Lee Elci: Welcome back. Our very good pal Red Jahncke is joining us. Red, good morning. How are you, sir?
Red Jahncke: Good morning, Lee.
Lee Elci: I want to remind everybody they can find you at the-red-line.com. A fantastic columnist, with all his work available on his website. You can read his articles in various places, including occasionally in the Wall Street Journal. We videotape this segment, which goes up on his website, and I also post it on our outlets. So, Red, good morning; there’s a lot to cover today. Your recent column discusses Governor Lamont’s quiet implementation of a hiring freeze on state employees. You describe this as a stealth move. Why is he doing this silently?
Red Jahncke: Well, I think he’s been caught off guard. State employee compensation has skyrocketed, consuming a large portion of the budget and squeezing out other spending. The question becomes: What do you cut? Lamont is under significant pressure from progressives in his party, so he halted hiring within the state workforce for the remainder of March, April, May, and June to remain within the budget—at least temporarily. However, this is just a preview of a much larger impending problem.
Lee Elci: You have to admit, this seems like a small victory. You’ve been addressing the 33% wage increase over the last five or six years. This hiring freeze appears to be a win.
Red Jahncke: Yes. Labor costs are determined by two factors: the pay rate and the size of the workforce. We’ve criticized the state for significantly increasing pay rates (a 33% raise) but, he’s been on a hiring binge simultaneously. That’s the classic double whammy. Over the past two years -FY2023 and fy2024 – the cost of the unionized workforce has risen by 18%.
Many people are confused about fiscal guardrails, particularly the Volatility Cap. However, the key issue here isn’t the fiscal guardrails but rather the excessive compensation of state employees that is crowding out other spending.
Lee Elci: Lamont has a Yale background he often references. Still, he didn’t seem to anticipate the combined impact of pay rates and workforce size on labor costs. What does this suggest about his fiscal acumen?
Red Jahncke: He attended Yale business school, where rate-volume analysis is part of the first-year curriculum. Anyone paying even minimal attention understands the impact of increasing both rate and volume simultaneously—it’s nearly exponential. Lamont increased pay rates by 33%, and over the last two fiscal years (2023 and 2024), the workforce increased by 5%, resulting in an 18% rise in overall compensation costs. It’s startling that this was overlooked.
Lee Elci: What kind of resistance do you expect Lamont to face? How much union pressure will there be, and do you think he will ultimately cave?
Red Jahncke: Consider that unions function much like businesses—they aim to grow. Naturally, they want to increase both pay rates and membership. They’ve clearly outmaneuvered Lamont. There’s likely already a new state employee contract either finalized or nearing completion. My prediction is that the unions have once again outmaneuvered him, resulting in an unsustainable outcome.
Lee Elci: Could you assign a percentage of blame? How much is Malloy responsible, how much is Lamont, and how much responsibility do unions bear?
Red Jahncke: I would assign 5% blame to Malloy, 70% to Lamont, and 25% to the unions. Unions are designed to maximize pay and benefits for members, and their success isn’t inherently blameworthy. Lamont, however, is responsible for negotiating on behalf of the state and controlling labor costs, but he has failed to do so. His proposed budget includes hundreds of millions of dollars for future pay increases, clearly signaling that he’s continuing to yield.
Regarding fiscal guardrails and surpluses, there’s confusion. People often hear about state surpluses but also see spending cuts. Lamont repeatedly moves programs off-budget.
Lee Elci: So by “off-budget,” do you mean he’s funding programs separately, outside the official budget?
Red Jahncke: Exactly. The fiscal guardrails only apply to the official budget. To bypass them, programs like the $300 million early childhood initiative have been moved off-budget. This practice allows spending to explode unchecked.
Lee Elci: If these items are moved off-budget, who ultimately pays for them? For instance, the $300 million—where does it come from?
Red Jahncke: Let’s make a clear distinction between. One is surpluses and two is where they’re coming from. The fiscal guardrails are built around the Connecticut state economy, keeping state spending within the limits of our state economy. The state economy has been growing less than 1% per year. The surpluses come from the stock market, not the state economy. The stock market has been on a rampage. It has thrown off enormous gains for investors. And we have many investors living in this state. They could be living anywhere. They’re paying taxes in this state on those gains. Those taxes are pouring into state coffers. And that’s where the surpluses come from. They do not come from the state economy.
Lee Elci: Understood.
Red Jahncke: Investors’ gains from the stock market have no direct connection to Connecticut’s economy. Hence, surpluses should be cautiously managed because investors can move elsewhere, taking tax revenue with them. These surpluses are separate from the state’s actual economic condition.
Lee Elci: Great insights today, Red. We’re out of time. Everyone can find your column online, and I’ll also share it on our social media. Thanks again, Red. Talk to you next week.
Red Jahncke: Thanks, Lee. I appreciate it.
Red Jahncke is a nationally recognized columnist, who writes about politics and policy. His columns appear in numerous national publications, such as The Wall Street Journal, Bloomberg, USA Today, The Hill, Issues & Insights and National Review as well as many Connecticut newspapers.