STUMP » Articles » Catch-Up Week: Let's Turn Around Connecticut! » 2 May 2017, 22:20

First, the very shocking news that taxing rich people more doesn’t work out the way people would like to think it works.

HARTFORD, Conn. (WTNH)–Connecticut’s state budget woes are compounding with collections from the state income tax collapsing, despite two high-end tax hikes in the past six years.

It means the current budget year, which ends in just two months, is now seriously in the red and next year’s deficit has ballooned to $2.2 billion.

It’s happening because the state of Connecticut depends too much on its wealthy residents, and wealthy residents are leaving, and the ones that are staying are making less, or are not taking their profits from the stock market until they see what happens in Washington.

It’s been ten full days since the April 18th tax filing deadline, and workers at the state tax department are still processing returns coming in the mail. Even though about 90 percent of all Connecticut residents file electronically, many still send their checks for taxes due in the regular mail. It now looks like expected revenue from the final Income filing will be a whopping $450 million less than had been expected.

“Next year it looks like our first year budget, fiscal ’18, now instead of having a $1.7 billion deficit to address, it’s now about $2.2 billion,” said Senate President Pro tem Martin Looney (D-New Haven). And it has a major impact on the current budget year that ends in just two months.

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The state only has $235 million in the so-called ‘Rainy Day Fund’ for emergencies. That means the Governor and the legislature will have to find $215 million in the next few weeks just to balance the books on the current year.

So this shortfall is about twice what is in the “Rainy Day Fund”.

And they were already looking at an almost $2 billion deficit.

Sounds like a winning plan.

So what happened?

State Revenue Services Commissioner Kevin Sullivan said, “The hedge funds industry, upon which we rely very heavily, is much more conservative in the last year in terms of the incomes that people are realizing (and) no bonuses again on Wall Street.”

Governor Malloy added, “The reality is that in Connecticut we get most of our money from very few people and that can produce some very wild swings.”

Yeah, funny thing about the super-rich. Their wealth can be high, and their income extremely variable.

And if you, CT politician, think of taxing their wealth, you can figure out just how rapidly that wealth can move elsewhere before you get your grubby paws on it.

OLDER STORIES

As a reminder, here are a few posts I did about Connecticut’s dependency on an extremely few wealthy people — so few, in fact, they can keep tabs on each single one of them, and that if just one of these people moves, it has a huge effect on the tax revenues.

• May 2015: Public Finance Follies: When You’re Too Dependent on Very Few People – I note a $16.2 billion take in taxes, $7.1 billion of which were state income taxes, and noting that there are 5-7 key people that, if they left CT permanently, would noticeably affect state revenue
• July 2015: Go Somewhere Cheaper, Young (and Old) Man! — people and businesses fleeing high-tax locales, such as CT
• June 2016: Connecticut Update: No Billionaire Left Behind — I note there are “only” 12 billionaires in CT. And that they have to be bribed to stay.

I work in CT and live in NY, and it always cracks me up when one of the perpetual “in charge” Democratic class has to explain to the downtrodden public employees that no, a millionaire tax isn’t the best idea ever.

I used to be pissed off at how weak the Republicans are in NY (may the ghost of TR haunt you!), but hell, who wants to own any of this mess?

OH WAIT, HERE’S SOMEBODY

Now that Democrat Dan Malloy has said it’s no fun any more and he’s not running for governor again, a few people are stepping into the ring. The gubernatorial race will be in 2018, but it’s never too early.

Here’s one: Dave Walker

Let’s see if his facebook video embeds:

Dave Walker’s facebook page

So Dave Walker has an interesting background and his very own Wikipedia page (I’m sooooo jealous!)

What I find interesting is that he’s from the South, like me, and became a Yankee as an adult (also like me). But he comes across as a political centrist, was first appointed as U.S. Comptroller by Bill Clinton (though Walker was a Republican… and he served through George W. Bush’s term.)

I wish him well. It’s a tough road for CT for many reasons, the biggest being the appetite of the public employees in the state. As I have not been involved in CT politics (indeed, my job precludes me from certain political activities), I was surprised to hear of some certain foregone revenue sources for the state.

For example, I understand state employees don’t pay for parking in Hartford. Excuse me, DOWNTOWN HARTFORD, where I work and where I and my colleagues have to pay hundreds of dollars per month for the privilege of parking. I have people senior to me taking public transport because it’s so much cheaper (and possibly because it’s environmentally better).

Seems fair to charge those state employees for parking. If it’s too expensive to park, maybe they can join the environmentally superior and take public transport.

But that’s just a beginning.

