🔒CT’s economic, fiscal struggles continue

Connecticut is struggling. While steadily adding jobs since 2010, total employment is still about 17,000 jobs below its 2008 peak, and the real value of state output contracted until 2018, shrinking nearly 10 percent.

Our economy in 2018 was about the same size it had been in 2004. Growth returned in 2018 and 2019, but it has been among the lowest rates in the nation.

Critically, high-wage sectors began losing jobs even before the financial tsunami of 2008: information — the sector seeing the fastest growth nationally in jobs and value of output — steadily lost jobs, from nearly 40,000 in 2003 to less than 32,000 in 2018; finance and insurance employment contacted from more than 122,500 in 2003 to less than 104,000 in 2018; manufacturing jobs fell from almost 200,000 in 2003 to 160,500 in 2018.

State and local government contracted sharply after 2008, losing about 22,000 positions. But employment in sectors with lower wages grew strongly: health care and accommodation and food jobs.

Connecticut has been systematically replacing higher-wage jobs with lower-paid jobs. Worryingly, Connecticut saw contraction in what nationally are the most dynamic sectors, which means it may be increasingly difficult for Connecticut to recover its economic vitality.

Because job opportunities have been limited in Connecticut, residents here found out-of-state jobs. The result has been a significant improvement in household income, but a sharp contraction in state income tax revenue (by nearly $500 million) since people pay their state income tax where they work.

And as consumption patterns have shifted, Connecticut’s Swiss cheese sales tax has failed to keep pace: its revenue has declined more than $200 million relative to aggregate household consumption.

The weakness in the state’s revenue system — collecting about $700 million less relative to the tax base — sharply worsens the fiscal crisis plaguing Connecticut. While the vastly strengthened Rainy Day Fund is good news, projected deficits will soon exhaust it; then the underlying issues with income and sales tax revenues will present new fiscal challenges.

Connecticut does have significant capacity to revitalize its economy and restore its competitiveness. Most obviously, the state has a large, powerful aerospace sector, with Pratt & Whitney enjoying huge demand for its new geared turbofan jet engine and Sikorsky continuing to thrive.

It also has a significant presence in health care and the biosciences with Jackson Lab, the Yale New Haven medical complex and UConn Health.

Encouragingly, development of a large fuel cell complex in New Britain will be — hopefully — the foundation for a massive data center, helping boost Connecticut’s historic weakness of IT infrastructure.

The challenge for Connecticut is how to build on these assets. The most obvious imperative is development of strong workforce training programs as each sector faces significant challenges in recruiting an adequate workforce.

Parallel to such programs, the state should facilitate strong collaborations among our public and private universities to strengthen human capital and generate the critical cutting-edge research needed to keep companies fully competitive.

These collaborations should focus on three critical sectors: aerospace manufacturing, biomedical and information technology.

Finally, the state should move away from its historical reliance on one-off incentives to individual companies and adopt a broad program that allows companies to use stranded tax credits to fund major capital projects, similar to the agreement that persuaded United Technologies Corp. to rebuild its world research facilities in East Hartford and expand its Middletown Pratt & Whitney factory.

Done correctly, the state forfeits no net revenue, but could generate tens of thousands of new permanent jobs.

Connecticut has the capacity to shape its own economic future. Are we up to the challenge?