State Employee Pensions: A Pre Pre-View:

With everything “on the table” this year there will certainly be discussions about reforming Connecticut’s public employee pension system.  In the coming weeks we’ll tackle some of those issues here at Wait, What?

One important element is making sure we’re talking about reality and not rhetoric based on made up facts and figures.

First, of the 38,580 or so people who receive a “state pension”, 38% of them get less than $1,000 a month (after taxes).  That means more than nearly 15,000 retirees get take home checks of $12,000 a year or less. 

Second, another 8,600 retirees have after tax pensions of between $12,000 and $24,000 a year.

So, in total, 60% of all state retirees are getting an after tax check of less than $24,000.

That is not to say that there aren’t some retirees who are receiving incredible pensions, including some who managed to “game the system”.

The larger pensions are a result of the old Tier 1 state employee pension program which was, in fact, very generous if you retired with a high salary and a significant number or years of state service.

Although that pension system ended in 1984, a number of state employees, many of whom took one of the recent early retirement incentives, benefited or will benefit from that old pension system.

Since then the state of Connecticut adopted a much less generous Tier II pension program which we was then replaced with an even less generous Tier IIA system.  (More details will be posted about the present state employee retirement program but I think most residents will not think that the pension system for new state employees is overly generous).

However, when it comes to public opinion about state employee pensions, the problem is that the focus is almost exclusively on the small number of people who receive what can certainly be called excessive pensions.  There are about 176 or so retirees who – even after taxes are taken out – receive more than $100,000 a year from the state. 

Of those who take home more than $100,000 a number is medical doctors who retired with relatively high salaries and a significant number of years working in medicine for state agencies.  Of course, there are also a number of non-doctors who receive very high pensions.

In total, of the 176 retirees who’s take home is over $100,000; 35 are retired from the University of Connecticut, 18 from the UConn Health Center, 16 from the Connecticut State University, 13 from the Judicial Branch of government, 11 from the Department of Mental Health, and 10 each from the Department of Transportation and the Department of Corrections.  There are also 9 retirees from the State Police who’s after tax pension is over $100,000.

More to come on this important issue, but it is vital that public officials, the media and the public understand how the state employee pension system actually works before talking about specific reforms.

A Tax By Any Other Name is Still A Tax…

As the Great Storm of 2011 bore down on Hartford (not to mention the big  snow storm that hit on Wednesday night), Keith Phaneuf had a fantastic story in the ctmirror about the massive unemployment tax hike that will hit Connecticut businesses this year.

Full Story: http://ctmirror.org/story/11150/businesses-say-unemployment-tax-hike-goes-unnoticed-capitol

While some legislators and lobbyists for the business community are pointing to the issue as a reason for the state NOT TO ADOPT mandatory sick leave benefits that would impact a select number of Connecticut businesses, the mandatory increase in the unemployment tax is really a much more significant issue and should be considered as part of the overall tax debate in 2011.

Phaneuf’s article should be mandatory reading for every legislator.

The key facts are as follows:

Businesses pay a tax to the Connecticut Unemployment Compensation Trust Fund for every one of their employees.  The fund is used to pay benefits to any employee who is laid off or otherwise qualifies for unemployment benefits.

Since it is a mandated tax based on the employee’s salary, businesses appropriately consider this as part of the employee’s total wage and benefit package.

Due to the massive rate of unemployment, Connecticut’s Unemployment Trust Fund has been “insolvent” since October 2009.  When a state fund becomes insolvent it has to borrow money from the Federal Government.   

Connecticut has borrowed about $530 million to date to cover unemployment benefits for Connecticut residents. States are required to pay the Federal Government interest on any loans plus, over time,they must pay back the full loan.  In this case, due to the extent of the recession the Federal Government delayed the time period when states were required to start making interest payments on their loans.  The waiver period has ended and interest payments must begin this summer. 

The Connecticut Department of Labor has informed business that a new assessment (tax) will be implemented on August 1, 2011 to raise the funds necessary to start paying the Federal Government the interest Connecticut owes on the funds it has borrowed to date.  The new tax is expected to equal to about $40 per worker. 

As Phaneuf notes the new tax “which doesn’t even reduce the $530 million debt principal, is equal to roughly $53 million when projected over nine months. That’s about $12 million greater than the last tax hike the business community faced, a 10 percent surcharge on the corporation tax first imposed in 2009 and set to expire in 2012.” 

