Growth in wealth gap intensifies focus on jobs session

New federal data showing Connecticut’s overall income rose last year while most households earned less intensified the focus Thursday on the special legislative session on jobs just five weeks away.

The estimates in the U.S. Census Bureau’s 2010 American Community Survey also showed that despite little change in Connecticut’s uninsured population there is a growing reliance on public health coverage.

“There’s more than business cycles going on here, there’s structural change,” Don Klepper-Smith, chief economist at Data Core Partners in New Haven, said. “Our budgets and policies going forward must reflect this new economic reality.”

That “reality” includes new numbers from the Census Bureau that found median incomes for households in Connecticut fell 6.1 percent last year compared with 2009. At the same time, according to the U.S. Department of Commerce, per capita income rose over the same period by almost 3 percent, to $56,001.

Median household income is the point at which half earn more and half earn less, so a decline means households in the middle were somewhat worse off in 2010 than in 2009. Per capita income measures total income divided by total population, so the increase means the number of dollars earned by state residents increased.

The answer to these diverging trends lies largely with the state’s hefty, 9.1 percent unemployment rate, according to Klepper-Smith, who was chief economic adviser to former Gov. M. Jodi Rell.

“How is it possible to have economic recovery when we have this severe drop off in labor demand?” he said, adding that Connecticut still hasn’t regained 95,000 of the jobs it enjoyed during its employment peak in April 2008 and subsequently lost during the ensuring recession.

“People who are working may be doing better,” said Peter Gioia, chief economist for the Connecticut Business and Industry Association, “but is everybody in each household working?”

“It’s hard to see economic growth in the form of incomes rising” against those numbers – with a few exceptions, Klepper-Smith said.

Connecticut’s financial services industry “has done pretty well in this portion of the recovery,” he said. “What it means now is we have economic polarization.”

But University of Connecticut economist Fred Carstensen, head of the university’s Center for Economic Analysis, said that while the trends outlined in the Census and Commerce Department data are serious, they also are hard to interpret.

For example, the Census Bureau doesn’t count certain types of investment income, Carstensen said. And one of the major congressional reforms after the Wall Street bailouts of 2009 was to limit companies’ abilities to pay out stock options as bonuses. So if a Connecticut household received a cash bonus in 2010 equal in value to a stock option given in 2009, the 2010 compensation would be counted in the Census survey, but not the 2009 bonus. This effectively would elevate the median income.

Tom Fiore, a veteran tax policy specialist with the state Office of Policy and Management, added that while Connecticut experienced “an unbelievable recession,” some of its households are so wealthy that dramatic annual gains by just a handful can push statewide numbers slightly. “Some number of people at the top fared better, but how many?” he said.

Fiore added that the falling median income numbers aren’t far from reductions seen at the national level. According to the Census Bureau, median household income dropped nationally from 51,190 in 2009 to $50,190 in 2010, or 2.2 percent.

Regardless of the uncertainties tied to the census data, the impact of Connecticut’s sluggish job market on household earnings is clear, Carstensen said.

The new census data showed the percentage of state residents without health insurance increased slightly from 8.8 percent in 2009 to 9.1 percent in 2010.

But the relative stability of insurance coverage overall masks a growing reliance on public coverage and a drop in private insurance. The share of people with public coverage in Connecticut has risen since 2008, when the census question was first asked, from 25.1 percent to 28.4 percent. The percentage of state residents with private insurance fell from 78.4 in 2008 to 74 percent in 2010. Some people surveyed had both public and private coverage, particularly seniors.

Households with lower income were more likely to be uninsured. Fifteen and a half percent of those with annual incomes below $25,000 were uninsured, compared to 4 percent of those earning $100,000 or more.

“All of this just underlies, yet again, the extraordinary importance of what Governor (Dannel P. Malloy and the legislature hope to accomplish,” he said, referring to the session tentatively scheduled for Oct. 26. “This state has to get its act together.”

A spokesman for the state council of Service Employees International Union locals said Thursday that “the latest census data should send our elected officials a stark message: Connecticut is losing its middle class.”

But SEIU Local 32BJ Director Kurt Westby added that Connecticut cannot create “strong jobs with decent wages and benefits” to expand the middle class without progressive tax reform. “We can’t do that if we keep letting Wall Street CEOs, hedge fund managers, and big bankers get away without paying their fair share.”

Klepper-Smith added that he fears a portion of this redistribution of income may remain a permanent feature of the state’s economy.

Gioia said that “while I don’t think it will be permanent, I think it will be protracted,” lasting anywhere from five to 10 years. “The economic shock that we went through in the last recession is far greater than any other we have seen in our lifetimes.”

And while much of that will depend on decisions at the federal level and in international markets, Gioia insisted that state officials can affect the final timetable.

“We need to send an unequivocal message, on both sides of the aisle, that the economy is Job Number 1,” Gioia said, adding that while “there is no magic bullet,” there are several initiatives lawmakers should consider now.

Gioia recommended expanding research and development tax credits while Carstensen remains one of the most vocal advocates for aggressively tying credits to job-creating capital projects and other business expansions.

Malloy and his fellow Democrats in the legislative majority have been fairly silent to date about what initiatives they will consider next month.

Sen. Gary D. LeBeau, D-East Hartford, co-chairman of the Commerce Committee, said little has been resolved to date, but he believes Connecticut should focus on expanding the credit available to small and mid-sized businesses ready to grow. “The most important issue is the lack of available cash,” he said.

Both LeBeau and Gioia also echoed a recent report in The Connecticut Economy, UConn’s quarterly economic journal, which said legislators could stimulate job growth by scaling back some of the state’s numerous business regulations.

Carstensen, who contends Connecticut’s reputation as a business-unfriendly state stems from under-staffed regulatory agencies that cannot process permits without long delays, said lawmakers should create a new permit ombudsman.

Early retirement incentive programs used by the past two administrations to eliminate state budget deficits “did immense damage to the capacity of state agencies to fulfill their responsibilities,” Carstensen said, adding that other states have used an ombudsman effectively to force regulatory agencies to prioritize available resources to review business permit applications in a timely fashion.

If legislators really hope to chart an effective long-term economic strategy that will grow jobs, they need to get more help, said Wade Gibson, a senior policy fellow for the New Haven-based public policy research group, Connecticut Voices for Children.

Though best known as the governor’s budget agency, the Office of Policy and Management also is the chief policy and planning unit within the Executive Branch.

But while OPM was hailed two decades ago as a national model of government planning under then-Gov. Lowell P. Weicker Jr., Gibson said, the office’s planning staff has been gradually and substantially weakened since then and is budgeted this year for 146 positions, just 56 percent of the staffing it enjoyed in 1992.

“Now is the time to increase the state’s ability to steer its efforts in a constructive way,” he said,. “Connecticut really needs to figure out a comprehensive plan and execute it. That’s not easy.”