The Middletown Press (Middletown, CT)
Good news for an ill economy
Connecticut’s economy, and the state budget that hinges on it, is doing a bit better, thank you very much, as a new governor starts his bedside shift. The patient is in critical condition.
That’s the conclusion across the board this week as fiscal and economic events unfold in rapid succession. It’s the triple-witching hour for prosperity in this troubled state. Rarely if ever has so much happened so fast.
Here’s a scorecard with the top-line view of all of it, followed by some details.
⏩ The state economy grew at an annual rate of 3.1 percent in the spring, the federal government reported Wednesday in a release that showed, once again, mixed news for the state’s stop-and-start recovery. That’s better than we had seen in recent quarters but it still ranked Connecticut No. 43 among states for the April-June quarter. See a closer look at this below.
⏩ State budget offices reported late Tuesday that tax collections are up in 2018 enough to raise the forecast for revenue in 2019 and 2020 by about $700 million a year. When all the debris settles, the new revenue forecast means the projected shortfall of $2 billion for the fiscal year that starts July 1 will fall by $300 million. That’s exactly the amount I predicted last week in a column about the upcoming budget.
⏩ Speaking of the state budget, Gov. Dannel P. Malloy will deliver his “transitional budget” to the team of Gov.-elect Ned Lamont on Thursday.
It’s not a fully cooked plan, as all governors propose to the legislature every February. But it will give Lamont options.
The good news: Look for Malloy to tell Lamont he can pull it off without raising tax rates. That doesn’t mean no added revenue, though. Malloy could suggest sources such as continuing the hospital tax, which brings in added Medicaid, adding $415 million in revenue; and in the second year of the 2-year plan, stuff like sports betting and even marijuana sales.
⏩ The big nut is Connecticut’s unfunded liabilities, the big three. More mixed news will come Thursday as the budget offices of the governor and the General Assembly deliver their “fiscal accountability reports,” due in the November of every even year.
The unfunded liability connected to the teachers’ pension fund is flat at $13.1 billion. At least the bleeding has stopped, but the nice news is that we thought it would rise — so the state will save $60 million in payments into the fund next year. Look for a similar result in the state employees pension fund, which had an unfunded level of $20.4 billion last year. The controversial deal with the state employees bargaining coalition is slowing growth of the unfunded liability in that fund, and might even lead to a reversal. We’ll see more on Thursday.
Same story with the health liability for retirees. It was at $17 billion last year but Connecticut has
done a pretty good job controlling health costs increases, and a surcharge for state employees is helping to shore up a fund that was pay-as-you-go for far too long.
⏩ Late Thursday morning, we’ll see the monthly jobs report from the state Department of Labor. I won’t predict up or down. The good news here is Connecticut is on track for a gain of 1 percent, or about 16,000 jobs in 2018. That’s subject to large revisions in March, but if it holds, 2018 could bring the largest year of job gains since 2007 and the first significant gain since 2015.
No, we are not close to reclaiming all the jobs we lost in the recession, and yes, every other state is ahead of us on that score. Economist Donald L. Klepper-Smith will remind us of that fact by noon and he’s right.
But guess what? What we feel is what’s happening now, and over the last year, that hasn’t been so bad. Connecticut has added 100,000 private sector jobs in Malloy’s eight years — okay, 99,800 — and we have crossed back over the 1.7 million threshold for total jobs for the first time since mid-2008.
Should it have happened sooner? Of course. The point is, 2018 has been better than most of the last 10 years.
The view from Splash
Connecticut’s economy is growing faster than it was but not as fast as other states. We’re creating more jobs than we were but not enough to make up for years of nothingness. Tax collections are way up but not enough to wipe out the shortfalls.
Health costs are rising slower than in other states but are not under control. And pension liabilities are slightly down but nowhere near enough to balance the books.
How is all this affecting business owners who employ people? Mark Curtis, CEO of Greenwich-based Splash Car Wash, with 15 Connecticut locations (and four elsewhere, including one in China) just brought in new investors for a round of expansion.
He’d like to see less Connecticut-bashing.”I feel more confident now than I’ve felt in years past,” he said Wednesday. “The hope is that as news becomes positive, and there’s less of a political back story...that that starts to get people spending more.”
An odd GDP report
Let’s take a closer look at the state GDP figures for overall growth. A gain of 3.1 percent after adjusting for inflation would normally be great, but this was an extraordinary 2018 second quarter for growth nationwide, which is why we’re at No. 43.
Worse, a comprehensive revision of prior numbers shows that in 2017, Connecticut’s economy shrank by 1.1 percent, not 0.2 percent as had been reported. That’s largely because in the fourth quarter of 2017, the state’s economy shrank at a 2.4 percent annual rate — a change from a previously reported quarter of solid growth.
For 2018, through the first six months, Connecticut is on pace for modest growth, which at least is an improvement. The firstquarter figure was an annual rate of 1.1 percent.
The revisions show that from 2007 to 2017, Connecticut’s economy shrank by an astounding 8.5 percent while the nation grew by 15 percent. Those numbers are slightly changed from previously reported totals that included a 9.1 percent drop for the state — but that’s hardly any solace.
In the second quarter, New England grew at an annual rate of 3.7 percent. The fastest-growing region was the southwest, led by a hot Texas at 6 percent.
The figures reported are annualized, meaning they are roughly four times the actual three-month growth, adjusted for inflation. Connecticut’s gain in the spring quarter was 0.8 percent after adjusting for inflation. The total state economy will comprise about $270 billion in activity this year.
Durable goods manufacturing drove 0.41 percentage points of the 3.1 percent annualized gain in Connecticut, and information industries contributed 0.7 percentage points — both sectors on par with the region and the nation. Finance and insurance contributed a decline of 0.42 percentage points, on par with New England but a steeper decline than in the nation, which still showed a decline for those sectors.
Speaking of politics, Sen. Len Fasano, R-North Haven, Republican leader of the state Senate, issued a statement late Tuesday saying the higher state tax collections were the result of bipartisan cooperation. “Today’s news is good news, but the new state legislature needs to be mindful that any retreat from this pattern of cooperation will set our state back decades,” Fasano said.
He’s worried, and he’s right.