State and local capital spending in Connecticut and the other five New England states has been well below the national average since 2000, according to a new report issued by the public policy arm of the Federal Reserve Bank of Boston.
And while the New England Public Policy Center report issued last week did not establish any single defining cause for this trend, it noted growing public concerns about state government debt has stymied investment in a region that needs more of it.
“There is some evidence that capital investment policy in many of the six (New England) states has been dominated by concern about the level of state government debt,” wrote the reports’ authors, Michigan State University economics professor Ronald Fisher and New England center policy analyst Riley Sullivan. “To the extent that attaining low debt levels has been the focus of policy attention and debt and capital investment are considered jointly, attempts to lower state government debt may have contributed to lower investment in public capital.”
The “investment” the report writes about involves: municipal school construction; building and other projects at public colleges and universities; highway, bridge and rail infrastructure improvements; renovations to state and municipal buildings; and even dam restoration and other environmental work.
Because of the relatively small size of the New England region, these types of capital investment have a positive “spillover” effect that boosts the economy beyond the state where the spending occurrs, the report states.
But according to U.S. Census data, capital spending by state and local governments in New England averaged less than $800 per person between 2000 and 2012. Connecticut fared better than the New England average at $913, but below the national average of nearly $1,100.
Connecticut appears to lag the national average even more when factoring in this state’s considerable earning power. National spending on capital projects reflected 2.7 percent of average personal income between 2000 and 2012. Connecticut’s spending represented just a 1.6 percent share of personal income.
Connecticut trailed both the nation and all New England states in particular in the area of transportation.
Just 20 percent of Connecticut’s capital spending went for transportation during the study period. The national average was 25.5 percent and the other New England states ranged from a low of 27.7 percent in Massachusetts to 38.1 percent in Vermont.
In some states, capital spending on education surges with heavy growth in the kindergarten-through-grade-12 population. But Connecticut has not experienced this for many years.
Since 2000, the state’s K-12 public school population has dropped 4 percent.
States also may see limited capital investment if they have a healthy stock of roads, bridges and railways in excellent shape. But Connecticut and several other New England states — where the transportation infrastructure is among the oldest in the nation — were singled out in the American Society of Civil Engineers 2013 report card as having infrastructure of “poor or mediocre” quality.
The report acknowledged that some government services are provided differently in New England than in other parts of the country.
Capital spending for utilities, for instance, traditionally is lower in the Northeast than in other states stemming from the way utilities are organized. But the study found that New England states remained below the national average even if spending in this area is considered.
The study did not take capital spending at the county level into consideration. Connecticut lacks county government, and most New England states do little capital spending at the county level. Had it been factored into the study, the rankings of New England states might have been worse.
But another thing several New England states have in common, the study found, is debt.
“A focus on debt reduction and debt control have been a primary focus in at least several of the New England states,” Fisher and Sullivan wrote.
Connecticut ranks on a per capita basis as one of the most indebted states.
Besides more than $22 billion in bonded debt, huge unfunded liabilities in its public-sector pension and retiree health care programs combined exceed $45 billion.
During the administration of Massachusetts Gov. Deval Patrick, the state followed a self-imposed limit. Capital spending could not push annual debt service above 8 percent of revenues.
Vermont employs a Capital Debt Affordability Committee that identified a healthy ratio of debt costs to revenues as “the single-most important affordability metric” to maintain.
Rhode Island Gov. Gina Raimondo established a series of capital budgeting goals to keep debt in line with personal income and “ensure that Rhode Island’s annual capital budget and capital improvement plan is affordable and finances only necessary capital projects.”
“This report validates much of what we already know: our investments will pay dividends and they are essential to the future of the state and the region,” Chris McClure, a spokesman for Gov. Dannel P. Malloy, said last week. “The report demonstrates that — particularly when it comes to transportation — we’ve done far too little.”
Malloy is urging the legislature to embrace a 30-year plan to invest $100 billion in Connecticut’s transportation infrastructure. But that probably would require major new revenues. A panel commissioned by the governor recommended a series of options last January, including restoration of tolls and fuel tax increases.
Malloy has said he won’t propose any long-term funding mechanism, though, until the legislature approves a constitutional amendment to dedicate all such revenues exclusively for transportation purposes.
“With interest rates at extraordinary lows, it’s critical that we make necessary investments now,” McClure added. “We know that our transportation systems are holding our state back – and that if we want to grow jobs and expand our economy, we must tackle transportation. The report clearly demonstrates what we’ve been saying so often, that we cannot afford to avoid taking on big issues.”
Kevin Maloney, spokesman for the Connecticut Conference of Municipalities, said given the continued modest growth in the state’s economy, “and little desire for local property tax hikes, city and town leaders remain very cautious about adding additional debt through capital spending but will do so when there is significant referendum-based and local legislative body support for critical and overdue school and municipal projects. This factor in combination with generous but still limited growth in state bonding has resulted in some local capital spending projects being deferred in this economy.”