TREADING WATER, NOT YET DROWNING

I feel like I’m swamped in Achilles’s sulks when I consider the amount of time they take wrangling budgets up here. The last time I checked in on this was March, so let’s check the progress since then.

How Soaring Benefit Costs Are Coming Back To Haunt Gov’t Workers:

Benefits are taking a big bite out of school budgets in a number of states that have made lavish pension and retiree health care promises to workers. Connecticut, with one of the worst-funded state pension systems, has seen the cost of supplying benefits to its school employees rocket by 123% over 10 years, so that benefits alone now consume 27% of its public education budgets, up from 18% a decade ago.

What does a pension fund do with a park?

As part of the effort to close a $48.5 million deficit in Hartford’s 2017 budget, the city transferred ownership of Batterson Park in Farmington to the city’s pension fund.

The move “offset $5 million of the required pension contribution,” according to an April 18 press release from the mayor’s office.

The park, which is located in Farmington, was closed in 2016 “due to budget constraints,” according to Tom Baptist, Harford’s superintendent of public works.

While it was owned and operated by Hartford, Batterson Park was only open to the public during the summer on weekends and holidays. Parking was free and the admission charge for adults was $3 for a Hartford resident and $5 for an adult non-resident. The charge for children ranged from $1 to $2.
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The park has a a 145 acre pond with a beach, boat launch, and some open-air structures with benches for picnics. Surrounded by trees, the park is quite pleasant to look at but it remains to be seen whether or not it will open for the summer of 2017.

Editorial: Conn. travels a painful path

Early this month, Moody’s Investors Service laid out the scale of problem. Connecticut has been underfunding its pension fund for state workers and municipal teachers since 1939. (That’s not a typo.) Connecticut faces massive obligations for teachers pensions each year.

Last year alone, the state had to fork over $1 billion for teachers’ pensions. State workers have it almost as good, contributing only between 0 and 2 percent of their salaries toward retirement each year. The national average, by contrast, is 7 percent.

The result? Some 30 percent of Connecticut’s state budget is eaten up by “fixed costs” (read: retirement and health-care benefits). That’s the highest percentage of any state in the union, reports Moody’s.

And the numbers are set to get worse. In the 2018-2019 fiscal year, Moody’s projects, these fixed costs will consume 35 percent of the state’s revenues. (The ratings agency says that the annual contribution for teacher retirement alone will skyrocket by 16 percent in the next budget.)

If the state doesn’t implement Raimondo-style reforms, things will become truly untenable: the Center for Retirement Research at Boston College says that required fixed costs will rise by 500 percent by the 2031-2032 fiscal year.

Having such a large percentage of your budget eaten up by mandatory spending leaves precious little for education, infrastructure, public transit and other important priorities. It is also not helping matters that Connecticut’s economy is slowing. While still a very prosperous state, Connecticut’s financial industry has been hit hard, and it is one of the only states in the country that is losing population. Ever-rising taxes to feed the beast of public employee benefits can inflict serious harm on a state’s economy.

Survey: Don’t shift pension costs to municipalities

Shifting the cost of teacher pensions to cities and towns to help balance the state’s budget doesn’t sit well with taxpayers.

A new survey says 72 percent of Connecticut voters are opposed to using local property taxes to help pay for even a portion of the cost, which has traditionally been up to the state.

Two out of three taxpayers are against any plans that would use local property taxes to balance the state budget.

If legislators approve such a plan, voters would make their anger known at the polls next year, according to the April telephone poll which included 600 voters from around the state. The survey was commissioned by two groups with a heavy stake in the game: the Connecticut Education Association, the state’s largest teacher’s union, and the Connecticut Conference of Municipalities, which represents 163 municipalities throughout the state.

“While we recognize that the state is facing ongoing budget challenges, shifting state funding obligations for essential services onto already strapped cities and towns is not a viable solution,” said Mark Waxenberg, executive director of the CEA. “Residents want the state to pay its own bills, not transfer another financial burden onto property taxpayers.”

Joe DeLong, executive director of CCM, said towns and city budgets are already strained.

“Plans for this massive shift in additional state costs onto cities and towns for teacher retirement payments will force both big increases in property taxes and deep cuts in critical municipal services.”

To help seal a state budget deficit predicted at $1.7 billion, Gov. Dannel Malloy proposed shifting one third of the cost of teacher pensions — some $408 million — to cities and towns. In Bridgeport, for instance, the $14 million more the district would get for schools would be wiped out by a $13 million bill for teacher pensions.

That is a budget deficit of $2.2 billion now, thanks very much.

But I find it amusing — where do these taxpayers think the money is going to come from? The 12 billionaires still not yet run out of the state?

