Connecticut State Capitol on a snowy day on Oct. 30, 2020 in Hartford. Yehyun Kim /
Connecticut State Capitol on a snowy day on Oct. 30, 2020 in Hartford. Yehyun Kim /

Connecticut lagged most of the nation in personal income growth during the pandemic — and actually lost ground if unemployment benefits aren’t considered, according to a new analysis from a national think-tank.

The latest report from The Pew Charitable Trusts comes not long after two economists warned Connecticut’s recovery from the coronavirus-induced recession will drag on for years.

“States would have fared much worse if not for the unprecedented government support,” Barbara Rosewicz, director of the State Fiscal Health project for Pew, wrote in her analysis, adding that Connecticut and 40 other states saw personal income drop once public assistance was removed from the equation. “That’s because wages and other earnings, which make up the bulk of personal income, plummeted as businesses across the country shut down or scaled back operations in the first few months of the pandemic.”

At first glance, personal income nationally faced its sharpest increase in two decades.

From the 2019 to 2020 calendar years, it rose by a whopping 4.9% nationally and by 1.7% in Connecticut.

But if public assistance is not counted, personal income fell by roughly 1% nationally and by 2.9% here.

The numbers were similar when Pew compared the 12-month stretch from October 2019 to the start of the fourth-quarter this year.

Personal income growth nationally of 2.7% was downgraded to just 0.2% after public assistance was removed, while Connecticut’s meager growth of 0.6% became a loss of 1.8%.

In the calendar-year comparison and the 12-month stretch running through last fall, Connecticut’s growth ranked 41st and 45th, respectively, among all states.

Pew had ranked Connecticut last among all states in personal income growth from 2018 to 2019.

“It’s surprising, because we know how poorly Connecticut had performed over the last decade,” said economist Fred Carstensen. “After the federal money is gone … we’re going to see the re-emergence of massive deficits in the state budget and enormous challenges to sustain the state programs and public services that we have.”

Carstensen, who heads the Connecticut Center for Economic Analysis, issued a report last October projecting the state will struggle for a decade or longer to recover economically from the pandemic.

Connecticut has failed for years to make key investments in information technology and transportation infrastructure, lagging the nation and failing to fully recover jobs and wages since The Great Recession of 2007-09.

And since 2013, Connecticut residents increasingly have had to travel to neighboring states to secure high-paying financial services and technology positions while much of the job growth here has been in the retail and hospitality sectors — which were crippled by the pandemic.

Donald Klepper-Smith, an economist with DataCore Partners, issued a similar warning in March when his analysis showed the state was down more than 146,000 jobs from peak employment levels in March of 2008.

Roughly 190,000 people in Connecticut receive weekly unemployment benefits.

And while gross domestic product — the value of all goods and services produced — rose nationally by 18.1% over the past decade, it dropped 2.8% in Connecticut.

“It will take many years to make up that ground,” said Klepper-Smith, who was the state’s chief economic adviser in the late 2000s under Gov. M. Jodi Rell. He added that a new long-term peak in jobs “may be decades away.”

Melissa McCaw, Lamont’s budget director, said “Connecticut has seen positive signs in recent years with budget surpluses, record numbers of new companies registering to conduct business in our state, payments against long-term legacy debt, and even the state’s first Moody’s credit rating increase.”

Acknowledging the lack of growth in personal income, McCaw added that Lamont has proposed “transformative and impactful programs and investments in workforce and economic development, inviting new starts and growth for individuals and businesses, which will bear fruit for our state in the coming years, if approved by the General Assembly. These are steps in the right direction, which should give our state and its job creators confidence that Connecticut is positioned for growth in the post-pandemic world with this kind of forward momentum.”

Chris DiPentima, president and CEO of the Connecticut Business and Industry Association, said the Pew report simply underscores the need for legislators not to back the latest proposals from the General Assembly’s budget-writing panels.

The Finance, Revenue and Bonding Committee endorsed tax hikes on the wealthy and corporations, though part of that would be used to fund tax cuts for the poor and middle class, as well as a one-time, $50 million bailout for Connecticut restaurants.

And the Appropriations Committee recommended shifting hundreds of millions of dollars in expenditures outside of the state spending cap. Much of that would go toward bolstering town aid, expanding health care and bolstering funding for social services.

“The economy is very fragile, and you can’t be thinking about things like massive tax hikes and spending that goes around the spending cap,” he said.

CBIA officials have argued for years that instability regarding state taxes and government spending have a direct correlation on businesses’ reluctance to expand or to create new jobs.

Both Klepper-Smith and Carstensen also pointed to the Pew numbers as a warning to legislators and Gov. Ned Lamont on the disconnect between state government’s fiscal situation and the general economy.

While the economy remains fragile, state government’s fiscal reserves have grown since the pandemic began from about $2.2 billion to $3 billion — and analysts project the state will close the current fiscal year on June 30 with more than $950 million left over.

That’s been driven largely by two factors. A surging stock market has boosted quarterly income tax filings tied to capital gains and dividends.

And massive federal stimulus has expanded state unemployment benefits — which has artificially inflated not only personal income, both also state income tax receipts, since much of those benefits is subject to taxation.

“The financial market is not the real economy. It is a very small part,” Carstensen said. “It simply disguises our underlying health. A mortician can make you look really good, but you’re still dead.”

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

Leave a comment