Connecticut’s economy and the nation’s are poised for strong growth in 2019, though both are at risk of recession by 2020, economic experts warned hundreds of business leaders Friday.
Speakers at the Connecticut Business and Industry Association’s 2019 Economic Summit and Outlook also urged Gov.-elect Ned Lamont and the new General Assembly to invest in transportation and workforce development and stabilize state government’s finances without major tax hikes.
And some leaders, including Hartford Mayor Luke Bronin, urged state officials to consider establishing electronic tolling, saying major enhancements to highways, bridges and railways likely can’t be financed without this.
“Conditions are really very strong,” said Emily Mandel, an economist with Moody’s Analytics, the research arm of a major Wall Street bond credit rating agency. “We’ve got job openings that outnumber the people looking for work,” and “we are finally seeing wage growth pick up on cue.”
But Mandel also warned the roughly 450 business leaders gathered at the Hartford Marriott that “there could be some softening of the economy at the end of the calendar year. … But for now it’s something to feel good about.”
Peter Gioia, economist for the CBIA, said Connecticut has added more than 23,000 jobs this year, including many posts in manufacturing, construction, and financial services.
“Those are all really good-paying jobs,” he said, adding there are more than 20,000 jobs waiting to be filled in manufacturing, accounting, insurance and other fields that pay well above minimum wage.
“The potential for us to continue that job growth through 2019 is strong,” he said.
But there are national and international factors that could pull the U.S. economy — and Connecticut’s along with it — into recession as early as mid-2020, experts warned.
In addition, Connecticut still is dealing with some of the problems left over from the last economic downturn in 2008 and 2009, and from a particularly sluggish recovery.
Concerns remain nationally about rising interest rates and trade relations with China, Mandel said. And while Moody’s projects solid 3 percent growth in the gross domestic product — the value of all goods and services produced — in 2019, as much as one-fifth of that potential growth likely stems from federal stimulus, rather than improved business climate.
That all leaves the risk of “a slowdown near the end of 2019 with the risk of a recession rising early in the next decade,” Mandel said.
And while Connecticut’s recovery from the last recession has accelerated considerably in recent years, several speakers warned the state — compared with its neighbors — remains plagued by several longstanding problems.
A dwindling and aging population, increasing taxes and government regulations, and a state budget plagued by heavy debt and frequent deficit forecasts are working against the state, said Neal Keating, president and CEO of Kaman Corporation in Bloomfield, the summit’s keynote speaker.
Connecticut residents in two key age groups — younger than 20 and between 40 and 49, dropped by about 175,000 between 2008 and 2017.
Over the same period, that reduction was offset by growth — in residents between age 60 and 79, Keating said.
“Where are we going to get our workers?” he asked. “We have some work to do to rebuild an attractive state, so people will move back.”
That means not only investing further in education, job training and other workforce development initiatives, but stabilizing a state budget situation that has garnered t00 many negative headlines in recent years.
“This is what young people see when they look at Connecticut,” Keating said, adding a quote Lamont used on the campaign trail last fall. “‘Businesses won’t come to a state where their employees can’t afford to live.’”
None of this will be easy, though.
Pension and other retirement benefit debt costs are projected to place increasing pressure on state finances for the next 10 to 15 years. That’s because legislatures and governors for more than seven decades prior to 2010 routinely underfunded these programs, effectively shifting billions of dollars in costs into the future.
In 2017, Connecticut restructured its payments into state employees’ pension costs. This will shift billions of dollars of expenses onto taxpayers after 2032, but it also smoothed out spiking annual contributions.
Annual payments that were projected to grow over 15 years from $1.6 billion to as much as $6.6 billion now are expected to peak somewhere around $2.3 billion — but remain there well into the 2040s.
Though this isn’t the only budget challenge Connecticut faces, it is one of the key components behind a nonpartisan projection of a built-in, $1.7 billion deficit — unless adjustments are made — in state government finances for the next fiscal year.
Manisha Srivastava, budget specialist and economist with the state Office of Policy and Management, said state officials should continue to explore options to restructure payments into the teachers’ pension fund — which faces the same spiking issues — in a similar manner.
Srivastava said this is key, in part because Connecticut hasn’t rebounded from the recession of 2008-through-early 2010 as it did from the prior downturn of 2001-2002.
For example, state income tax receipts from paycheck withholding grew 6.6 percent during the earlier recovery, but just 3.6 percent during the later one.
Withholding receipts are up 8.7 percent through the first five months of the current fiscal year — from July through November — but that is a very small sample size and its unlikely growth will continue at that pace.
Sales tax receipts and income tax payments tied to capital gains and dividends also have rebounded at slower rates this time, Srivastava said.
If Connecticut’s economy — and state tax receipts — had recovered this past recession as they had after the 2001-02 downturn, a $1.7 billion deficit forecast would instead be a $1.2 billion surplus projection, she added.
Several warned Connecticut’s best chance to build and sustain long-term economic growth lies in ramping up long-deferred transportation investment.
“We have to act fast. We have to act boldly. We have to look to tolls as a source of revenue,” said Bronin, the summit’s opening speaker. “We’re playing against the clock and I think we all have to work together.”
Connecticut can never compete perfectly against New York City or Boston, but it can do much better fighting for financial services-sector and other jobs against Westchester County, New Jersey and Pennsylvania, Bronin said.
“Transportation is the thing, probably more than anything else, that will determine if Connecticut is competitive and can grow,” he added. “I think we need significant investments, not just in roads, but in rail. I think making that investment in a modern transportation infrastructure will pay off in big ways for Connecticut in the years ahead. But to do it right and to do it in the scale that is necessary, I think we need to do what almost every state around us does.”
Lamont has said he would support tolls, but only on large trucks.
Bronin and others, including the state Commission on Fiscal Stability and Economic Competitiveness and a special transportation advisory panel set up by Lamont’s transition team, have urged a broader approach that involves tolling all vehicles passing through the state.
Gioia said the solution might lie in first ramping up highway and rail enhancements in Connecticut’s most clogged transportation arteries leading into New York City.
If the commute into the city can be shortened by 20 minutes or more, he posited, residents “probably wouldn’t mind paying a modest toll” on Interstates 84 and 95 in Connecticut’s southwestern corner. “I think that’s logical. I don’t think you’re going to have a lot of opposition.”