Making matters worse, the story goes on to report “State labor officials estimate the unemployment trust fund will need roughly $500 million more in loans over the next 12 months, despite two existing assessments on business that normally provide enough revenue to fund jobless benefits.”  This means the interest assessment will need to be increased at a later date, not to a significantly higher tax in the future to bring in the funds needed to pay the Federal Government back the $1 billion dollars Connecticut will have borrowed to pay unemployment benefits during this recession. 

Finally, in response to these issues, Phaneuf reports that Governor Malloy has said that he hopes Congress will extend the “interest waiver” since 40 other states are facing this problem.  An extension would allow Connecticut to postpone having to address this problem for year or more but the interest and loan will still need to be paid in the relatively near future.

 The bottom line is that an increase in the unemployment tax is needed – sooner or later – and elected officials, the business community and everyone involved in the budget making process must recognize that the upcoming unemployment tax surcharges are, in fact, very real tax increases and must be part of the overall tax plan to get Connecticut out of this fiscal crisis.

State Government – The Challenge of Facing Reality in These Economic Times…

Christine Stuart has an article today in ctnewjunkie that indirectly highlights the challenge that faces Connecticut.

Yesterday, as California’s new governor announced what could only be described as draconian cuts (along with a plan to raise taxes), Connecticut’s Finance, Revenue and Bonding Committee announced that it will raise a bill to un-due a portion of last year’s budget that undermined Connecticut’s efforts to promote energy efficiency.  The bill would seek to re-allocate funds for an important state program.

As Stuart writes, “Environmentalists and small businesses are hopeful that since the state doesn’t have to borrow as much money as it initially expected when it passed the budget last year that it will restore some of the $28.5 million it planned on taking annually from the Energy Conservation and Load Management Fund.”

The full story can be found using the following link: http://www.ctnewsjunkie.com/ctnj.php/archives/entry/finance_committee_may_restore_conservation_funds/

Legislators and advocates point out that this program was important because “The fund helps pay contractors to visit homes and businesses to conduct energy audits then figure out how to make the structures more energy efficient. It also helps residents receive rebates for purchases of energy efficient appliances.”

There is no question that is program is a prime example of how government can successfully play a role in helping to overcome the challenges that threaten our society, our state and its citizens.  Through programs like this, we can become more energy efficient, become more energy self-sufficient and do more to protect the environment and deal with the growing crisis associated with global warming and climate change.

It is a program that deserves support.

Yet at the same time, Connecticut, like so many other states is moving closer and closer to the proverbial cliff face as our state government races toward fiscal catastrophe.

One need only look to California to see what can occur (while Connecticut’s economic position is not as bad as California’s, the two state’s are facing similar situations). 

In California, despite having a new Democratic progressive governor, the proposed state budget there includes a $1.5 billion cut to welfare programs, a $1.7 billion cut to the state’s health care Medicaid programs, a reduction of $750 million to programs for the developmentally disabled and a half a billion dollar cut to the University of California system even though their public higher education system is already in deficit.  Brown’s budget also CUTS state employee take home pay by 8-10%.

This is not to say that the Finance Committee should not discuss re-funding the State’s important energy efficiency programs, but it is to highlight the challenge the Malloy Administration and the Legislature faces over the next few months.

Will forcing Connecticut’s wealthy to pay their fair share persuade them to leave Connecticut?

RAISE TAXES – THE RICH WILL MOVE…

It’s an argument we’ve heard in Connecticut a number of times.

 

Just last year, State Representative Lile Gibbons, the Greenwich Republican whose district includes the Greenwich homes with waterfront views, warned that if the legislature increased the estate tax “People just aren’t going to stay” in Connecticut.  Over the years many other Republican elected officials, including Jodi Rell, and business organizations have said the same thing.

Their argument is that if Connecticut raises the income tax or the estate tax on the wealthy the result will be that many wealthy taxpayers will simply shift their tax homes to locations with lower taxes.

Connecticut Republicans are not alone in making these dire predictions.  Conservative commentators are constantly making similar claims.  At the end of December 2010, an editorial in the venerable Wall Street Journal once again opined that the direct result of higher taxes on the wealthy is that many of them decide to sell their homes, leave their communities and flee to lower tax jurisdictions.

