Blog: Jobs & the Economy

Jobs & the Economy, Taxes & Government Spending

Statement on State Takeover of New Haven Open

  • Oct 10, 2013
  • by Ben Zimmer
Statement on State Takeover of New Haven Open

Buying the rights to run the New Haven Open is just the latest example of the Malloy administration's flawed economic development strategy -- handouts to certain companies paid for by higher taxes on everyone else.

Running tennis tournaments is not the job of state government for the same reason managing restaurants is not government's job -- taxpayers should not be subsidizing entertainment services for which there is insufficient demand.  There is a reason private sector sponsors were not willing to pay enough to keep the tournament here without a government subsidy -- attendance has dropped from more than 80,000 in 2008 to below 50,000 in 2013.   Economic development in Connecticut's urban areas requires a long-term strategy focused on education & workforce development, prudent infrastructure investment, crime prevention, and a less hostile attitude towards business.  Propping up economically unviable tennis tournaments is not the answer.

The Malloy administration defended the decision by citing a 2008 study that the tournament generated $26 million in “economic development” for the New Haven region.  This is like citing Lehman Brothers’ profitability in 2006 as a reason to buy shares in 2008.  The 2008 New Haven Open (then called the “Pilot Pen Open”) was a completely different animal from today’s tournament.  Overall attendance was nearly twice the current level, and the tournament drew the world’s top-ranked players, leading to substantial out-of-state attendance and interest that no longer exists.  If the tournament still resulted in nearly that much economic activity today, it could turn a profit and wouldn’t need state bailout money.

About the Author: Ben Zimmer is the CPI's executive director

Jobs & the Economy, Taxes & Government Spending, Environment

CT Government Round Up Weekly Rundown—September 30

  • Sep 30, 2013
  • by Alexandra Forrester
CT Government Round Up Weekly Rundown—September 30

Debt Debates Heat Up as State Approaches Unofficial Bonding Ceiling

The state is creeping closer to its self-imposed unofficial $1.8 billion bonding ceiling, reaching $1.78 billion as the CT Bond Commission plans to borrow another $395.5 million in GO Bonds by the end of the week.  With two more Bond Commission meetings scheduled for this year, it seems likely the government will exceed the ceiling.

This announcement added fuel to the debate concerning Connecticut’s government debt, which is among the highest in the country on a per capita and per GDP basis.  Recently, this debate has concerned whether high debt is good or bad for job creation. As the Malloy administration and a recent UConn report have noted, debt-financed spending does create jobs in the short-term.  The problem is borrowed money has to be paid back, requiring higher taxes or reduced future spending, which serve as drags on job growth.  So the state should take care that bonds are used to fund projects that are good investments, paying back initial investments by generating comparable returns.

Two recent debt-financed payments to companies illustrate the difference between sound and imprudent bonding. Connecticut this week gave $2.5 million to Kayak Software in exchange for a commitment to create 50 jobs, and gave of $4 million to BYK -- a German chemical company -- in exchange for a commitment to create 37 jobs.  The CPI’s work on state jobs incentives notes that to achieve a ten-year return from incremental tax revenues (income, sales, and otherwise), an incentive’s cost per job should not exceed half of the jobs’ average annual salary.  At a cost of $50,000 per job the Kayak deal could meet this threshold.  At a cost of $110,000 per job, it’s doubtful the BYK deal does.

What it means for you: Connecticut’s high debt is a problem for long-term economic growth.  The solution is not to abandon all bonding, but to apply more rigorous analysis and exercise greater discretion in selecting projects.
 
Commission Orders Newtown 911 Calls Released

On Wednesday the CT Freedom of Information Commission ordered Newtown Police and CT State Prosecutors to release the 911 emergency calls from the Sandy Hook Elementary School shootings. The State’s Attorney Office plans to appeal to Superior Court.  The records will remain private until legal proceedings have concluded.

These proceedings are separate from a FOI taskforce created last June. This task force is expected to make a report January 1st, recommending more general strategies for balancing victim privacy under the Freedom of Information Act with the public’s right to information.

What it means for you: In these recent proceedings the focus in arguments has been over legal technicalities, like whether Newtown investigation is “ongoing.” But the real underlying concern is how to protect victim privacy while respecting the public’s right’s to information.

CT Legislature Blocks Wind Power Regulations for Third Time

The General Assembly Regulations Review Committee rejected regulatory changes that would end the state’s moratorium on in-state wind power generation. 

