The 2014 CT legislative session ended last week. Here are some of the session's most important policy developments, including what was good, what was bad, and and what was just plain ugly (spoiler alert: it's the budget).
New Early Childhood Education Funding
The legislative session included several expansions to state education funding, most notably new funding for early childhood education. This is a positive development, though the state must do more to ensure that early childhood education funding is spent effectively. For more on how government can most effectively fund early childhood education, see this CPI op-ed in Education Week and this CT Mirror op-ed by Hope Child Development Center Executive Director Georgia Goldburn.
Reforms to Judicial Pension Guidelines
The legislature made a small but positive change to the eligibility rules for judicial pensions, reducing the standard pension (two thirds of salary) by ten percent per year for judges who retire before serving ten years on the bench. The change was inspired by judges confirmed to the bench this year who will receive pensions of around $100,000 per year after working as little as four years. These judges’ pensions, currently the leading vote-getter for the CPI’s 2014 Golden Fleece Award, will not be impacted by the changed eligibility rules as those changes only apply to judges appointed after July 1.
One Step Closer To State-Run Retirement Program For Private Sector Workers
One of the least advisable proposals of the legislative session was an attempt to establish a state-run retirement plan for private sector workers and require any business without a retirement plan to set up direct-deposit and payroll-contribution systems for the state plan. While this proposal did not pass in full, the legislature did pass a bill creating a new state board to design a mandatory state-run retirement plan and submit it to the legislature for final approval by April 2016. See this CPI blog post for more on why this is a bad idea.
Tax Breaks For Select Companies While Overall Business Climate Suffers
Connecticut’s government this session continued its pattern of offering generous tax breaks to select companies, paid for with higher taxes on everyone else.
Specifically, the legislature passed a bill providing UTC $400 million in tax breaks to support $500 million of facilities investments in the state. The tax breaks are tied to capital investment rather than job creation, so UTC could actually reduce the size of its Connecticut workforce and still receive up to 90 percent of the tax breaks.
The problem with incentives like these is that they have to be paid for with higher taxes on everyone else, contributing to the poor business climate in Connecticut that leads companies like UTC to consider leaving in the first place. For instance, $118M of spending in the current budget is paid for by a 20% corporate tax surcharge that the legislature could have repealed. And the legislature failed to act on a proposal to repeal the state’s business entity tax, which raises only $40M per year in revenue yet is a major deterrent to small business creation in the state, forcing companies to pay a fee even if they are not yet turning a profit. For CPI's award-winning analysis on when state incentives for business are a good idea – and when they are not – see this CPI policy paper and op-ed.
The Connecticut government began the legislative session debating what to do about a projected $500M surplus. But when income tax revenue came in at much lower levels than the state had projected (something the CPI warned about in January), the legislature had to resort to more than $180 million in budget gimmicks to keep the budget “balanced” at all. These gimmicks included:
These new questionable budget moves come on top of $625 million of borrowing to cover operating expenses and $400 million of unsustainable, one-off revenues included in the budget when it was first passed last year. Unsurprisingly, the legislature’s Office of Fiscal Analysis projects annual budget deficits of over $1 billion per year going forward.