The editors of the WSJ used a recent report in the state of Oregon to back their claim, In 2009 Oregon, with a majority vote of its state legislature and the approval of its voters in a state-wide referendum dramatically increased its state income tax.  The rate for those making more than $500,000 was raised to 11% and the rate on those making $250,000 to $500,000 increased to increase to 10.8%.

A year later, when a report was released that Oregon has collected less revenue than projected, the WSJ wrote that Oregon’s wealthy had “fled the state”. 

But wait, it turns out that nothing of the sort occurred.  Rather than a wholesale dash for the border, the number of tax returns filed in Oregon actually went up.  That said, as a result of the deep recession that is dragging down the country, it turns out that a number of Oregon’s wealthiest taxpayers where no longer as wealthy as they once were and thus fell below the new “soak the rich” income tax rates.  

The “if you tax them, they will flee” myth was further busted in 2010, when a major international financial firm that tracks the marketing behavior of millionaires released their most recent report.  According to Phoenix Affluent Market’s data, the overall number of households making more than a million dollars actually increased by about 8% to 5.6 million.

The report, which measures the number of millionaires per capita in every state, discovered that “two of the states with the “highest marginal income-tax rates” also had the highest number of millionaires per capita.” 

The author of “The Wealth Report”, Robert Frank, who writes for the news division of the Wall Street Journal (rather than the editorial department), wrote “Hawaii, with the greatest number of per capita millionaires levies an 11% tax rate on those earning $200,000 or more.  Maryland, the state with the 2nd greatest number of millionaires targets its wealthy with a special millionaire’s tax rate of 6.25% and New Jersey, the state with the 3rd largest number of millionaires has a rate of 10.75% on those households earning more than $1 million a year.

Frank went on to “This isn’t to say that taxes don’t matter to the wealthy. They do. A lot.” But he also noted that “some states with very low marginal income tax rates, such as Connecticut and Alaska, also ranked high on the density list.”

To explain the apparent paradox that many wealthy people live in higher tax jurisdictions, Frank’s piece quotes the Managing Director of the Phoenix based consulting firm that released that study.  According to them, “…Hawaii, Maryland, New Jersey, and Connecticut all share some important distinctions: they are small states with large concentrations of highly educated professionals and business owners, which are key ingredients to growing wealth…in general, most high-net-worth households don’t base their living decision on tax rates, but on things like quality of life, access to good education, infrastructure and culture.”

Connecticut’s wealthiest citizens presently pay a 6.5% income tax, far below what they would pay if they moved to New York or New Jersey (not to mention if they decided to live in New York City.  Even if Connecticut raised its income tax on those making more than a million dollars by a whopping 50%, the rate paid would increase to a point where it is on par with the other jurisdictions in the tri-state region.

To suggest that if we increase taxes on the wealthy they will flee is not only not true, but intellectually dishonest.  Even studies produced by our own state government reveal the truth.  In 2007 the Connecticut General Assembly examined out-migration.  While it found that the “largest number of individuals leaving Connecticut — 27,773 — moved to Florida” it also revealed that those who moved into Connecticut during the same period “had, on average, higher incomes” and “second-favorite destination for residents leaving the state was North Carolina, which has an estate tax and an income tax”  that is on par with Connecticut.

Oh and what are the state’s with the highest number of millionaires? Hawaii with 6.93%, Maryland 6.79%, New Jersey 6.69%, Connecticut 6.65%, Massachusetts 5.98%, Alaska 5.97%, Virginia 5.94%, New Hampshire 5.79%, California 5.66% and Washington, D.C. with 5.53%

For more information on this issue check out the following sources:

 Wall Street Journal:   http://online.wsj.com/article/SB10001424052748704034804576026233823935442.html

WSJ’s Robert Frank; http://blogs.wsj.com/wealth/2010/09/28/high-tax-states-still-grow-millionaires/,

 Citizens for Tax Justice: http://www.ctj.org/taxjusticedigest/archive/2011/01/more_on_the_journals_bogus_ore.php

 And: http://www.phoenixmi.com/images/uploads/pdf_upload/StateRankingsMillionaires20062010.pdf, http://www.offthechartsblog.org/many-wealthy-moving-down-not-out/

Grappling with Connecticut’s Budget Crisis – Part I: What about Education Funding?

