Connecticut’s economic growth has lagged the rest of the country since both the pandemic recession and the Great Recession, costing the state an estimated 250,000 jobs and potentially billions of dollars in tax revenue, according to a report from child advocacy and economic policy group CT Voices for Children.
The annual “State of Working Connecticut” report, released Thursday, attributed much of the state’s lackluster economic performance to its high costs of living — particularly housing and child care expenses for families — and certain regressive taxes that “exacerbate inequality,” said Patrick O’Brien, research and policy director for CT Voices.
“By not sufficiently addressing the housing affordability problem in the state, by not sufficiently reducing barriers to entry in the workforce, by not sufficiently addressing the child care problem, and by not sufficiently addressing the tax fairness problem, it’s become too expensive for a lot of families to move here and or to stay and grow here,” O’Brien said. “That has hurt the state’s economy and in turn the state’s budget.”
A broad middle-class tax cut, passed this year by the state legislature, was an improvement, O’Brien said, “but it’s likely insufficient.”
Since the Great Recession, economic growth, or GDP, in Connecticut has trailed the U.S. rate by 37.9 percentage points, and since the pandemic it’s 7.5% behind. Job growth since the pandemic lags the U.S. by 3.1%, and since the Great Recession it’s fallen 14.4% behind, the report found.
“That’s just an eye-popping stat,” said Chris DiPentima, president of the Connecticut Business and Industry Association.
But he noted the economic climate following each of the recent recessions was distinct. “We weren’t able to really create jobs during that ‘08 to 2018 period of time… because we were in this period of budget deficits and tax hikes,” DiPentima said. “From the pandemic, it’s been the opposite. We have the job opportunities, and the people haven’t come.”
Like O’Brien, DiPentima attributes the recent troubles to the state’s affordability. He said the state needs to invest in reducing the costs of living and the costs of doing business in Connecticut, while also paying down the state’s long-term debt obligations. Connecticut put $4 billion toward retiree health care debt during Gov. Ned Lamont’s first term, but it still has a long way to go toward paying it off.
“You have to have a balance of the two,” he said. “You don’t want to be moving to a state where it seems affordable today, but the next thing you know, the rug gets pulled out from underneath you, and whether you’re an individual or business, we’re in a budget deficit and we’re raising taxes again.”
O’Brien took a different stance on the balance of spending on social services versus paying off the state’s long-term debt. By investing more of the state’s recent surplus funds into programs that make Connecticut more affordable for low- and middle-income families, the state would see an immediate increase in consumer spending, which accounts for more than two-thirds of GDP, he said.
“When GDP grows, the tax base increases, making it easier for the state to generate the revenue it needs to service those long-term obligations, while also both increasing spending on critical public investments and providing tax cuts to low- and middle- income families,” he said.
Federal pandemic emergency funds have helped boost Connecticut’s financial position. The state ended the 2021 fiscal year with a $1.7 billion budget surplus. In 2022 the surplus reached a record $4.3 billion, and this year’s surplus landed at $2.9 billion.
And since the legislature enacted caps on spending and borrowing in 2017 — along with aggressive savings programs — the state has amassed a record-setting $3.3 billion in its rainy day fund while also paying an extra $5.8 billion against its massive pension debt.
One bright spot for Connecticut, relative to the rest of the country, was the wage gain among low- and middle-income workers over the course of the pandemic — which surpassed the national rate. The increase in Connecticut can be attributed, in part, to the state raising its hourly minimum wage annually between 2019 and 2023, reaching $15 an hour in June of this year.
While it’s possible for minimum wage increases to impede job creation or economic growth, that wasn’t likely the case here, experts said. Connecticut currently has nearly 100,000 job openings, and the competitive job market has been driving up hourly starting wages well beyond the legal minimum.
Balazs Zelity, assistant professor of economics at Wesleyan University in Middletown, pointed out that New York and Massachusetts “also embarked upon similar minimum wage increases over the past few years, yet they have been able to keep up with and even surpass the country as a whole in real GDP growth.”
Zelity said that could be because low-wage jobs in those states tend to be in sectors that can’t easily change location, like the service sector. Connecticut’s relatively weak performance may also be related to its aging population, many of whom are retiring from the workforce, Zelity said.
DiPentima said the key to growing the workforce is attracting people to the state, and that means bringing down the cost of living. “That’s where the legislators and the governor and all elected officials need to be hyper-focused: How do we make Connecticut affordable — not the most affordable, but certainly the most competitive in the Northeast when it comes to the cost of living and the cost of doing business?”