On Wednesday, February 3, Connecticut Governor Dannel P. Malloy, a second-term Democrat, stood in the State Capitol in Hartford and gave a different kind of speech. State of the State addresses are an opportunity for the governor to be triumphant; he can tout his latest reforms, make jokes at his opponents’ expense, or paint as bright a future as he likes. But Malloy, who has been in office since 2011, didn’t strike that tone.
“We live in changing times,” he said. “You don’t have to take my word for it. You hear it from your constituents every day–a visceral feeling that our country and our state are not going back to how things were before the Great Recession.”
The picture certainly seemed appropriate. Less than a month before, General Electric had announced that it was moving its headquarters from Fairfield to Boston. The incident started a round of bickering–Republicans were sure GE had been taxed out of Connecticut, while Democrats said it was just a logistical decision – but everyone agreed that it epitomized the air of disaster surrounding Connecticut’s finances and economy. Moody’s lambasted the state and threatened to cut its credit rating. Even Republican presidential candidate Donald J. Trump, speaking at a rally in Hartford in April, was indignant:
“We lost General Electric!” he said. “How do you lose General Electric?…I will say this–if I were governor, I wouldn’t be losing General Electric. That I can tell you.”
But these woes weren’t new. In January 1991, newly elected governor Lowell P. Weicker Jr. ‘53 had stood in the State Capitol and warned the voters that “A deficit is taking control of our lives, coloring all else as it climbs beyond comprehension.” The next month, he was back on the floor, dropping an even larger bombshell: He wanted an income tax.
Weicker had already developed a reputation as something of a maverick. He had made a name for himself in Washington as one of the first Republican U.S. senators to denounce President Richard M. Nixon after Watergate. He was elected governor in 1990, running on his own ticket–which he named “A Connecticut Party,” so it would appear at the top of the ballot. He won a small plurality over two sitting U.S. Representatives, Republican John G. Rowland and Democrat Bruce A. Morrison. Rowland, his most formidable opponent, had promised not to raise taxes, but Weicker wouldn’t pledge to do that; and as he prepared for office, he became convinced that an income tax was the only way to fix the deficit of nearly one billion dollars that was, he believed, “sapping our confidence and humbling our visions.”
Opposition to the income tax was intense. “The phone was ringing off the hook. People were calling me names,” State Representative Robert Godfrey (D-Danbury) recalled to the Hartford Courant years later. State parks were closed because of the deficit, and tempers flared as the General Assembly sent Weicker three successive budgets that did not include an income tax. Weicker vetoed them all and waited until August, when the General Assembly conceded to a 4.5% income tax. The structure has changed since 1991, from the original 4.5% rate with credits for lower incomes to a six-bracket arrangement, but the income tax is now twenty-five years old and provided over $9 billion in revenue in fiscal 2015, more than any other source.
But the issue of taxation was far from settled. Popular discontent peaked on November 5, 1991, when somewhere between 40,000 and 70,000 tax protesters–the official estimate differs from the organizers’–converged on the State Capitol grounds to vent their anger. Rowland, who won the 1994 governor’s race after losing to Weicker in 1990, promised to repeal the income tax if elected but never got around to it; and by late 2002, even accounting for income tax revenue, Connecticut was facing a fiscal crisis again. (With hundreds of millions of dollars at stake, the New York Times headline, “Connecticut’s Choice in Swinging Budget Ax: Quick and Painful or Slower and Painful,” said it all.)
After Rowland and the General Assembly maneuvered through a large round of layoffs, the budget receded into the background for a few years. But today, many voters are worried about the state’s fiscal health again. Many are still smarting over the large tax increases Malloy and the General Assembly instituted–over $1 billion each in 2011 and 2015, some of which came from unpopular sources like increased sales taxes. In light of the poor performance of the state budget since then, it’s easy to understand their concerns. Even with a top tax bracket of nearly 7%, Connecticut ranked fifth in the Pew Charitable Trusts’ 2016 study of the most deeply indebted states. Pensions, retirees’ health care, and bonded debt combined for about $67 billion of total debt, or about 30% of Connecticut residents’ personal income. If three big tax increases since 1990 haven’t been enough to bring financial stability to the state government, what will be?
Partway through the 2016-17 budget cycle, the short-term financial picture doesn’t look any rosier. In Connecticut, the budget is created by the governor and the General Assembly every two years; it can be revised halfway through the cycle to adjust for discrepancies between actual and predicted spending and revenue. As the time for revisions approached, it was increasingly clear that Connecticut was once again in the hole, this time by about $1 billion. Unwilling to raise taxes for the third time in five years, Malloy and the General Assembly took a different tack; the implementing legislation closed the gap by eliminating 2,500 state jobs and cutting General Fund spending by 4.4%. (The General Fund is the state government’s vehicle for financing its ordinary activities that aren’t covered by special accounts such as the Transportation Fund.)
But that presented its own pitfalls. The budget implementer passed mostly along party lines, with strong support from Democrats and objections from Republicans in both chambers of the General Assembly.