With a $19 billion dollar state budget, Connecticut spends about $2.5 billion dollars a year to support primary and secondary education (Pre-K through 12th grade) in the state’s 169 towns.

The bulk of those funds are distributed directly to towns/school districts through the ECS (Educational Cost Sharing) Formula which was designed to provide Connecticut’s poorer towns with extra funds since they didn’t have the tax base to fully fund their own school systems.

In order to fulfill Connecticut’s Constitutionally mandated requirement to provide all children with equal access to a quality education, Connecticut’s official policy goal for the past 25 years has been to have the state pay for 50% of the total costs associated with funding local schools leaving the cities and towns with the obligation for raising the other 50% through local property taxes.

Following the adoption of the income tax in 1991 the state reached a point in which it was paying about 43% of the total costs. Since then the state’s share has slipped lower and lower. Today the state only covers about 35% of the total cost associated with operating Connecticut’s public education system.  As a result of this underfunding, Connecticut’s level of state and local spending on education has means we’ve dropped to 39th in the country when it comes to our total outlay to help our state’s children acquire the knowledge and skills to succeed.

During the 2010 gubernatorial campaign Dan Malloy (and his Republican opponent) both promised not to make any cuts to the ECS formula. Neither campaign signaled whether the “no cut” pledge applied to the other $600 million the state spends on education costs.

That said, as Malloy Administration faces a nearly $4 billion dollar budget short-fall, it is unlikely that any real savings can be found in the education portion of the budget. For one thing, the new Governor is extremely committed to supporting education and secondly any cuts to state education funding would only translate into a greater burden on local communities and higher local property taxes.

The following highlights where the state’s education dollars are allocated;

  • Education Cost Sharing formula:     $1.9 Billion
  • Adult Education:     $21 Million
  • After School Programs:     $5 Million
  • Bilingual Education:     $2 Million
  • Excess Cost (Special Education):     $120 Million
  • Extended School Hours:     $3 Million
  • Private School Health Services for Pupils:     $5 Million
  • Inter-district Cooperation:     $14 Million
  • Magnet Schools:     $175 Million
  • Private School Transportation:     $4 Million
  • Open Choice Program:     $14 Million
  • Priority School Districts:     $117 Million
  • School Based Health Clinics:     $10 Million
  • School Breakfast Program:     $2 Million
  • Transportation of School Children:     $48 Million
  • Vocational Agriculture:     $5 Million
  • Youth Services Bureaus:     $3 Million

8:39 AM UPDATE —- Perhaps I spoke to soon – CT Mirror has a story today that suggets Malloy is backing off his pledge to not cut funding for local education.  Or perhaps it signals that while he will keep his promise not to cut the ECS forumla he may propose cuts to some of the other state grants to support primary and secondary education.  Here is a link to today’s CTMirror Story http://ctmirror.org/story/9153/malloy-education

After pledging during the campaign that he would maintain state funding for local education, Gov. Dannel P. Malloy backed off a bit Thursday, saying that is “a goal” that he will “try and accommodate.”

“That’s a goal that I have when preparing the budget,” he said during his first press conference after taking office. “There are many goals that I have. We are going to try and accommodate all of them,”

On the campaign trail he was much more definitive.

 

For Whom The Bell Tolls: The Challenge Ahead – Putting Connecticut Back On Track.

Pride, excitement and enthusiasm abound as the Malloy Administration settles into their first full day in office.  As the rightfully celebrate their historic inauguration, the task ahead becomes ever more clear.  The underlying challenge is sobering…

  • For the forty years leading up to 1990, Connecticut’s job growth was impressive — but since 1990 Connecticut has been DEAD LAST – 50th in job growth.

 

