As a born and bred Connecticut Yankee, I am second to no one in my love for this state. I defy anyone to find a state that offers a better combination of rural, suburban and urban charm in a package of 4,800 square miles to its residents. If you want something, you can find it […]
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As a born and bred Connecticut Yankee, I am second to no one in my love for this state. I defy anyone to find a state that offers a better combination of rural, suburban and urban charm in a package of 4,800 square miles to its residents. If you want something, you can find it here.
But that is not to say all is well. Our largest companies are fleeing for more business-friendly states, people are leaving for cheaper cost of living states, and, despite an income tax and approximately $200 million per year from Foxwoods and Mohegan Sun, each Connecticut taxpayer owes $56,500 to pay off our state’s debt, according to Truth in Accounting. We are consistently ranked at or near the bottom of surveys of fiscal health.
Two sides to our story
Like many states, we have two sides to our story: the people side and the policy side. Taken together, Connecticut looks OK, ranking 20th in U.S. News & World Report’s 2020 ranking of the 50 states.
On the “people” side, Connecticut ranks high in quality of life. We are highly educated and have excellent school systems (#6 in the U.S. News rankings). Our access to healthcare is also very good (#3 in U.S. News) and we are in the top five in terms of our physical health. We are a safe state with low crime across the board (#6 in U.S. News). And we are happy. While happiness is subjective, multiple surveys have Connecticut in the Top 10 happiest states with one survey having Connecticut as the second happiest state behind Hawaii. (Perhaps there should be a research trip to analyze this further?)
On the policy side, the story gets much worse. Using the U.S. News Ranking as our overall measure, we are near the bottom in terms of economic opportunity and economic growth. We are ranked 30th in fiscal stability, but that masks a rank of 47th in long-term fiscal stability.
The looming pension crisis
It is no secret that Connecticut, as well as other states, faces a large unfunded pension liability, amounting to 14.8% of our state personal income (Pew Charitable Trusts), which is over double the national average. While reforms have been suggested and some mild reforms passed by the state, the basic issue of insolvency of the funds has not been addressed. Further, the overall economy has been brutal: 2022 marked the first time ever that both bond and equity returns were negative. Unlike when our IRA declines in value, the loss of investment value in our state pensions falls on the taxpayers.
You might be wondering how this can happen. Isn’t there a law governing pensions? Well, there is. It is called the Employee Retirement Income Security Act (ERISA). But the federal government exempted itself and the states from complying with that law. So, if the politicians were private executives, they would have been frog marched to FCI Danbury years ago. But they are not, so we are left with a criminally negligent pension situation and a $56,500 bill. Each.
Growth is about the future
Fixing Connecticut’s fiscal problem is not complex, but has proven politically impossible. Former Gov. Ella Grasso took tough measures in the mid-1970s to address the state’s fiscal crisis and Connecticut enjoyed its best growth ever in the early-1980s. This is not a Democrat or Republican issue – Governors from both parties have been unable to do what Grasso did.
Given the current climate, is it any wonder that people are leaving the state? People, especially college grads and young families, make decisions about where to build their lives based on the future, not today. All the happy talk cannot obscure the fiscal problems that are mounting for the state of Connecticut. Companies like GE, Pepperidge Farms and LEGO are leaving for other states because of the fiscal and regulatory environment. While we have enjoyed some wins, our state needs to address foundational governance challenges to align with the quality of our home state and its people.
Steve Henn is a professor of finance and economics at Sacred Heart University.
