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CT Government Weekly Rundown—August 26

  • Aug 26, 2013
  • Alexandra Forrester

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.   


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