  •  Over the last two decades, while “the rich got richer”, the rest of Connecticut fell more and more behind.  Not only did the income gap between Connecticut’s top and bottom wage earners grow more than any other state in the nation – BUT THE GAP BETWEEN CONNECTICUT’S TOP AND MIDDLE also grew more than any other state in the nation as well.
  • In recent years, middle-wage occupations in Connecticut have experienced the steepest job losses. Overall, middle-class job categories have lost 6.8% of their positions between 2006 and 2009. Average yearly earnings declined in Connecticut in both 2008 and 2009 after adjusting for inflation, totaling a 3.8% drop between 2007 and 2009. This occurred in spite of modest increases in hourly wages, and is likely a result of a decline in hours worked per week in Connecticut, which also declined in 2008 and 2009.
  • In addition, Connecticut was the ONLY STATE in which the real income of the poorest 20% of families actually declined significantly.  Low-income families (poorest quintile) lost, on average, -$4,437 of income, compared to a gain of $1,814 nationally for the poorest fifth of families.
  • When it comes to wages in Connecticut, as well as other employment measures, the levels of racial and ethnic disparities are much wider than disparities at the national level. Connecticut African Americans earn only 62 cents on the dollar compared to Whites.  (Compared to a national average of 78 cents on the dollar). Connecticut Hispanics do even worse, earning 60 cents on the dollar compared to White (Compared to a national average of 70 cents).
  • Meanwhile, the long-term unemployment rate in Connecticut — the share of unemployed workers seeking work who have been out of work for 6 months or more — is the fourth highest in the country at about 37%. The underemployment rate — which includes the unemployed, part-time workers who want to work full-time, and discouraged workers who have stopped looking for work — is at a historic high.
  • When it comes to the various job sectors of Connecticut’s economy, only the Health and Education job sector experienced substantial job growth since the beginning of the present recession.  Now, the state’s only successful job sector will be threatened by state and local budget cuts, since this sector is heavily dependent on public sector expenditures.

Yesterday was a great day for Governor Dan Malloy, Lieutenant Nancy Wyman and all those who worked so hard on their campaign.  Celebration was rightly the word of the day.

 And now, the work begins.

 

 

 

 

 

 

 

Note:  Special thanks to CT. Voices for Children who do such an incredible job tracking this type of important data and using it to educate the public and our elected officials.  For more on CT Voices go to http://ctkidslink.org/.

Governor M. Jodi Rell: A legacy of saying one thing, but doing another.

 

Rell and McMahon

 

As Governor Rell and her team leave the Capitol today, they leave with a virtually unbroken record of missed opportunities and lost potential.  Here are just a few of her more memorable comments over the last few years.

Note that in each case, her words preceded or followed her taking or allowing exactly the opposite to happen.

“The easy way out is to approve an early retirement plan one year but not pay out sick and vacation time to deserving employees until three years later. Unfortunately, later is now.”  (A plan she approved)

“This continuing spike in gas prices is bad for consumers, bad for our economy, and bad for all other businesses. It is hurting us and costing us jobs. ” (Rell having supported massive increases in the petroleum wholesale tax the skyrocketed as prices rose).

“We cannot put off the difficult decisions for another day, another generation.”  (This from the Governor who proposed and supported putting off the difficult decisions for another day, another generation).

“I have kept a steady focus on restoring public faith in our state government since taking office July 1. Now it is time to make even bigger and bolder gains through legislative action.”  (While Lisa Moody handed out donation envelopes on state time and the Governor’s Office used state funds to hire and conduct a political polling operation).

“I’m angry when we have to use state dollars to fill holes in our low-income heating assistance program because there isn’t enough support from Washington. “ (The Governor who used a billion dollars in Stimulus funds for on-going activities rather than one time costs that would create jobs and strengthen the economy).

“Our libraries are valuable centers of education, learning and enrichment for people of all ages. In recent years, libraries have taken on an increasingly important role. Today’s libraries are about much more than books.”  (Then proposed cutting libraries)

“The best math lesson we can teach college students this year is to subtract a tuition increase and benefit from the dividends of higher education. (Pushed for a “tuition freeze” after her trustees supported the skyrocketing tuitions, then cut the amount of state funds for higher education, leaving the students paying more and getting less).

“I can understand the confusion and questions that people have, so let me be quite clear: I do not and will not support cuts to the Metro-North branch lines…” (After her own budget officials proposed closing down the Metro-North branch line after spending tens of millions to upgrade that same line).

And the list goes on and on and one.

Twelve noon and the swearing-in of Governor Dan Malloy couldn’t come soon enough.

 

Congratulations to Dan Malloy and Nancy Wyman. 

The job they are taking on is daunting but if anyone can do it – they can.

 

From WNYC.Org – A Tale of Two Governors: How Cuomo and Malloy Will Tackle Their Budget Crises

A Tale of Two Governors: How Cuomo and Malloy Will Tackle Their Budget Crises By Stephen Reader, WNYC.org, Tuesday, January 04, 2011

As the new governor of the state of New York, Andrew Cuomo has pledged to freeze the salary increases of state employees, veto any increase in personal or corporate income taxes, and impose a state spending cap.

