Sunday, January 17, 2016

Democrats In Denial, Connecticut’s Spending Problem

If you’re passing by a house on the street and see flames licking the windows, hear the screams of people rending the air, watch them as they pour out of the house carrying with them their prized possessions, note the blasts of firetrucks approaching, it would hardly be presumptuous of you to conclude that the house is on fire.

Politicians and legislators do not as quickly reach such obvious and solid conclusions; they are extraordinary people whose sensory apparatus is… well… different. For the lean and hungry ambitious politician, whether or not the house is on fire depends upon whether it is politically prudent to reach the obvious conclusion. One must consider exigencies before pulling the alarm: For instance, “If I cry fire, will I be elected next term?”

A quarter century ago, a newly elected governor – former “Republican” Senator Lowell Weicker – decided not to liquidate a sizable deficit through spending cuts. And although two previous Democratic Governors, Bill O’Neill and Ella Grasso, had steadfastly resisted calls to impose an income tax, Mr. Weicker plunged ahead; after some arm-twisting and some political payoffs, the thing was done. Left-leaning newspapers praised Governor Weicker for showing rare courage. Even today, some Connecticut commentators continue to celebrate Mr. Weicker’s testicular fortitude. It was thought and said at the time that Connecticut did not have a spending problem; it had, instead, a revenue problem. The obvious solution, income tax, would settle that annoying difficulty and pave the way to a rosy future.

And the future is now. Headline in CTMirror: Eroding income tax receipts undo much of recent state budget repair. Headline in Forbes Magazine, August 1, 2013: “How Did Rich Connecticut Morph Into One Of America's Worst Performing Economies? by Jim Powell.

Mr. Powell’s data rich account showed: that Connecticut ranked 50th, the worst in the nation, in economic growth; that the number of small businesses in Connecticut had declined 2.2 percent before the national recession; that a massive tax hike, the largest in state history, levied during the Malloy administration provided only a temporary dispensation from budget deficits; that Connecticut’s  debt per capita — $27,540 – was the fourth largest in the nation; that according to Barons, Connecticut finances were the worst of all the states; that the American Legislative Council had ranked Connecticut 46th in economic performance and 43rd in economic outlook.

These red flags, and many more, were flapping under the noses of Mr. Malloy and his confederates in the Democrat dominated General Assembly even before Mr. Powell’s review appeared in Forbes. But Democrats in the state were determined to whistle past all the tombstones in Connecticut’s cemetery, which now includes General Electric (GE). 

In a luminous column in New York’s The Sun, Red Jahncke, President and CEO of The Townsend Group, pointedly notes that there are two questions Connecticut must confront: 1) Why did GE leave Connecticut? and 2) Why did GE decide to move its headquarters to Boston, Massachusetts? The answers to both questions are not at all the same.

“GE,” Mr. Jahncke wrote, “didn’t act just out of pique. It looked deeper and further than June’s tax hike. Connecticut is facing huge budget deficits of $355 million in 2017, $1.7 billion in 2018 and $1.9 billion in 2019, according to the state’s non-partisan Office of Fiscal Analysis. A cumulative deficit of almost $4 billion in an annual budget of about $20 billion is an abyss. Future tax increases are inevitable.” It happens that Connecticut can do something to address this problem.

But short of importing MIT from Massachusetts to Connecticut, not likely, or changing the economic structure of the state from a financial powerhouse to a technological and manufacturing hub to meet GE’s ever changing needs, addressing the second question does not leave the state in a superior or competitive business posture.

High taxes, an under-financed pension system, a migration out of the state of highly paid worker and an in-migration of lower paid workers, repetitive out of balance budgets and ineffective rescissions, the crowding out of future solutions by grandiose, legacy building, monstrously expensive spending programs – Mr. Malloy’s 30 year, $100 billion infrastructure improvement program comes to mind – the upward arc spending in Connecticut since pre-income tax days, a complex, progressive tax structure that spares both the rich and the poor from “investing” in Connecticut’s government, a burdensome regulatory apparatus, and the seeming inability of Connecticut's tin eared Democrats to hear the message so loudly shouted from every rooftop in the state – all these are problems Connecticut’s non-responsive government CAN address.

Mr. Jahncke ends his brief cry of despair with a drum roll:

“It is time for real cuts in state employee compensation, primarily retirement benefits.

“The problem is that the same guy who negotiated the 2011 deal is, or soon will be, in secret negotiations (they’re secret, so we don’t know) on a new multi-year deal with the public unions which supported him in both his 2010 and 2014 elections. No doubt, that scared GE.”

When those in power lack character, adversity drives away the best and leaves the worst in command of depleted solutions. 

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