Report: State economy headed for crisis

Connecticut’s massive long-term debt, deep pockets of poverty and more than 20 years of stagnant job growth threaten to sink the state’s economy for decades unless major reforms are enacted, according to a report Wednesday from a national fiscal responsibility group and the University of Connecticut’s economic think-tank.

Comeback America Initiative founder David M. Walker and UConn economics Professor Fred V. Carstensen, who outlined their report at the Hartford Marriott, called for dramatic new reductions on public worker retirement benefits, deeper investments in transportation, education and economic marketing, and an enhanced “culture of transparency” that will drive greater efficiencies in state spending.

Each CT resident owes more than $50,000

Though Connecticut has one of the highest bonded debts, per capita, of any state in the nation, that represents just a fraction of the crippling debt taxpayers must answer for the in near future, said Walker, a Bridgeport resident and former U.S. comptroller general under President Clinton. He launched his Comeback America campaign for fiscal responsibility in 2010.

The picture goes from bad to scary, the report says, when one considers state employee and public school teacher pension funds that have less than half the resources they need to meet future obligations, as well as a state retiree health care program for which government has saved almost nothing..

Connecticut ranked dead last among states in 2011 when all debt is combined and assessed on a per capita basis. Each man, women and child effectively owed $50,900 here.

The second-worst state, Illinois, had per capita debt of $38,500. Ohio and Washington ranked in the middle with $7,700 and $8,200 owed, respectively. Six states, particularly those rich in energy resources, topped the list with positive balances, led by Alaska with an average per person credit of $34,100.

And even though interest is not charged on retirement benefit debt, it ultimately translates into state budget deficits that often are financed with bonding — and interest charges.

Though interest rates have been kept low artificially, largely by the Federal Reserve System, that cannot continue much longer, Walker said, adding that it represents a crippling financial blow for Connecticut somewhere down the road.

“It’s not a matter of if,” he said. “It’s a matter of when, how much, and how fast.”

Though state employees did agree to some restrictions on retirement benefits in 2009 and 2011, Walker said the reforms simply didn’t go far enough, and retiree health care in particular may need to change dramatically — both for existing and future state workers.

The existing benefits contract between state government and employee unions runs through 2022, but Walker predicted severe budget crises would spring up well before then. “That cannot stand,” he said.

Both Walker and Carstensen acknowledged that the huge cost of providing public-sector benefits stems largely from poor planning. State government provided very generous benefits for decades without saving anything to cover them over the long-term.

In addition, past governors and legislatures routinely raided worker pensions — with union permission — to close budget deficits.

No job growth and pockets of poverty

Unfortunately while this was going on in the 1990s and 2000s, Connecticut “hit the wall” in terms of growing private-sector jobs, said Carstensen, who is director of the Connecticut Center for Economic Analysis. “We have a terrible track record in terms of employment.”

Though the state’s shrinking manufacturing sector grabs plenty of media headlines, Connecticut largely has stabilized that segment of its economy through business innovation and efficiency, he said.

But the financial services, insurance and real estate sectors, which dominated the economy in the 1980s, have been on a two-decade-long plunge and “we don’t have a coherent strategy overall about how we’re going to address that issue,” Carstensen said.

Further complicating matters, the pain of that 20-year slide wasn’t felt equally, the UConn professor said, adding that Connecticut’s urban centers faced the worst of lost jobs, businesses and declining earnings. This, in turn, drove up local property taxes, which then accelerated the cities’ economic decline.

Connecticut has become one large suburb that maneuvers around economic sink holes in its big cities, a disparity that costs money. “Doughnuts do not succeed,” he said, adding that this poverty creates much greater costs for government, particularly with education.

“We’ve been trying to treat the symptoms too long. It’s time we started trying to treat the disease,” Walker said, adding that any so-called solution to fiscal woes that only relies on slashing all government spending will exacerbate urban poverty — and ultimately weigh down the whole state.

The first step in reversing these trends, Walker said, is for voters to demand a change in culture at the Capitol that demands greater transparency and accountability in all programs — which is the best way to weed out unnecessary spending and waste.

Carstensen noted that a recent restriction on worker health care negotiated by Gov. Dannel P. Malloy two years ago — a $35 co-payment for emergency room visits that don’t lead to a patient being admitted to the hospital — has cut ER visits by 40 percent since then.

But both Walker and Carstensen said state officials also will need to raise more revenue. Some should come from taxpayers with a revised system that asks the state’s wealthiest to pay more.

But Connecticut also should become more creative with tolls and other types of user fees that require those who heavily use public services and other resources to pay more.

“There’s no way we’re just going to cut our way out of this,” Carstensen said.