Dan Malloy, who will be sworn in as the next governor of Connecticut on Wednesday, hasn’t pledged anything of the sort.

Both states face calamitous budget shortfalls in 2011 and for years to come. Both states regularly flirt with being the top taxing state in the country already. Andrew Cuomo, at least, has been frank about making thrift a priority, much to the dismay of hundreds of thousands of state employees who may not see an salary increase all year, and 900 others who were just laid off. Cuomo expects to use other spending decreases to correct budget deficits, rather than use higher taxes to increase revenue.

It’s less clear what Malloy has in mind. Unlike Cuomo, he has made no promises about his state’s taxes going up or down. Take a trip to the policy section of Malloy’s campaign website (which is suspiciously un-navigable from www.danmalloy.com), and you’ll see phrases like “address the balance of state and local taxation,” or “relieve the local property tax burden,” but nothing explicit about taxes being lower.

That could be because Malloy won’t make taxes lower for everyone, and doesn’t want to say who’s going to be hit with a hike. Restructuring the tax code or relieving the tax burden for certain demographics doesn’t necessarily imply a tax cut. For instance, Malloy could raise taxes on the wealthiest of Connecticut’s residents, thus lowering the tax burden, or share, for lower- and middle-income families without actually lowering their taxes.

Malloy has been at pains to keep tax hikes on the table without making them sound inevitable. “I want to be very clear: We’re not going to raise taxes,” Malloy said in the final gubernatorial debate in October. “That is the last thing we will do…if we have to, and only then to protect the safety net.” By “safety net,” Malloy means social services and health care that the state provides for the poor, elderly and disable. And when he says “if we have to,” it’s unclear how big an “if” that is.

Though Malloy (and every other politician in 2010) has railed against out of control spending and the need to get one’s fiscal house in order, he’s also been up front about plans to borrow cash to invest in infrastructure projects.

“I believe that infrastructure investment is long overdue, it primes the pump, and it puts people back to work. All eight of the downturns since World War II, we were led out of by construction,” Malloy told The New York Times. “Yet we elected people to Washington who don’t believe it’s an appropriate tool to use. I want to be very clear: I believe it is.” 

Malloy insists that investments will be strictly targeted toward those projects capable of generating the most revenue and employing the most people. Regardless, the promise of more government borrowing and spending does little to help Malloy’s case that taxes won’t go up.

The backing Malloy received from labor unions during the campaign raises more questions about how Malloy is going to make everybody happy. When Cuomo was on the campaign trail, he singled out labor unions as budget-busters that would lobby aggressively and run negative ads against any governor who targeted them for spending cuts. Freezing state employees’ salaries wasn’t going to lose Cuomo too many friends. On the other hand, the Service Employees International Union (SEIU) spent $400,000 campaigning for Dan Malloy last year, and Connecticut labor leaders have sounded generally optimistic about working with the new governor. Were Malloy to change tack and adopt a Cuomo-style approach to cost-cutting, you can bet he’ll take more heat for burning the bridge.

Lastly, while Cuomo has proposed giving New York’s government a spending cap, analysts are predicting that Malloy may circumvent Connecticut’s. In the absence of significant spending cuts, Malloy will have to do some legislative finagling to get around the cap that was set by the state in 1991.

How Cuomo and Malloy fare as first-term governors will tell a great deal about their respective approaches to balancing state budgets. Connecticut and New York, already in critical fiscal condition, may turn out to be models of what state governments should and should not do to restore economic stability. As more and more states face rough seas ahead, it remains to be seen which course is worth following — and what Dan Malloy’s course ultimately will be.

 http://www.wnyc.org/articles/its-free-country/2011/jan/04/tale-two-governors-how-cuomo-and-malloy-will-tackle-their-budget-crises/

Is Stamford the new “Center of the Universe?”

Or, perhaps the better question is who will be the Winners and Losers as the Malloy Administration seeks to balance the role of “delegate vs. trustee”.