This is the third time in nine months the committee has rejected the changes, which effectively takes CT wind power out of the running for federal tax credits available to wind turbine projects.  The credits are only available to projects that begin construction by the end of this year. The Legislative Commissioner’s Office’s had recommended approving the legislation.

The Regulations Review Committee’s lukewarm response to CT wind power comes in the wake of the Malloy Administration’s recent establishment of a 15-year contract with a wind farm in Maine.

What it means for you: At least for now, Connecticut will not be seeing any in-state wind power generation.

About the Author: Alexandra Forrester is a CPI Policy Analyst

Jobs & the Economy, Taxes & Government Spending, Education, Crime & Public Safety

CT Government Weekly Rundown -- September 23

  • Sep 23, 2013
  • by Alexandra Forrester
CT Government Weekly Rundown -- September 23

August 2013 Jobs Data Shows CT Continuing to Lag USA in Job Growth
The Department of Labor this week released the August results of its monthly employment surveys of Connecticut employers and residents.  The employer survey showed the state’s “nonfarm payrolls” decreasing by 6,000.  However, this comes on the heals of an abnormally large gain of 11,500 that the survey reported for July.   Both the large gain in July and large loss in August reflect month-to-month volatility – the overall trend in the employment survey remains one of slow but steady growth.  The Department’s monthly survey of Connecticut households showed the number of Connecticut “residents employed” decreasing by 1,400, continuing a trend over the last few years.

The most useful way to understand jobs numbers is to not read too heavily into any one report, but rather to look at longer term year-over-year trends.  It is also useful to compare Connecticut’s job performance to the rest of the country, as that helps isolate state-specific job trends. 

From August 2012 to August 2013 Connecticut’s “nonfarm payrolls” grew by 15,400, or 0.94%.  During the same period, US nonfarm payrolls grew by 1.65%, nearly twice Connecticut’s rate.  From August 2012 to August 2013, the number of Connecticut “residents employed”  fell by 14,700, a 0.86% reduction.  During the same period, the number of US residents employed grew by 1.41%. 

What It Means For You: The Department of Labor’s two employment surveys paint slightly different pictures of the state’s job performance.  But even if you go exclusively by the employer survey – which paints the more favorable picture of the two – the state’s jobs performance remains worse than that of the US as a whole.


State Sued for Allegedly Skimping on Education FundingOn September 16, the Connecticut Supreme Court heard the state’s case to dismiss a nine-year-old suit accusing the government of shirking its state constitutional obligation to provide adequate education for all residents. The Connecticut Coalition for Justice in Education Funding began the suit in 2005—now the state is looking to dismiss the case in light of the recent education reforms. The CT attorney general argues that the 2012 education reforms and the 2013 changes to the Education Cost Sharing (ECS) formula satisfies the state’s constitutional requirements. Supporters of the suit disagree, stating that current funding for schools falls 763 million short of the ECS Formula.

A CPI paper on education reform released last week notes that the ECS program has been successful in eliminating overall inequality between poorer and wealthier districts  – the wealthiest twenty percent of districts in Connecticut now spend roughly the same per student as the poorest twenty percent of districts.  But in spite of the 2012 reforms and 2013 changes, the ECS program remains riddled with its own inequities and fails to incentivize the effective use of allocated funds.  The CPI paper argues Connecticut should replace ECS with a “money follows the child” student-based allocation model, weighted to the students’ needs.  In this model students “carry” their allotted per-pupil funding with them to whichever school they attend. The allotted amount per student should be based on a weighted student formula, which allocates more money for students whose education is more costly, such as those in extreme poverty, English Language Learners, and special education students. Several states and districts, including Rhode Island, San Francisco, and New York City have implemented per-pupil cost formulas that could be a model for Connecticut.

What it means for you: Spending more on education is never a bad thing, but the state also needs to change the structure of its education funding to make spending more effective.

State Announces Tax Amnesty Until November 15th
The state Department of Revenue Services announced on September 16th that it is offering a new tax amnesty program for the next 60 days. This program will allow businesses and residents to pay back-taxes with a 75 percent reduction in interest owed. The program is expected to bring in 35 million in revenue.

What it means for you: If you are one of the 80,000 taxpayers that owes the state money, now is a good time to pay. To encourage taxpayers to take advantage of this program, the state will increase the interest penalty it applies to delinquent taxes from 10 to 25 percent on any taxes still owed after the amnesty period ends.

