We Need More Taxpayers-Not Higher Taxes

The following article is by Bill Derosa of CBIA, please click here to view CBIA articles online.

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."

Change in town grand list values over time

Many towns experienced an increase in their grand list between 2013 and 2014 but the vast majority are still below where they were in 2008, according to an analysis of recently released data from the Office of Policy and Management.

Only 15 towns, including Stamford and Bridgeport, have rebounded from the Great Recession and seen an increase in the aggregate valuation of taxable properties.

Click here for interactive map.

The most recent grand list data for municipalities is from 2014, but more recent data from a different study, which looks only at home values, shows that a downward trend in that category might be continuing statewide.

Home values in all other states increased between 1 and 10 percent from 2015 to 2016, but Connecticut’s decreased by half a percent, according to a recently released report from CoreLogic.

Connecticut was the only state in the country to show a valuation decline from 2015 to 2016.  Connecticut also was one of five states in the study furthest from peak home values – 20.1 percent below.

Article from Trend CT

Does the Governor (Finally) Get It?

Governor Malloy's State of the State address last week was new in tone.  He talked about the time of unfettered spending being over. Really?? He went on to say that the citizens of Connecticut had accepted that limitation for some time, and that now it was time for the State to join in, and live within its means.


It sounds improbable, after years of a punishing recession and a lagging recovery, to think that this attitude would be new.  But, alas, it is.  He didn't promise change too quickly, but let's hope that the State employees, retirees, and, most importantly, the unions, get the message.  They have benefits that the rest of us simply cannot afford.  And, as proof that we can't, they are unfunded to a degree that is frightening.  Taxes raised to cover them have resulted in almost a mass exodus from Connecticut.


There is one more group, however, that needs to get with this program, and that's the State Legislature.  Somehow, they are producing figures that show no out migration, or lowering of estate taxes.  It could be true that they don't show the issue yet--after all, the people that are leaving are still alive.  People like living here, if they have a job.  In many cases, it's dying here that they are trying to avoid.  The legislature seems to think that we can keep taxing probated estates as much as we want to, without recourse.  But, if retirees and independent people are leaving to avoid that, it's as dumb a plan as we can imagine.  After all, what's the use of a tax that people aren't sticking around to pay?


Estate taxes are only one of the issues Connecticut needs to address.  Let's hope that Governor Malloy can convince the State House and Senate to cooperate with him, as he begins to fix the damage.  We'll be watching, and hoping so.

#GSCIA

New Haven is finally getting traction in the PR wars.  Last Friday, we saw a front-page article (above the fold!) in the Wall Street Journal, about community-based policing here, and how it has reduced crime, particularly homicides.  Last month, we heard that New Haven, alone among the cities of Connecticut, has regained all of its jobs lost in the recession.  Everywhere you drive downtown, you see construction, cranes on buildings and barriers on highways. 


Most of all, though, it's encouraging to see the hashtag #GSCIA (Greatest Small City in America), posted, tweeted, and repeated.  It's everywhere, and it's very positive.  If it is true that a journey begins with a single step, this might be ours.  How can we convince others, until we believe it ourselves?  And it appears that we finally do!

Incubator Space

New Haven, with its entertainment, restaurants, college scene, and new rental properties, has become a haven for start-up companies.  Often such companies look for cheap space (compare us to NYC!), cheap labor (all those recent college graduates!), an educated workforce, a fun place to live, and access to universities and their research facilities.  New Haven scores highly on all those variables.

It makes sense that entrepreneurship would be booming now, because it's hard to get a job working for someone else, especially in Connecticut, which is last in the country for jobs recovered from the recent recession (now at 48%).  More often than you might think, a poor job market leads people to start their own businesses.  Those businesses are almost always short of cash, and therefore can't pay premium rents.  Of course, they also fail more often than established enterprises.

On the other hand, they can grow rapidly, and end up expanding into additional space.  They may also migrate from one property to another, belonging to the same developer or investor.  Also, they usually don't require the kind of fit-up that bigger companies do, and may even find unfinished space funkier.  Layouts in start-ups can be freer, with open work areas without private offices common.  So, even if a landlord is taking one kind of risk, he or she could be saving in another expense category.

Think of it the way you might think of buying penny stocks.  You might lose a little money, but the upside potential is almost unlimited!

Users are Out There

We have been happily surprised this season by the interest in listed properties by users.  During the darkest days of the recession, most people who were looking at properties were investors, usually what we call "bottom fishers"--people looking to get a really good deal from the misfortunes of others.  This is especially true when they have cash and can close immediately.

While we expected the early spring market to be more of the same, we are finding that showings are more often for businesses and organizations that need space.  There are a lot of start-ups, and also places that need to expand.  This is an excellent sign for the improvement of the commercial real estate market, and one that we hope to see continued in the weeks and months to come!