The budget “is not a vision for the future,” State Senator Len A. Fasano ‘81 (R-North Haven), the minority leader, said in the debate over the implementer. “The budget that’s before us cuts [education cost sharing], cuts municipalities, puts the burden back on municipalities, cuts school transportation, hurts hospitals,” he said. He denounced $43 million in cuts to hospital aid and lamented that the plan would shift the burden of raising revenue back onto municipalities, with the potential for higher property taxes looming.
Democrats, however, insisted that cuts were necessary. “We face a budget of tough choices…Everyone shares the pain,” wrote State Senator Toni E. Walker (D-New Haven), chair of the appropriations committee in the State House. “We are in a time of volatile revenues,” State Senator Martin M. Looney (D-New Haven), the president pro tempore, told reporters at the unveiling of the Democrats’ original proposal on April 28. “If you look at a ten-year average, we are now back to the equivalent of what spending was in fiscal 2012 … There are efforts to find government efficiencies wherever we possibly could.” The Democrats emphasized fiscal responsibility and alleged that Republicans’ objections to the governor’s budget cuts were hypocritical. Senator Bob Duff (D-Norwalk), the majority leader, criticized Republicans for “hypocrisy” in a press release issued after they took issue with Governor Malloy’s line-item vetoes.
“Republican legislators voted to cut various types of local funding–oftentimes for education–and services for the poor, including health care,” he said. “They care about only one thing: trying to win in November. That’s all this is about.”
As the November elections approach, Democrats and Republicans are enthusiastically participating in partisan bickering, but there is nonetheless some underlying agreement on what has happened to the state’s finances. Both sides of the debate, for instance, point to “non-functional” portions of the state budget such as debt service and pensions as culprits. (Non-functional expenditures account for nearly 29% of state spending in fiscal 2017.) Both Zach Janowski, spokesperson for the conservative Yankee Institute for Public Policy in Hartford, and Secretary Benjamin Barnes of the Office of Policy and Management, which helps the governor prepare budgets, expressed concerns about these costs to The Politic.
“It just is a weird way of looking at the budget,” said Janowski, noting that placing these costs in their own category creates perverse incentives for state agencies. Failure to hold state agencies accountable for their pension costs, he alleged, makes them unlikely to administer them efficiently.
“We just ducked our obligations for generations,” Barnes said, when it came to employee retirement and teachers’ benefits. The state is making progress, he suggested, but big-ticket items that are hard to negotiate, like debt service, retirement plans, and Medicaid, reduce its flexibility.
Barnes and Janowski also agreed that tax increases were not warranted by the current financial situation and that some cuts in the size of state government might be in order.
“People like GE point to the recent track record of raising taxes,” Janowski said, arguing that the state is driving away the high-dollar taxpayers on which it depends for much of its revenue. “We can’t do any more of it,” Barnes concurred.
But other observers have suggested that new sources of revenue should be on the table. Derek Thomas, fiscal policy analyst for Connecticut Voices for Children and Families, told The Politic that he was concerned about new belt-tightening measures. “We want to be careful about cutting some agencies,” he said, suggesting that the state would be better served to “raise rates on the wealthy.”
Behind the competing suggestions, which neatly reflect a partisan divide visible across the country, are serious questions about Connecticut’s economy. The Economic Analysis and Research Network, an associate of the left-leaning Economic Policy Institute, found in 2015 that Connecticut has America’s largest income gap between the top 1% and bottom 99% of incomes.
It doesn’t take income tax data, though, to realize that a state containing both Hartford (where nearly 35% of the population lives in poverty) and Greenwich (where the median household makes more than $135,000) is substantially unequal. Many residents of the state, particularly in cities like Hartford and Waterbury and particularly members of racial and ethnic minorities, have been excluded from Connecticut’s success story, and Connecticut Supreme Court Justice Thomas Moukawsher’s September ruling on a school-funding lawsuit filed in 2005 raises questions about whether the state is fulfilling its obligations to poor children. (“Requiring at least a substantially rational plan for education is a problem in this state because many of our most important policies are so befuddled or misdirected as to be irrational,” Moukawsher wrote on the first page of the opinion.)
Thomas echoed these concerns about Connecticut schools in particular and the state’s anti-poverty programs in general. The question that should guide state spending, he said, is “Are we building in communities equally?” And Barnes wondered about the future of state spending, noting that “we have a robust safety net” but that “we may need to curtail that to some degree” in the future.
That may be indicative of the situation. Connecticut’s fiscal responsibility has been questioned, its ability to alleviate poverty is threatened, and its competitiveness is under debate. But incomes remain high, and many believe that quality of life and a well-educated workforce will continue to attract residents for the foreseeable future. And despite the fiscal and economic setbacks of the last several years, it’s possible to detect a tone of cautious optimism in the commentary on the budget from officials like State Senator Gary Winfield (D-New Haven), the assistant majority leader.
“Given our economic reality, I joined my Senate Democratic colleagues in support of a $920 million plan to balance the budget to the level it was four years ago,” he wrote in April. “By preventing deep cuts to hospitals and higher education, we position Connecticut’s economy toward the future.” Residents of Connecticut are hoping the strategy will pay off.