Connecticut remains the second highest-taxed state in the country, despite efforts to promote economic development and improvements to the business climate, two prominent researchers at Yale University wrote in an op-ed published by CT Insider Wednesday.
While Gov. Ned Lamont’s budget last year included the largest tax cut in state history, and this legislative session he’s proposed the first-ever income tax cut, the state’s investment performance lags behind the nation, they wrote.
The piece was written by Jeffrey A. Sonnenfeld, senior associate dean for leadership studies and Lester Crown Professor of Leadership Practice at Yale School of Management, and Steven Tian, director of research and chief executive of the Leadership Institute.
Aside from tax cuts, “there is another simple way to dramatically lower Connecticut’s taxes and improve Connecticut’s fiscal standing and business climate,” they wrote. “If Connecticut had even average annual investment performance from its underwhelming pension funds, our tax burden would dramatically decrease.”
Sonnenfeld and Tian said that previous state treasurers have among the worst investment track records of all 50 states, based on research by their Yale team.
“With $40 billion in assets — largely the pooled retirement savings of the state’s hardworking teachers, firefighters and public employees — if Connecticut’s investments had yielded just the median returns of all 50 states, the past five years, we would have had $5 billion more and be able to cut taxes by 50 percent instead of 0.5 percent,” they wrote. “Connecticut would have reaped a whopping $27 billion more over the last decade — practically enough to fully fund Connecticut’s pension obligations while simultaneously dramatically reducing taxes.”
The 10 best-performing states over the past decade include Washington, Michigan, Minnesota, Arkansas, Oregon, Massachusetts, Ohio, Colorado and West Virginia.
Part of the reason Connecticut lags behind is that it doesn’t use the larger, more well-known fund managers as other states do, Yale’s research found.
“… There are cases where we are invested in funds where Connecticut is the single largest client — sometimes substantively the only client, all while Connecticut pays high fees, with some obscure asset managers individually earning more than the entire state’s cabinet combined,” they wrote.
The team recommended several changes, including careful and accountable asset manager selection; changing the asset mix; considering shifting into more low-cost index funds; increasing the transparency of performance; and enhancing the talent recruitment in the treasurer’s team.
Click here to read the full report.