Oh wait, it will come from state taxpayers. Theoretically, you guys.

Ok, and people like me, who don’t live in CT and have no kids in CT schools. But they get their pound of flesh off me.

Malloy plan hands poorest municipalities a life preserver and an anchor

Gov. Dannel P. Malloy wants to help Hartford and Connecticut’s poorest communities stabilize their local budgets.

But he also wants all municipalities — including the poorest — to begin paying one-third of teacher pension costs set to explode over the next 15 years.

Those goals may not be politically compatible.

Why?

In the simplest terms, the governor’s own study warns that Connecticut’s annual teacher pension bill could grow by a mind-blowing 525 percent — from $1 billion to $6.2 billion — between now and 2032.

No one, neither Democrat nor Republican, not in the administration, the legislature, or local government, is predicting revenues for communities will match that growth rate.

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Sharing the burden of teachers’ pensions

But attacking those pockets of poverty wasn’t the only challenge the governor took on in his new budget.

Massively under-funded retirement benefit programs for state employees and teachers — stemming from more than seven decades of insufficient savings — have begun to take a heavy toll on state finances.

A 2015 study commissioned by the administration and prepared by the Center for Retirement Research at Boston College concluded Connecticut’s two pension programs both were headed in an ugly direction. Annual contributions for each fund — currently just over $1 billion — could surpass $6 billion in the early 2030s as the state tries to make up for past mistakes.

The governor and unions struck a deal earlier this year to restructure payments into the state employees’ pension, limiting how high costs will spike over the next 15 years, but also passing at least $14 billion in costs onto a future generation of taxpayers.

But Connecticut lacks the legal flexibility to restructure the teachers’ pension.

Malloy’s solution: Since the pensions are for municipal teachers, it’s time for cities and towns to pay one-third of the cost.

“I didn’t create this,” the governor told The Mirror. “I’m trying to fix this for the good of the state.”

But municipal leaders respond they didn’t either.

And while state officials say teacher pensions reflect the salaries local boards of education negotiate, municipal advocates fire back that the most of the cost stems from decades’ worth of irresponsible choices by governors and legislatures.

More than 80 percent of the $2.1 billion Connecticut must contribute this fiscal year to pension funds for state employees and teachers involves paying the bills ignored by past state officials. Conversely, less than 20 percent is the cost of saving for the future retirement of present-day workers.

Ah, 80% in a different context.

80% OF THEIR FREAKING PENSION CONTRIBUTIONS IS TO PAY FOR PAST ACCRUED PENSION DEBT.

That is not a good 80%. A very, very bad 80%.

Wall Street agency warns CT budgets will be bleak for years

A major Wall Street credit rating agency warned investors Wednesday that Connecticut’s weak economy and surging retirement benefit costs are likely to plague state budgets and test the state’s fiscal management for several years to come.

The latest issue paper from Moody’s Investors Service — part of a growing trend of Wall Street commentary on Connecticut’s troubled finances — also warns that while proposals to shift costs from the state to municipalities could help the state’s credit rating, it could hinder that of the cities and towns that would share in these expenses.

“Connecticut’s fixed costs command roughly 30 percent of the state’s $18.9 billion non-federal governmental revenues (next fiscal year,) which is the highest percentage of all 50 states,” Marcia Van Wagner, a vice president and senior credit officer at Moody’s, said Wednesday.

Those costs, led by some of the most poorly funded public-sector pension and retiree health care programs in the nation, are expected to consume nearly 35 percent of General Fund revenues by 2018-19, the report states.

And while Moody’s describes Connecticut’s high wealth as a “paramount credit strength,” the state’s economy “has entered a ‘new normal’ with employment still below pre-financial crisis levels and income growth lagging the nation’s.”

Connecticut’s financial services sector has lost 11 percent of its jobs since 2007 “and the non-financial sectors have failed to compensate, with manufacturing in decline and lackluster growth in the service sector,” Van Wagner said.

The lackluster economic growth has been hampered further by population loss, Moody’s wrote. Connecticut is one of just four states to lose population every year since 2013.

The state’s poorly funded pension for municipal teachers and pension and retiree health care programs for state employees reflect insufficient savings patterns that date back to 1939.

Underfunding the pensions — it’s an almost 80-year tradition!

Aresimowicz offers phase-in compromise on pension bills for CT towns

House Speaker Joe Aresimowicz offered a compromise Wednesday on one of the stickiest points in Gov. Dannel P. Malloy’s budget: asking communities to gradually assume a portion of skyrocketing teacher pension costs.

