Connecticut is not properly structured for economic growth

Just about everyone accepts that after an unusually vigorous national economic expansion and housing boom, Connecticut remains in the doldrums. It is a national poster child for egregious fiscal and economic mismanagement on a scale rarely seen in post-war America. Jobs are below pre-2008 Recession levels. A major exodus of firms, jobs and residents is underway. By some estimates 20 to 25,000 residents are leaving annually. Most ominous is the unprecedented post-war decline of property values in the fabled Gold Coast where a few hundred thousand wealthy residents provide a third of the state’s revenues serving its 3.5 million inhabitants. People are voting with their boots.

Most attention has focused on the nearly decade-long series of billion dollar deficits amidst the legislature’s inability to curtail the state’s public union outlay comprising 40 percent of the state budget. Our state public unions are among the highest paid in the nation. Retirements have long been severely underfunded. Even well publicized $300k annual payments for privileged UConn profs haven’t gained much attention. Given the powerful political grip by the state’s public union and municipal unions from the 169 individual towns and cities, there’s little prospects of major budget reform.

Gov. Dannel Malloy has set new “standards” with two historic sized tax hikes to protect the public Union Budget. Plus spending hundreds of millions on subsidies to well established firms simply to remain in Connecticut. Rather than to attract out of state firms to relocate bringing in good jobs. Even the loss of nationally prominent GE and Aetna didn’t cause the Governor to rethink his “jobs strategies”. By and large few new well paid jobs have been created in our State over the past decade by attracting new firms.

Near term prospects for major state budget reforms remain very modest. No matter which party controls the governorship or our part time legislature. The state’s public and municipal unions have a tight grip on the state budget. Nor are the higher income towns willing to see essential state aid to education redirected to our “welfare cities” –effectively wards of the state where a third of our population reside.

While the state budget has received the lion’s share of the attention, even if quickly resolved next year our state’s long-standing economic issues have played a far greater role in our past decade’s misfortunes than commonly realized. Connecticut is a most unusual state where a quarter of a million wealthy citizens living adjacent to New York City fund a third of the state’s budget.  By and large the remainder of the population lives in a half dozen so called “welfare cities” and upwards of 150 or so small towns spread across the state.

That peculiar structure imposes very large duplicative administrative costs in the form of high local taxes to fund municipal workers across the state. Instead of a few dozen school districts we have more than a 100 each with highly paid administrators. Together with public union influence in the legislature this is one of the reasons why Connecticut has the second highest property and income taxes in the nation. That’s not a formula for growth — and certainly not a formula for attracting new businesses bringing good jobs.

Connecticut’s greatest weakness goes well beyond its very highly paid and very large public employee sector. Economic growth takes place in cities where new technologies and industries flourish. But outside Stamford our state’s major cities are both small, outdated, and largely “welfare cities” –not the kind that attracts new industries with high skilled labor forces. Connecticut has largely been bypassed by the hi-tech computer revolution. Unlike our adjoining states it lacks even a single prominent hi-tech computer, science or engineering college/university. But it does spend over a billion dollars on UConn whose graduates mostly leave. All this even though we have a prominent collection of recognized traditional colleges, including the formidable Yale University with its $10 billion annual budget.

Simply put, Connecticut is very poorly positioned to participate in our modern hi-tech computer oriented national economy. We do have a few onions such as our defense industry – Electric Boat, Sikorsky and Pratt & Whitney. But they mostly outsource the state for skilled workers and sub-assemblies. Plus there are few spin-offs from defense work. And we still have some part of our once major insurance industry in Hartford. Plus Yale’s world famous medical presence in New Haven. But on the whole Connecticut is simply a service economy with fairly low skills. The high-tech computer, engineering and science world has simply passed us by.

Connecticut is also severely handicapped by arguably the most mismatched allocation of education funds in nation. More than a billion yearly goes to a bloated and largely duplicative public college system, while public education in our welfare cities remains severely short changed in funds. This reflects a peculiar Connecticut attitude whereby the towns use the state budget as a “bank”for their own needs. Forcing the state to pick up retirement benefits of local teachers is one shinning example.

So what to do ? If the state public union budget can’t be sharply curtailed, then most any other action has little consequence. Consolidating unnecessary municipal services across the 169 towns is another obvious step. Why spend hundreds of millions on duplicating high cost public school and local administrative services? But if we’re really serious we need to make our cities engines of growth, not perpetuating welfare cities.

The best we can do is take one city at a time and create a viable attractive urban environment with a first rate public school system and hi-tech commuter engineering and science college to help train a highly skilled labor force so essential to recruiting new firms. That may well take a decade for a single city demonstration. The two obvious choices are either New Haven or Hartford given their proximity to Boston.

The sad reality is that Connecticut is a good place for our public unions, but an expensive place to live and especially to retire. We’re a highly transient state with only a third native born. We greatly overspend on public colleges while underspending severely on public education in our major cities. No wonder business doesn’t find us attractive.

For the wealthy living in the Gold Coast dependent on New York City, Connecticut will remain an attractive place to live — but not to retire. The truth is that without the Gold Coast — just a few hundred thousand residents supplying a third the State budget — the rest of Connecticut is mostly a lower to modest income service economy largely unrelated to the thriving national economy.

Southern States have shown enormous creativity and old fashioned zeal in attracting auto and other manufacturing with suitable subsidies and reaping huge rewards. Why can’t we build autos in Connecticut? Outside of defense we don’t have any significant manufacturing. We all can’t be public union members serving the public. Simply put aside from the Gold Coast, the defense industry and some remaining insurance firms and Yale there’s not much in Connecticut that resembles a modern economy.

Sometimes I’m asked what would you do if given the option to make just one modest sized change to boost Connecticut’s fortunes. After all, once we were the nations’ “Arsenal of Democracy” with a celebrated industrial past of highly innovative small mills and machine shops up and down our river valleys.

Here’s my answer. Lets immediately switch over to a full time state legislature offering good pay, strong support services and attract highly competent real public servants well versed in economics and finance to replace our “hobby legislators.” Revitalizing a down-at-the-heels state economy is hard work demanding committed, competent and well trained legislator. Not a task for part timers.

If we exclude the Gold Coast its easy to see that Connecticut’s 3.5 million population scattered all along the sound and up and own a few river valleys is hardly well positioned to be a major economic force. Our cities are far too small. But if we focus on creating viable cities over the next several decades attracting good jobs and training a skilled labor force rather than prodigiously spending on our public unions, we’ll do much better. Again ignoring the Gold Coast, we’ll not likely ever be a high-income  state. We just don’t have the right geography. But we could become a state without punishing taxes — a place where we could live, raise families, retire and even see our children do the same.

Without taking some bold steps, we’ll just see an ever-increasing exodus of our most talented, enterprising and wealthy citizens, leaving those left behind to pick up the pieces as best they can. Collectively we deserve much better. Blaming the politicians for being beholden to our public unions is a good first step. But there is so much more to do. Over the last 50 years an enormous literature of the economics of state and municipal development has provided the appropriate guidelines on how to prosper. If our public officials continue to ignore basic municipal and state economic development principals, we’ll just continue to founder. And founder we will.

Peter I. Berman of Norwalk held positions at Bank of America, various Wall Street firms and the Chamber of Gold Mines in South Africa. He’s a published author who has made numerous presentations before municipal and state governments, the U.S. Congress. Upon retirement he taught graduate finance at the University of New Haven for several decades.