to “dialogue” with Mr. Malloy, a baby step in what may be a more promising direction.
During his tete a tete with Donovan’s caucus, Mr. Malloy sought fairly to distribute blame for the misapprehension that Connecticut’s economy will be self repairing without sacrifices made by responsible legislators. All but a handful of people within the Democratic caucus, Malloy told a reporter, fell into the mistaken notion that good times were a’ coming round the bend. The members of the Democratic caucus he addressed were not bad people; they were “overly optimistic.”
After February, when Mr. Malloy presents his budget to the Democratic dominated legislature, what V. I. Lenin used to call the “correlation of forces” will be much clearer.