Plan to fix Connecticut distributes the pain
Ablue-ribbon commission has laid out a path that it contends would closely align state revenues with expenditures by the early 2020s, setting a foundation for economic growth and getting Connecticut out of a cycle of deficits and tax increases to address them.
It would be quite an achievement. On the current projected path, Connecticut will produce $18.5 billion in revenue and face $24 billion in expenses by 2026.
The legislature formed the Commission on Fiscal Stability and Economic Growth to address two related crises facing the state — its sluggish economy and unsustainable fiscal obligations. Robert Patricelli, who made his fortune launching and flipping health care companies, and James Smith, chairman and former CEO of Webster Bank, cochaired the 14-person commission.
Connecticut’s economy, measured by Gross State Product, has declined 7.9 percent since 2007. While other states saw a GSP decline in the aftermath of the Great Recession, most also saw healthy recoveries, on average 11 percent.
The state has seen a wealth drain. Since 2009, Connecticut has watched 37,000 residents, with an average gross income of $123,377 leave the state, while households moving to Connecticut earn $93,000, on average.
While it is impossible in a short column to summarize the 190-page report, released early this month, I can take a crack at its overarching themes.
It asks the legislature to lower the income tax and eliminate the estate and gift taxes. Income tax revenue has proved volatile, spiking and crashing from year to year. Dropping the top rate from 7 percent to 5.75 percent would reduce that volatility and, along with the end of the estate and gift taxes, stem the wealth drain, the commission concludes.
On the other end of the spectrum, it would stop collecting income tax from the working poor and, by 2022, phase in a $15 minimum wage, narrowing the state’s income disparity gap and boosting consumer purchasing power.
To make up for the revenue loss from the income tax cuts, the commission asks the legislature to impose a 0.8 percent payroll tax on businesses, exempting companies with nine employees or less and imposing only half the tax on companies with 10 through 99 employees.
It recommends boosting the sales tax from 6.35 percent to 7.25 percent, while giving municipalities the authority to add on another 0.5 percent, but only if the local revenue generated is tied to policies that promote regional service delivery.
On the cost-saving side, the commission targets public unions. In municipal labor negotiations, it would allow arbitrators to make compromise rulings, rather than having to choose between the last offers from both sides, a system the commission found has disproportionately benefited labor.
At the state level, the commission calls on the legislature to set state employee fringe benefits, with an eye toward affordability, removing benefits from the collective bargaining process. That would put Connecticut in line with most other states and on a collision course with labor.
Among its most dubious recommendations is its call to, “Develop and implement a plan to cut $1 billion out of annual operating expenses.” It provides no details. If it was that easy, it would have been done.
The commission backs Gov. Dannel P. Malloy in calling for a massive investment in the state’s transportation infrastructure, with the gas tax and revenue from the introduction of electronic tolls earmarked to pay for it.
The commission has provided a logical approach to repairing the state’s budget problems, but its ability to improve the business climate is less clear. Conservatives and the business community don’t like its minimum wage hike and payroll tax proposals. Progressives criticize the idea of cutting taxes on the rich and weakening labor’s hand.
The apportioned pain could lead to a compromise and adoption of the strategy or to a stalemate that dooms it. I wouldn’t bet on the former. Paul Choiniere is the editorial page editor.