The Red Line

On Monday, Connecticut’s budget forecasters released their first updated revenue forecast since last May, at which time they removed a whopping $2 billion of expected revenue from volatile individual income tax categories over a four-year stretch. The new forecast predicts further declines in these categories, wiping away another $750 million over the remaining three of the original four years.

While declining revenue is never good news, these drastic reductions represent a welcome return to budgetary prudence from the wildly over-optimistic revenue forecasts of fiscal 2023 and from Governor Lamont’s re-election campaign happy talk last year claiming to have ended the era of permanent fiscal crisis in the state.

The crisis is not over.

Six months ago, I authored a column about the fiscal condition of Connecticut, focusing on a table of statistics which The Wall Street Journal had used to compare New York and Florida.

In this updated edition, the table compares Connecticut to its two big neighbors, New York and Massachusetts, and to the entire nation. In addition, the table is reorganized into sections covering demographics, the economy, taxation and factors important to businesses in choosing operating locations. These are the most important dimensions to measure the vitality of a state.

Demographics: The populations of Connecticut and New York are barely growing. While Connecticut enjoyed a short burst of net in-migration – mainly from New York driven by the pandemic, that appears to have reversed in data from CT Data. The decline is confirmed by the fall in Connecticut’s U-Haul ranking (ratio of incoming vs outgoing moving vans). Massachusetts seems an anomaly likely based upon college students coming and going.

Economy: Connecticut’s economy is small and barely growing, and the labor force is shrinking.

Taxation: Relative to neighbors, Connecticut is a haven for high income individual taxpayers, about equivalent insofar as sales tax is concerned and an onerous place to own a home.

Business (Re)location:  On business location decisions, Connecticut is uncompetitive, even regionally. Electricity costs are twice the national average, and the highest in the region. Traffic congestion is widespread in the entire Western (populous) half of the state. The corporate tax rate (at least for large companies) is high, including the always-extended 10% surcharge. Though progress has been made on unfunded obligations, courtesy of massive federal COVID assistance and a long boom in the stock market, the state employee pension fund remains among the lowest funded in the nation.

Two so-called “rats” were inserted at the last minute into two massive must-pass pieces of legislation introduced and passed just hours before Connecticut’s constitutionally-mandated end of legislative session on June 7th this year. 

Only days later did legislators, with a few key exceptions, discover what was hidden in the 836-page budget bill and the 300-page “bond bill” on which they had voted. The rats overrode local decision-making on land use and zoning in two towns, Stamford and Middlebury. One rat was requested by a Republican, the other by a Democrat. Rats are a bipartisan problem, but a problem that only all-powerful Democrats can clean up.

The silver lining, if there is one, in a proverbial slow motion train wreck is that the engineer may be able to recognize the disaster in its midst if it is unfolding so slowly, and then, do something to keep the train on the rails and apply the brake and prevent a total calamity.

At the national level, deficit spending is producing mountainous debt, skyrocketing interest cost and corrosive inflation. In Connecticut, plummeting tax revenue, a declining labor force and outmigration spell a return of the permanent fiscal crisis that Governor Lamont has claimed to have ended.