The Red Line

Two weeks ago, the lead editorial in The Wall Street Journal compared New York State and Florida “by the numbers” in an exercise The Journal described as “comparative governance.”

The exercise merits emulation. So, let’s add “the numbers” for the Nutmeg State alongside those that the Journal displayed for the Sunshine State and the Empire State. To The Journal’s chosen metrics, I have added just a few, without which the number set would not capture the fiscal reality of Connecticut.

Now let’s compare Connecticut to New York. Forget a comparison with Florida.

Last Thursday, Governor Ned Lamont announced a plan under which the state would give $20 million to a non-profit which, in turn, would use the money to buy $2 billion in uncollectible unpaid medical bills from the state’s hospitals, and, then forgive the debt.

That would seem a good deal, with such a small cost to forgive so much debt.

Yet, at one cent on the dollar, it is a huge $1.98 billion loss for the state’s hospitals. But they appear to be willing participants, because they haven’t been able to collect this debt and may already have written it off.

The Bernie Sanders of the world will rejoice, because the debtors will wind up having received essentially free health care.

But we should remember the donation-seeking credo of the non-profit Connecticut Mirror newspaper which broke the story: “Free to Read. Not Free to Produce.”

This medical care may wind up being free to these patients, but it was not free for the hospitals to provide. There is no such thing as “free.” Someone always has to pay.

The last time the stock market plunged as drastically as it did last year was 2008. Afterward in 2009, federal income tax collections from non-withheld (non-wage) income, mostly investment income from the 2008 stock market, plummeted 31%.

After last year’s stock market plunge, Connecticut budget officials are forecasting only a 15% decline, according to the new Consensus Revenue Forecast.

If past is prologue Connecticut should experience at least a 30% decline. That would put tax revenue $1 billion below the just-released new Forecast, wiping out a large chunk of the newly projected $3.1 billion budget surplus for fiscal 2023.

Yet, no one will know until April, when almost half of all such revenue arrives, following good years in the stock market, bad years and flat years. In the months beforehand, little non-withheld income tax revenue is ever received.  

Connecticut Governor Ned Lamont, a Democrat, talked pure Republicanism in his State of the State address last week, eloquently articulating fundamental GOP principles.

Talk is cheap. Will he walk the walk, and will he be able to bring Democrats along on the walk?

During last fall’s election campaign, Lamont took personal credit for turning a $4 billion deficit into a $4 billion surplus. In last week’s address he was humbler, crediting the turnaround to the bipartisan budget reforms of 2017 that were adopted even before he announced his first campaign for the Governor’s Mansion.

Not only did he credit the budget reforms, but he doubled down on them, saying “Connecticut’s permanent fiscal crisis is over. It’s over, as long as we maintain the same fiscal discipline that served us so well over the last four years.” Fiscal discipline is a Republican virtue. It means Connecticut's various caps on spending and on use of revenue are to remain in place.

Friday before Christmas, Congress passed a massive $1.7 trillion omnibus spending bill for fiscal 2023. Lost in the furious debate about the overspending involved was the fact that the $1.7 trillion entails only discretionary spending. There’s another $4 trillion-plus of annual spending, which is mandated by law. Social Security spending alone will exceed $1.3 trillion this fiscal year. Total annual federal spending in fiscal 2023 will far exceed $6 trillion.

The nation is spending well beyond its means. The nation ran a $1.4 trillion deficit in fiscal 2022, following a $2.8 trillion deficit in fiscal 2021 and a $3.1 trillion deficit in fiscal 2020. That’s $7.3 trillion in just three years. If, as many economists predict, we enter recession this year, the annual deficit will begin to rise again.

Deficits, of course, mean that we have to borrow to finance spending. Over the past three fiscal years, the national debt exploded from $17 trillion to over $24 trillion.

Few people noticed, because interest rates were near zero, so there was little cost to this borrowing. Once the Federal Reserve began hiking interest rates, everything changed.

For many Trump supporters, it was his policies that mattered. We suffered and endured his behavior, just as much as anyone else. Indeed, the headline in one Wall Street Journal oped read “The Only Good Thing About Donald Trump is All His Policies.”

Now, we can have his policies without his boorishness, and without the unfair vitriolic anti-Trump diatribes from the left, most of the media and from Republican Never-Trumpers. Trump inspired a whole cadre of impressive Republican presidential prospects, someone of whom is likely to carry the day in 2024 and carry his policies into the future, albeit with different possible successors having different notions of “all policies.”

Ned Lamont won a convincing victory in last week’s election. Congratulations are in order. Citizens should extend him the same honeymoon that his challenger would have enjoyed.

Yet, we must turn our attention to the future and the looming challenges we face.

First, the state is facing a serious decline in revenue.

Second, following on the heels of the costly recent SEBAC 2022 wage deal, state employee unions are going to come looking for improvements to the benefits side of their contract, which expires in 2027.

Labor always wants more, despite that Connecticut state employees already enjoy among the most generous benefits in the nation. Their health care benefits are the most generous in the nation by far. The negotiations are going to be tough and consequential.

Third, Eversource has warned that electric rates are going to increase 40%, which comes on top of the state’s already stratospheric energy costs. Likely, citizens and businesses will flee the state.