State Grants $5 million to Improve School Security
Gov. Malloy announced on September 18th the first round of funding for increasing school security. The initiative, established in the state's recent gun control legislation, will provide $5 million in grants now and $15 million by the end of this calendar year.  The grants are awarded to municipalities, who must offer some amount of matching spending.

What it means for you: If your district is one of the 36 that successfully procured funding, you may see increased security measures within schools.  However, there are limitations on the uses of state funds. For instance, state funds cannot be used to hire armed guards, although municipalities can hire armed guards on their own if they wish.

About the Author: Alex Forrester is a policy analyst for the CPI

Jobs & the Economy, Taxes & Government Spending, Transportation & Infrastructure

CT Government Weekly Rundown—September 8

  • Sep 08, 2013
  • by Alexandra Forrester
CT Government Weekly Rundown—September 8

One-Off Revenue Spikes Drive FY 2013 Budget Surplus

Connecticut Comptroller Kevin Lembo announced this Tuesday that Connecticut will finish fiscal year 2013 with a roughly $400 million budget surplus.  However, Lembo also urged caution as the surplus was driven by one-off spikes in tax revenue: a temporary federal gift tax loophole incentivized major gift giving this year, bumping both gift and income tax revenues; a few extremely wealthy Connecticut residents passed away, leading to higher than expected estate tax revenues; and an increase in the federal capital gains tax effective January 1, 2013 pushed future-year sales of capital assets into the first half of fiscal year 2013.  Lembo noted that the payroll component of the income tax and the sales tax – better indicators of long-term revenue trends – declined from fiscal year 2012 and came in below expectations, respectively.

Fiscal year 2013 spending grew by $244 million, or 1.3%, over fiscal year 2012.  Under the original fiscal year 2013 appropriations, spending would have grown by more than twice that amount, but in December the Governor and General Assembly were constitutionally required to reduce spending by $252 million as fiscal analysts at the time were predicting a deficit. The fiscal year 2014 budget, passed this June, includes a 3.7% growth in spending over fiscal year 2013.

What it means for you: This year’s budget surplus is welcome news but it doesn’t say much about Connecticut’s broader fiscal outlook, which remains poor.

Bioscience Innovation Act Signed September 4th

Connecticut expanded its already significant funding of state bioscience companies Wednesday when Governor Malloy signed the Bioscience Innovation Act. The Act allocates $200 million for bioscience research and development, to be deposited in the Connecticut Bioscience Innovation Fund.  This Fund will provide grants and loans to private companies in the bioscience sector.

The Bioscience Innovation Act builds on previous state spending in bioscience, including $291 million to bring in Jackson Labs to Connecticut. As the CPI has written, state payments to companies intended to spur job growth can good or bad policy depending on the context. The Jackson Labs project failed the CPI’s three-part test for differentiating good from bad state jobs incentives due to its high cost – nearly $1 million for each of the 300 jobs Jackson Labs is committed to bringing to Connecticut. Only time will tell how each individual project funded by the new Bioscience Innovation Fund will match up against these criteria.

What it means for you: Bioscience is an industry expected to see large growth in the coming decades, so it makes sense for Connecticut to encourage bioscience companies to come to Connecticut. The question is what is the best way to do that.  As the CPI has previously noted concerning the Jackson Labs deal, bioscience companies generally look for the same things as businesses in other sectors when deciding where to locate – competitive tax rates, sound infrastructure, outstanding workforce quality, a reasonable regulatory climate, and a stable fiscal outlook.  If Connecticut became a better place to do business overall, private industries – including bioscience – would develop on their own without the need for what is essentially a state-run and taxpayer-financed venture capital fund.

CT Water Company Works for, and Gets, Lower Rates

On Tuesday September 3 the Connecticut Water Company announced that the 56 Connecticut towns it serves will see a roughly 6.4% reduction in their water service rates as of April 2014. The Company has been working with CT Office of Consumer Counsel and the state's Attorney General to take advantage of the federal Repair Tax Deduction Credit, recently clarified by the IRS.  That credit allows companies to take a deduction on capital invested in the repair and replacement of utilities infrastructure. Even with other expected increases in other costs—specifically those driven by the Water Infrastructure and Conservation Adjustment (WICA)— the savings afforded by this tax credit and future tax credits that will occur as a result of the clarification, have made officials at the CT Water Company confident that their customers will see a long-term reduction in rates. 

