According to the latest employment report from the state Department of Labor, Connecticut lost 600 jobs in July, underscoring the urgent need for policymakers to pass a new two- year state budget quickly and without tax increases. Prior to the July numbers, Connecticut had built some momentum on the jobs front, adding 5,600 jobs in May and 5,600 in June (revised down from the original June total of 7,ooo).
At press time, the state had regained 82% of the total 119,100 jobs lost during the recession and 101% of 1,680,600 private-sector jobs.
"We're still up 11,600 jobs year over year, which is better than we've seen in recent years," says CBIA economist Pete Gioia.
"It's important not to derail that momentum. The legislature must deliver a fiscally sound state budget that relies on long-term structure spending reforms and rejects broad-based tax increases.
"We believe the decision to hold the line on taxes last year helped create the conditions for this year's job growth, and now is no time to change course."
Although Gioia is encouraged by the recent improvement in job growth, he thinks Connecticut should be doing much better. "To do that, the state needs to work with the private sector to develop a comprehensive plan to fill good-paying, taxpaying jobs needed not only in manufacturing but also in financial services, trucking, and the building trades."
Concerns Over Concessions Deal
Legislators failed to pass a budget agreement before the gavel dropped on the 2017 General Assembly session and have since been locked in a stalemate. When the session ended, several budget proposals were being considered, including Gov. Malloy's plan and two Republican proposals, both calling for over $2 billion in state employee wage and benefit savings.
A major part of the governor's plan is a $1.57 billion concessions deal reached between the administration and the State Employee Bargaining Agent Coalition.
That agreement was narrowly approved in the House on July 24 and the Senate on July 31, where Lt. Gov. Nancy Wyman cast the decisive vote, breaking an 18-18 tie along party lines.
Three moderate Democratic senators threatened to vote down the concessions package but ultimately chose to approve it in return for a pledge by Senate Democratic leadership to support certain structural fiscal reforms-including eliminating state employee overtime wages from pension calculations. Those reforms could make their way into the final budget agreement, but there are no guarantees.
A Long Way to Go
The approval of the concessions package reduces the budget deficit from $5.1 billion to about $3.53 billion over two years. "Connecticut started with a $5.1 billion problem," says CBIA President and CEO Joe Brennan. "Even if the SEBAC deal saves the estimated $1.57 billion, there's still a long way to go."
The deal includes a three-y ear wage freeze (followed by two annual 3.5% wage increases) and three furlough days for most employees, an increase in pension contributions from 2% to 4%,1 increases in medical and prescription payments, changes to the retiree healthcare plan, and a hybrid pension/defined contribution plan for new workers.
However, the package also includes a four-year no layoff provision and extends current state employee pension and health benefits contracts another five years to 2027.
That has businesses and other taxpayers worried. Rising state employee retirement costs are one of the main factors driving the overall increase in the state's fixed costs and its persistent budget deficits.
"I've been hearing from a number of our members, large and small, who are concerned the contract extension could lock in unsustainable pension and healthcare costs," says Brennan.
A recent report by The Pew Charitable Trusts, a non partisan public policy research group, did in fact warn that the cost of Connecticut's employee retiree health care benefits would likely rise again after two years.
The report, provided at the request of state lawmakers, analyzed the concessions deal and recommended additional policy measures, including: Commissioning a 50-state comparative study of retirement benefits and policies to help ensure Connecticut is in line with peer states Requiring stress test analysis of all retirement plans as part of regular reporting to determine how plans would perform during a financial crisis Incentivizing state workers to save more in defined contribution retirement plans.
Tax Hikes Haven't Worked-and Won't Work Now Following the approval of the concessions package, Brennan called for state lawmakers to focus on ending the budget deadlock-and doing so without resorting to tax increases.
"Failure to adopt a new biennial spending plan only adds to the uncertainty that has plagued Connecticut's economy in recent years," he says.
"The legislature must now turn its attention to passing a bipartisan budget that rejects tax hikes, which will further damage our economy and kill the momentum we've seen on jobs this year.
"We need more taxpayers-not higher taxes."
Tax increases, however, are just what some are recommending, including state employee union leaders, who want $1 billion in tax hikes targeting the state's financial sector and investment earnings.
A proposal from House Democrats increases the state sales tax from 6.35% to 6.85% and adds surcharges to restaurant and hotel transactions, all of which would bring in approximately $1 billion in revenue over two years.
As consumers themselves, businesses historically have accounted for nearly half of Connecticut's sales tax receipts, so the proposed increase would place a significant additional burden on the state's job creators.
"History has proven that additional tax increases will only cause more harm to Connecticut," says Brennan. "That approach doesn't work; it only makes things worse."
He notes that after two huge tax increases in the last six years, Connecticut is still in serious trouble.
"What did we get? Declining tax revenues, growing deficits, wealthy and educated people leaving the state, and an economy that still lags much of the region and the country."
Seize the Opportunity
"If Connecticut is going to reach its full economic potential, we urgently need a budget without any broad-based tax increases," says Brennan. He urges legislators to consider recommendations in the Republican budget plans and the Pew report to find additional structural reforms and other ways to rein in state employee costs.
"Lawmakers must seize the opportunity to send a message that Connecticut is going to do business differently and instill more confidence in individuals and businesses."
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