Dan Malloy and Nancy Wyman

Sometimes the answer to this type of inquiry is pretty simple.  When it came to the question of winners and losers, disgraced former Governor John Rowland was famous for saying that Waterbury, Connecticut was the center of the Universe and he consistently used the governor’s office to ensure that his home city got “its fair share” of state resources. 

It was never quite clear who or what was Governor Jodi Rell’s priority.  But now, Connecticut is getting a new governor and we wait, with baited breath, to see how Dan Malloy approaches this issue.

The fact is, since the dawn of democracy, a debate has “raged” as to whether elected officials should think of themselves as “delegates or trustees” for the people.  Some, like American President James Madison argued that representatives should be driven by the expressed positions of their constituents while others, such as the English Philosopher Edmund Burke argued that voters send their elected officials to acquire the facts and determine the best course of action regardless of what the constituents may want or direct. 

While American politicians tend to straddle the fence on this issue, the majority see themselves more as trustees than delegates.  Deep down they believe Burke’s famous 1774 quote that “Your representative owes you, not his industry only, but his judgment; and he betrays, instead of serving you, if he sacrifices it to your opinion.”  Interestingly, Burke lost his parliamentary seat in the election following his pronouncement on the subject.

But even when acting in the role of “representative” the question remains, which constituents does one seek to represent; Does the new governor seek to follow the will of the 3.5 million residents of Connecticut, the 2 million who took the time to register to vote, the 1.2 million or so who turned out to vote, the 567,000 (or about 49%) who voted for the Malloy/Wyman ticket, the people who reside in the towns where Malloy got 50% of the vote and the list goes on.

Certainly the towns that provided the new governor with a majority of the votes cast have a significant claim to being heard, represented and helped in the coming year.  Governor-elect Malloy won 40 of Connecticut’s 169 towns (although the Democratic candidates for the other Constitutional Offices each won about 94 of the state’s 169 towns).  As a result of the Malloy campaign’s urban strategy, he was able to capture big wins in most of the state’s largest cities and received huge margins in all 11 towns with poverty rates of over 10 percent. 

Hartford led the way providing Malloy with 88% of their vote, followed by New Haven at 85%, Bridgeport 81%, Bloomfield 76%, New London 67%, New Britain 66% and Windham at 62%.  Malloy also did extraordinarily well in his home town of Stamford capturing an impressive 58% of the vote.

Of course, traditionally most politicians also pay particular attention to their campaign’s financial donors since without them, the campaign itself would have been impossible.  Even with Malloy receiving public financing, raising the funds to qualify for the state grant was an essential part of his success and a review of where those funds came from creates a very different pool of people who will likely expect to be “represented” in the battles ahead. 

Malloy’s exploratory and candidate committees received more than 5,700 campaign contributions, of which 90% were from Connecticut residents. (Donations from New York, Massachusetts and Florida came next). 

While Fairfield Country accounts for about 25% of Connecticut’s population, more than 45% of Malloy’s donors came from “downstate” and all together Fairfield Country donors provided a whopping 57% of the money Malloy raised in order to qualify for public funds.  The towns of Stamford, Greenwich, New Canaan and Darien alone accounted for more than $270,000 of Malloy’s donations.

The New Center of the Universe?
While certainly none of this is to suggest that Dan Malloy or his Administration would be driven exclusively by who provided the funds necessary to qualify for the public financing grant or even which towns provided Malloy with the margin he needed to win, there is no question that it will make good fodder for discussion and debate as the incoming Administration grapples with how to address Connecticut’s financial crisis.
 
A Note to Observers:  An early indication of the Malloy Administration’s approach to key constituencies will become evident when they roll out their first budget proposal.  Connecticut’s poorest cities are hoping Malloy will protect their level of state aid while advocates for the poor hope he will propose an earned income tax credit to help Connecticut’s working poor.  Meanwhile, Connecticut’s wealthiest citizens will be hoping Malloy relies on across the board income tax increases rather than building progressivity into the tax code and that he doesn’t go with the recent call by Democratic legislators to expand the state’s estate tax.

MIND THE GAAP – Confronting the Cost of Fiscal Honesty

January 5, 2011:  Dan Malloy is sworn in and Connecticut finally gets a Democratic Governor.  Oh, and the state will likely see the largest tax increases and deepest budget cuts in history.

Furthermore, as the state of Connecticut enters this new year and new decade, we will get a firsthand look at the underlying cost of introducing Fiscal Honesty to the state’s budget.

