Don’t blame COVID for Connecticut’s economic woes
Abraham Lincoln once said, “I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts.”
So, what are the “real facts” for Connecticut’s struggling economy? Can we even stomach them at this point?
Earlier this month, Gov. Ned Lamont was forced to release a deficit mitigation plan, required by state statute when a shortfall of more than one percent is predicted in the General Fund. The Lamont administration now projects a $1.3 billion, 6% deficit, despite a windfall in tax receipts from a robust stock market.
Although they are trying to avoid talking about it until after the November 3 elections, Connecticut Democrats’ political spin around one of the worst economies in the nation has already started, namely that “Everything was just fine in Connecticut before COVID hit.”
Yes, COVID dealt a crushing blow to state economies across the country. Second-quarter U.S. GDP fell 31.4 percent — the worst quarterly decline on record. To put it in context, the worst quarter of the Great Recession saw a contraction of only 8.4 percent.
Connecticut’s Department of Labor estimates that 12 to 13 percent of residents are still unemployed – 50% higher than the national average. Economic relief packages are hung up in Congress, the nascent recovery is poised to stall, and we’re headed into flu season with a possible second wave of the virus ramping up.
Connecticut state deficits could approach $8 billion over the next three years. With just over $3 billion in the state’s savings account, it’s indeed a rainy day and this reserve fund will need to be tapped. But it won’t be enough. It’s time for the state to be honest about the origins of this crisis and to fix it.
Since the enactment of the personal income tax in 1991, Connecticut Democrats have been on a spending spree. From the steady march of state employee pay raises to the generous pensions and benefits packages that politicians promised but never funded, a lopsided power balance between labor and taxpayers has been the single largest driver of exploding fixed costs and deficits.
As the wealthy voted with their feet, those who remained were saddled with an even greater tax burden – creating a vicious, self-perpetuating cycle. Unable to punish individuals even further, these legislators turned to business to fund their out-of-control spending. In the past two years alone, one-party rule has ushered in a 50 percent minimum wage increase and one of the most expensive paid family medical leave programs in the country.
Now, as these beleaguered companies cautiously re-enter a weak economy subject to state-imposed travel, safety and capacity restrictions, the state is assigning them COVID liability under their workers’ compensation plans, racking up debt in the unemployment trust fund and canceling the scheduled expiration of the corporate tax surcharge.
The camel’s back is about to break in Connecticut. Nonetheless, state union-sponsored television ads started running last month, encouraging the legislature to “tax the rich” to pay for the “people’s recovery.”
Connecticut is bankrupt. Residents know it. Businesses know it. And, while they may not admit it, politicians know it. And they know that Connecticut was bankrupt well before COVID hit.
So, what can we do?
As Lincoln said, start with the truth. Politicians must admit the underlying causes of the fiscal illness and attend to them.
U.S Bankruptcy code prohibits states from filing for insolvency, but there are other solutions.
Economic growth is the easiest of medicines to swallow. To ignite it, spending and taxes in Connecticut must be reduced. Businesses must be given a reason to come to the state. Families must be encouraged to stay.
The exodus of residents from New York City to Connecticut is real. Fairfield County home sales increased 80% in September with the median home price rising 33%. Imagine what a property tax cut, a waiver of the seller conveyance tax on homes or a reduction in Connecticut’s corporate tax rate could do to sustain this rally, rather than relying on a one time, COVID-induced migration of people out of New York City.
The truth may be difficult for Democrat legislators to accept, as they have been at the root of the problem for decades. And it’s certainly tempting to use COVID as an excuse. But, until legislators have the courage to reduce spending and make our state an affordable place to live again, Connecticut will keep digging deeper into an economic hole that it broke ground on decades ago.
Bob Stefanowski was the 2018 Republican Candidate for Governor of Connecticut.
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