Pandemic, tax issues give Connecticut a chance to reset economy, strengthen the region
For nearly a decade, Connecticut residents have been hopping the border in increasing numbers to find work in, and ultimately to pay taxes to, neighboring states.
But with the coronavirus turning commuters into at-home workers — for some, perhaps permanently —Connecticut has a unique chance to reset its economic table.
And while that chance includes gaining millions of tax dollars, particularly from New York, business leaders say the greater opportunity lies with a regional economic collaboration of an unprecedented scale.
What if tax negotiations could be a foot in the door, leading to multi-state investments in transportation, information technology infrastructure, workforce development and other often-neglected regional needs?
States might be less reluctant to forfeit tax dollars if some were being spent to benefit the region, said Joseph McGee of Fairfield, who led the former Business Council of Fairfield County.
“That’s the Holy Grail,” he said. “What’s happened is generally you get too much competition between states. But if we could construct a regional strategy it would be an extraordinary advantage for us over the rest of the country.”
State lines are going to matter less and less as it relates to economic growth.”
“The idea of a consistent, regional policy for taxation is good,” said David Lehman, Gov. Ned Lamont’s economic development commissioner. But a multi-state investment plan for information technology, transportation, and workforce development, he added, “that’s clearly better.”
But Lehman would not look too far ahead.
Connecticut only began informal talks with New York and other neighboring states back in March, and so far that conversation has only covered taxation.
It is also true the pandemic is driving an economic evolution that cannot be ignored.
“The question is, how do we capitalize on it?” Lehman added. “State lines are going to matter less and less as it relates to economic growth.”
Seven years of losing workers to neighboring states
State lines have mattered quite a bit for Connecticut over the past decade. More specifically, it’s been a story of residents crossing those lines to find work.
Connecticut never recovered all of the 120,000 jobs it lost during the last recession, which ran from late 2007 through mid-2009. And even as it did regain most of its private-sector employment, that came at a cost.
The state Department of Labor doesn’t track precisely how many residents work out of state. But it does record how many Connecticut residents have jobs. It also records how many people work in Connecticut, whether they live in this state or another. And the gap between those two tallies has been widening steadily since 2013.
Seven years ago it was about 65,000 people. One month before the pandemic began it topped 158,000.
Decades of failing to invest in transportation, IT infrastructure and higher education research programs came home to roost as financial services, technology and other high-end jobs were replaced with low-paying retail and service positions, said University of Connecticut economist Fred V. Carstensen.
“We were the center of the American industrial revolution and it made us very wealthy and very complacent,” he said. “We were able to just coast along because we were just so frigging wealthy.”
But as residents increasingly found work in other states, particularly those who found jobs in New York’s financial services sector, Connecticut’s coffers paid the price.
Traditionally, employees pay a tax to the state where they earn their income and receive a credit against their home state’s income tax claims.
Between 2013 and 2018, Connecticut income tax receipts relative to household income plunged more than $500 million. In other words, Connecticut residents were going back to work in greater numbers, but state government wasn’t reaping the full financial benefit.
New York Gov. Andrew Cuomo’s administration declined to comment, but Connecticut Department of Revenue Services Commissioner John Biello said the tax issue obviously is delicate and complicated.
“This is a complex issue,” he said. “We’re certainly not looking to generate tax revenue at the expense of another state. The goal is to make sure we’re looking out for the citizens of the state of Connecticut.”
Biello added the tax matter “is a long-term issue” and could take years to resolve, particularly if economists are correct and many at-home workers will remain in that mode for good.
The coronavirus has changed the economy — permanently
Things really changed in March as huge segments of the economy began working remotely from home with expectations to do so for much of 2020.
Average weekly ridership between New Haven and Manhattan on the Metro-North commuter line plunged almost 96% between January and April 9 — the peak of the outbreak in New York and Fairfield County — falling from more than 126,000 trips to just over 5,500.
This is a complex issue. We’re certainly not looking to generate tax revenue at the expense of another state. The goal is to make sure we’re looking out for the citizens of the state of Connecticut.”
As of last week or so, average ridership was up to just 13,310 trips, still down 89% from January. For a significant portion of these at-home workers, many business leaders say, it will become a permanent arrangement.
“When I talk to CEOs they’re in no hurry to bring people back,” said Joseph F. Brennan, who is retiring later this summer as head of the Connecticut Business and Industry Association. “People enjoy it and companies are productive.”
“The old way of thinking about it was you have one big facility in Manhattan and one disaster recovery site outside of the city,” said Bruce McGuire, president of the Connecticut Hedge Fund Association.“That myth has been dispelled. Companies are now more interested in making work more comfortable for their people. … I keep hearing from people that productivity has gone up, not down.”
Jeffrey Maron of Stamford, a manager with the Tradition North America financial brokerage in Manhattan, had been commuting into the city since the mid-1980s until the coronavirus arrived.
Working from home isn’t perfect. “Sometimes it’s a much more difficult environment to try to be productive because you can’t just lean over to the man or woman next to you and ask ‘Could you help me?” Maron said. But he also noted that more than three hours spent daily in commuting is now spent in teleconference meetings, on phone calls or checking emails.
“For the first time in my life I’m actually having dinner with my kids, so that’s a big plus,” he said.
States’ common challenges extend beyond tax issues
Just as at-home workers are overcoming challenges and finding advantages amidst the pandemic, so must Connecticut and its neighbors, McGee said. And these challenges extend beyond deciding how to divvy up tax dollars.
Connecticut, New York and New Jersey all need more affordable housing to retain and attract young workers, particularly in high-paying fields, he said.
This is classic Connecticut, the land of steady habits. And one of our habits is to fly blind. Not only do we fly blind, but we fly solo.”
Lamont’s failure to win approval for tolls, or some other major new funding source for transportation, was well documented during his first 15 months on the job. But Carstensen said if a multi-state approach could somehow lead to more investments and break the transportation logjam in Fairfield County, the entire region would benefit.
And if Connecticut’s highways and rail lines are clogged and aging, its I-T infrastructure isn’t much better, the UConn economist said. Connecticut has very few data processing centers relative to the rest of the region, an often-ignored problem that hurts everyone.
“This is classic Connecticut, the land of steady habits,” he said. “And one of our habits is to fly blind. Not only do we fly blind, but we fly solo.”
Lamont already has shown he doesn’t fly solo, working with Cuomo and New Jersey Gov. Phil Murphy on coronavirus response and other public health issues, said McGee, the former head of the Business Council of Fairfield County.
“This guy has shown he can be a leader,” McGee added. “He’s built a relationship. This is the time to have these conversations. This is the time to think big and send a signal: The Northeast is not dead.”
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