What It Means For You: If you live in a town served by the CT Water Company, you will shortly see a welcome reduction in your water rates.  Even if you don’t, officials at Connecticut’s Public Utilities Regulatory Authority (PURA) predict many other utilities – including gas, electric, and other water companies – will also begin to take advantage of the clarified tax credit.  The tax credit could also encourage investment in newer and better utilities systems.

About the Author: Alex Forrester is a policy analyst for the CPI

Jobs & the Economy, Taxes & Government Spending, Government Administration

CT Government Weekly Rundown -- August 26

  • Aug 26, 2013
  • by Alexandra Forrester
CT Government Weekly Rundown -- August 26

Back To Reality After “Tax Free Week”

We hope you had a chance to take advantage of “tax free week,” which ran from August 18-24.  During the week, all clothing and footwear under $300 sold in CT was exempt from the sales tax—except for clothing used solely for a sports activity.  Governor Malloy estimated in an interview that the week saved taxpayers $8-9 million.  That’s about 0.2% of the state’s annual sales tax revenue.  Meanwhile, two years ago Connecticut’s government increased taxpayers’ annual sales tax bill by 5.8%, raising year-round rates on everything from 6% to 6.35%.  Critics have noted that it’s a bit hypocritical for politicians to celebrate a $9 million discount off a bill they increased by $260 million.  But that hasn’t stopped them from doing so.  In politicians’ defense, promoting “discounts” off marked up prices is a tried and true marketing technique for business and government alike.

What It Means For You: The return of normal CT tax policy today is a reminder that Connecticut’s overall middle class tax burden (taking into account all state and local taxes) is the ninth highest in the country and the second highest in the northeast.  If you weren’t able to get done a year’s worth of clothes shopping last week, you can always follow this family’s strategy of driving to New Hampshire for shopping.  Up there, every week is tax-free week, and not just on clothing.  Of course, with gas prices being what they are, that strategy entails its own costs.

Early Intervention Drags Out CT Foreclosures

A national housing report released last week found that foreclosure activity in Connecticut is continuing to increase even as many states have started to see foreclosure activity decline. While the nation as a whole has seen a 32% drop in foreclosure activity this year, CT has seen year-over-year increases for six months in a row. After a 33% increase in foreclosures from June to July, Connecticut now has the 4th highest foreclosure rate in the country—the highest ranking for the state since 2007.

Why is Connecticut's foreclosure activity so high? Connecticut is one of many states with judicial foreclosure procedures, which make it more time-intensive for banks to foreclose on houses.   In 2008 Connecticut passed legislation that further slowed the process by increasing regulations on foreclosures and providing aid to homeowners who couldn’t pay their mortgages. These procedures were able to decrease foreclosures at the time of the recession, but the intervention served to delay foreclosures rather than reduce the total number.  States with judicial foreclosure are now experiencing higher foreclosure and payment delinquency rates than the non-judicial states that left the process alone during the crash. 

What it Means for You: Even if you are not currently dealing with foreclosure proceedings personally, foreclosed houses still have significant effects on surrounding communities. Economic studies have found that foreclosures typically result in a 1% decrease in property values for nearby homes, and can cost a neighborhood about 70,000 dollars in aggregate value loss. Lower housing values can impact other areas of the economy, driving reductions in consumer spending and new construction projects.

Census Report Shows CT Has Nation's Most Generous Public Pension Benefits

A new report from the U.S. Census has found that Connecticut’s government retirees have the highest average annual pensions of any state in the country.  This finding aligns with analysis in the CPI's Sept. 2012 policy paper on CT public pensions, which notes that, unlike in many states, Connecticut’s public pensions lead to lifetime compensation for public workers that exceeds compensation for equivalent private sector workers.  The CPI paper also notes that these benefit levels are not sustainable as Connecticut’s pension and retiree healthcare system is underfunded by about $60 billion.  The paper outlines specific recommendations for reforming the system.

What It Means For You: Public pensions and other obligations due far in the future rarely generate the urgency of more immediate problems, but if Connecticut does not address its debt problems, the consequences for the state’s residents will be very real and very painful, including future tax burdens damaging to the economy, cutbacks in essential services, default on state obligations, or a combination of all three.  We have already seen some of that in the current budget, which delayed repayment on bonds and extended tax increases that were scheduled to expire, while spending billions on debt service and state contributions to the pension fund.   

 

About the Author: Alex Forrester is a policy analyst for the CPI