Climate change is undoubtedly an issue to be concerned about and must be addressed, but when will Connecticut feel its effects to such an extent that the state becomes uninhabitable – 2100, 2200?
We face a threat in the much nearer term in the form of the state’s de facto bankruptcy.
Connecticut is under water by $67.8 billion (not including debt for infrastructure), representing a debt burden of $51,800 for every taxpayer or $19,000 for every resident. This ranks Connecticut 48th of the 50 states, leading only Illinois and New Jersey.
The primary drivers of this deficit are $35 billion in unfunded pension benefits and $20 billion unfunded post-retirement health benefits for state employees and teachers. This deficit has accumulated for decades and has been the result of decisions made by administrations from both parties and by the state employee unions themselves, who have twice approved the underfunding of their own benefits. Despite recent efforts to fund this deficit, the state employees pension fund is only 38% funded and the Teachers fund is only 52% funded.
Before we address this problem, it is important to note where we are starting. Connecticut is ranked the second worst state for taxes after New York. Connecticut’s current state and local taxes take 9.7% of our citizens’ income.
High tax rates have hindered Connecticut’s recovery from the 2008 financial crisis and are driving an exodus of population from the state, which began in 2016. If the state’s population continues to shrink, a smaller and smaller group will share the burden, thus increasing the reason to leave for those who are asked to foot the bill.
Under current policy, the state government is attempting to set aside funds so that these pension benefits will be fully funded by 2047. Getting there requires tax increases averaging an estimated at $ 1.3 billion, or approximately 6% of current tax revenues, each and every year from 2021 – 2024, which will result in taxes 18.5% higher than today. Even greater deficits can be expected into the future. So get ready for tolls, the hated grocery tax, increased income taxes, local property taxes and whatever other unique forms of confiscation our government can dream up.
Further tax increases will accelerate the exodus from the state, leading to lower property values, higher mill rates for local taxes and a downward spiral of our state and local finances.
This existential threat is a math problem not a political problem. It is critical that we address this mess by involving all of our citizens, vote for elected officials who are focused on long-term solutions, rather than the next election, and initiate some sensible solutions.
James Miller, a resident of Lyme, was an investment banker at Merrill Lynch from 1984 – 1996.