The solutions are simple; the politics are hard. Two months ago, I criticized the happy talk from Hartford because it obscures the financial challenges our state faces. Under nearly every objective analysis, Connecticut’s fiscal condition is deteriorating and to pretend things are fine does not serve the residents of this great state. According to Truth […]
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The solutions are simple; the politics are hard.
Two months ago, I criticized the happy talk from Hartford because it obscures the financial challenges our state faces. Under nearly every objective analysis, Connecticut’s fiscal condition is deteriorating and to pretend things are fine does not serve the residents of this great state. According to Truth in Accounting, Connecticut is part of the Bottom Five “Sinkhole States” for taxpayer burden ranking 49th out of the 50 states. (Thanks, New Jersey!)
The good news is that solutions to our problems are simple and easy to understand. The bad news is that it will take political will that few of our representatives have shown they can muster. There are three areas I would suggest we target for rethinking:
1. Public Pensions
2. Tax Structure
3. Spending Priorities
Our public employee pension crisis
Our public employee pensions are bankrupt by any responsible measure. Our political class has over-promised and has hidden the real cost of our obligation for years. While some mild reforms have been passed by the State, the current economic conditions in the U.S.—which are unlikely to change any time soon—have more than eliminated any possible benefit from reforms. This is by far the biggest fiscal challenge we face.
This crisis will be solved in one of two ways. The first is bankruptcy. The money is not running out; it has run out. It is simply a matter of time before financial reality wins. If that happens, then a lot of hard-working state employees will see their retirement plans destroyed. (But at least the politicians can blame someone else.)
The second way is through the union members. Any union or former union member under 55 years old will not see the retirement benefits they have been promised. It is not fair, but it is the truth. The smart approach would be to get the state to “convert” the defined benefit plan to a plan that provides each member with a lump sum today and future contributions. The time to negotiate the best deal for our public sector employees is now, before the question is before a bankruptcy judge.
Our tax burden
According to the Tax Foundation, Connecticut has the second-largest state and local tax burden in the country. (Thanks, New York!) It is very difficult to attract or retain residents with a tax burden that high. Unfortunately, our fiscal condition prevents a quick, sharp reduction in that burden. That said, the state needs to both commit to a reduction in the tax burden of its citizens and rethink what taxes it collects.
One thing we need to consider is reducing the personal income tax rate and replacing this revenue with tolls collected on our highways. Tolls are a use tax. That is, you pay only if you use the roads. Collecting revenue from out-of-state vehicles using Connecticut highways seems fair and matches what nearby states are doing. Further, toll rates can be customized by making toll collection near the borders higher than in the interior. Automated toll collection, such as Massachusetts and New York’s EZPass, is becoming ubiquitous and needs consideration as a long-term replacement for personal income taxes.
Our future priorities
Connecticut is headed in the wrong direction. If we are truly interested in growing the state and offering good jobs and a wonderful lifestyle for our residents, we need to start implementing policies that have been proven time and again to achieve those goals: fiscal responsibility and a business-friendly environment. The first step is to stop the growth of spending in the state. That means freezing “mandatory” spending. To those who protest that mandatory spending is required by law, I say change the law. Mandatory spending laws are designed to give politicians an excuse to continue to ratchet up spending. These laws can be changed by those very same politicians.
Finally, the Blue State model—practiced in Connecticut by Democrats and Republicans alike—does not work. Connecticut needs to reduce the regulatory and fiscal burden to attract businesses and residents. Connecticut has historically been very attractive to Fortune 500 companies, but the business environment has changed, and we have not. Ask yourself, if you were a CEO of a Fortune 500 company, would you want to relocate to Connecticut? The current answer is “no” and, until we change that, we will continue to head in the wrong direction.
Stephen K. Henn is a professor of finance and economics at Sacred Heart University in Fairfield.