Aresimowicz, D-Berlin, suggested cities and towns assume one-third of these pension costs — or possibly less — but do so in stages over the next five fiscal years.

The speaker offered this alternative during a panel discussion on state finances with House Minority Leader Themis Klarides, R-Derby, and Malloy budget director Ben Barnes. The panel was the opening event at state Treasurer Denise L. Nappier’s 2017 Public Finance Outlook Conference at Rentschler Field in East Hartford.

“Doing it all in one fell swoop,” Aresimowicz said, referring to Malloy’s proposal to bill communities for more than $400 million annually starting next fiscal year, “really would be devastating.”

But the speaker said he understands some of the concerns Malloy raised.

Teacher pension costs are projected to surge dramatically over the next 15 years, a problem created largely by more than seven decades of inadequate state contributions.

And Barnes said that the current system “is the most regressive form of municipal aid we provide.”

For example, state government will spend $24 million this fiscal year to fund pensions for municipal teachers and retirees in Greenwich – the most affluent municipality in Connecticut. Greenwich has 8,800 public school students.

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By imposing pension bills — proportional to the value of municipal teacher pensions awarded in each community — wealthier towns, where teachers earn higher pay and receive larger pensions, pay more.

But Klarides noted that annual teacher pension costs, which a 2015 study estimated would grow 500 percent over the next decade-and-a-half — from $1 billion to $6 billion — largely are a product of decades’ worth of poor decisions by governors and legislatures.

Poor judgment by CT politicians — it’s a decades-long tradition!

How dare you attack traditions!

And here is a very thin silver lining to all of this: Connecticut Pension Funds Surge More Than 13%

Three of Connecticut’s major public pension funds in the Connecticut Retirement Plans and Trust Funds (CRPTF) reported returns exceeding 13% for the year ended Jan. 31, 2017.

The Teachers Retirement Fund returned 13.57%, the Connecticut State Employees Retirement Fund returned 13.37%, and the Municipal Employees Retirement Fund returned 13.29%. For all three funds, the top-performing asset classes were emerging markets and equities.

“These investment gains can help to strengthen the plan’s solvency,” Connecticut state Treasurer Denise Nappier was reported as saying in the Journal Inquirer. “Where the wind will blow next in terms of market returns is anyone’s guess, which reaffirms the need to generally stay put with the [CRPTF’s] long-term asset allocation mix.”

The Teachers Retirement Fund saw its total market value rise to $16.39 billion, and it has a three-year return of 5.92%, a five-year return of 7.78%, a seven-year return of 7.95%, and a 10-year return of 4.89%.

The Connecticut State Employees Retirement Fund’s market value grew to $11.26 billion, and reported three-, five-, seven-, and 10-year returns of 5.92%, 7.78%, 7.99%, and 4.78%, respectively.

The Municipal Employees Retirement Fund had its market value increase to $2.32 billion, and has three-, five-, seven-, and 10-year returns of 5.78%, 7.01%, 7.34%, and 4.71%, respectively.

Hmm, those longer-term average returns don’t sound all that awesome.

But hey! 13%! One year! SUUUUUURGE!

But please don’t look at our funded ratios. Or history of contributions. Or anything. (Okay, the municipal plan may not be as bad as the other two.)

OOOH BAD TIMING AWARD

I thought I’d highlight this particularly hilarious excerpt from a post trying to convince Michigan not to close off their DB pension: ATTENTION MICHIGAN: CLOSING A PENSION SYSTEM IS NEVER A GOOD IDEA

After the Great Recession decimated 401(k) accounts across the country, state employees in Connecticut banded together and campaigned for the right to join the closed state pension system. They were successful, and in 2012, transfers out of the faltering 401(k) plan and into the pension began. Estimates place the total cost savings for the State of Connecticut as a result of these transfers at $10 million per year.

State employees weren’t the only ones in Connecticut to recognize the value of a pension: firefighters in the city of New London moved back to a pension in 2014 after the previous defined contribution plan failed to provide adequate financial security for retirees.

Oh, I bet the employees valued it.

What state are CT finances in, exactly?

Man, you guys really don’t know how to convince the people you’re trying to soak for the funds.

Speaking as a non-resident taxpayer to CT, I think I don’t much care what the public employees think on this matter (and I =am= one! Albeit a part-timer with no pensions).

I know they think there’s always more rich people to soak, but I’d much rather hang out in Manhattan than Hartford. And I don’t really like shopping in Danbury.

QUICK UPDATE: Trump appoints (or, rather, re-appoints), Malloy as co-chair of Council of Governors. No, I have no idea if this is actually important.

BETTER UPDATE: Something about lottery fraud in CT.

Compilation of Connecticut posts