Why…because one of Governor-elect Dan Malloy and Lt. Governor-Elect Nancy Wyman’s  most significant campaign  promises was to move Connecticut government to Generally Accepted Accounting Principles (GAAP).   Connecticut requires all cities, towns and boards of education to adhere to GAAP standards, it just exempts itself from these common sense requirements.

During this year’s gubernatorial campaign Dan Malloy and Nancy Wyman repeatedly pledged to Connecticut to GAAP accounting as the single most important way to ensure greater honesty and transparency in state budgeting.  He made it clear that it would be one of his first and highest priorities.  Over the months he said he’d veto any budget that was not based on GAAP Accounting and recently said he will sign an executive order on his first day in office implementing GAAP accounting for state government.

The task is a noble, important and worthy one.  Connecticut state government should be required to conduct itself using this basic accounting system.  There is only one problem;

Shifting the State to GAAP will cost $1.2 billion dollars.  That’s $1.2 billion on-top of the $3.7 billion dollar budget short fall Connecticut is facing for next year. 

Borrowing an additional $1.2 is out of the question since the overall final cost to state taxpayers would actually exceed $2 billion once the loan and interest was paid.  Furthermore, it isn’t even clear the state could successfully float that much debt on Wall Street in the present economic environment.

Alternatively rather than actually shift to GAAP accounting all at one time, the new Governor and his Administration could “phase in” GAAP accounting.  Not quite the clean-cut shift that was originally promised or implied, but it could be argued that taking a real step in the right direction would certainly “move the state toward greater fiscal honesty”. 

The process of shifting to GAAP accounting is a very complex one, but an initial first step would be to “freeze the existing GAAP gap” and thereby make sure that the existing GAAP gap does not grow beyond the $1.2 billion figure.  While the state would not make any real forward progress toward eliminating the GAAP gap, a move to freeze the existing problem in place would, at the very least, make sure that Connecticut didn’t slide further into the financial chasm caused by our elected official’s unwillingness to hold state government to the most basic rules of honest financial accounting.

The move to “freeze the GAAP Gap” would cost the state an addition $80 to $100 million dollars in NEXT YEAR’S BUDGET.  After that, assuming the state then devoted an additional $80 million or more a year to the task of shifting the state to GAAP accounting, Connecticut could be fully GAAP compliant in – oh – let’s say 15 years.  

Any deviation from that task over the next decade and a half would prevent that goal from being reached, not to mention that the state could not engage in any more fiscal gimmicks over the same time period. 

The underlying problem (and big question) is that since the new Administration will already be proposing significant tax increases and program cuts (while seeking major state employee “give backs”), will the state government have the political will to allocate an additional $80 million to begin a 15 year shift to GAAP accounting.

With the state and nation still mired in the greatest economic recession since the Great Depression and the demand for vital state services increasing dramatically, it may be hard to convince a majority of legislators to allocate $80 million to freeze the GAAP gap at a time when most constituents will see major tax increases and many constituents will see their level of state services reduced.

Even in an era when Connecticut has a $19 billion dollar budget, $80 million is a lot of money.  For example, $80 million would go a long way toward ensuring that Connecticut’s most vulnerable residents get the additional services they need.  Alternatively, $80 million would help preserve the state’s critical state property tax credit program that helps middle-income families off-set a portion of increasing local property taxes.  And certainly an additional $80 million dollars in education aid to cities and towns would prevent the layoff of thousands of school teachers as cities try to maintain current levels of funding for their schools.

Virtually every candidate running for office in 2010 pledged to support the effort shift Connecticut to GAAP accounting.

As Connecticut state government finally confronts its economic crisis and moves to address the impact of years of failed budget policies keep a careful eye on what happens with the GAAP accounting issue.  Doing what is right on GAAP will likely mean that a lot of vital programs and services will go unfunded.

Keith Phaneuf’ at CT Mirror.org has been leading the coverage on this issue.  Here is one of his recent articles on the topic can be found here:   http://www.ctmirror.org/story/8536/conversion-gaap-means-kicking-bad-fiscal-habits .

Brian Lockhart has more on Malloy’s plans for GAAP on his blog today.  Take a look.  http://blog.ctnews.com/politicalcapitol/2011/01/03/malloy-explains-his-gaap-plans-sort-of/

 

Beware the GAAP