It’s time we all acknowledge Connecticut’s grievous financial condition. It is not simply a matter of the legislature needing to confront budget deficits of $2 billion in 2019 and $2.6 billion in 2020.
No – there is a far bigger problem; Connecticut is insolvent. Its debts are $70 billion bigger than its assets. This equates to $53,400 per taxpayer or $19,500 for each and every resident of the Nutmeg State.
For decades, we have forgotten the first rule of holes. When you are in a hole, stop digging.
Most of the debate revolves around who is going to pay (tolls, income taxes, car taxes, etc.), but in reality, people are voting with their feet and leaving the state. Those who remain face an increasingly difficult problem, with fewer sources of funding. As the political food fight is being joined, the pie itself is shrinking before our eyes. We have reached the point where tax increases reduce our revenues. Fleeing citizens also cause the supply/demand balance in the real estate market to shift, reducing real estate values and pressuring tax revenues for our towns and cities.
To have any hope of meeting our existing obligations and continuing to provide essential services, we must enact policies that reverse the outflow of people and encourage people and business to move to Connecticut.
These proposals may not be a comprehensive solution to our very difficult problems, but some sensible policies can get us moving in the right direction.
First, we must reduce income taxes, which have driven so many away. We should simply match Massachusetts at a 5.1 percent income tax rate. This would make Connecticut more attractive than our other regional competitors; New York 8.82%, Rhode Island 5.99%, and New Jersey 8.97%.
Second, we should eliminate the Estate Tax, which causes wealthy retirees to leave for Florida and other lower tax venues.
Third, we should cap property taxes on primary residences. We have all heard or read of people being driven from their homes by insane levels of mill rate increases. Let’s cap property taxes on owner-occupied primary residences at current levels, and allow for annual increases not to exceed the rate of consumer price inflation. This policy would allow buyers of new home to accurately predict their monthly payments for the entire time they own their homes.
Second homes are a luxury, and should not be eligible for this tax limitation. This policy has the added benefit of reducing the incentive for wealthy retirees to keep their Connecticut homes, but spend six months and a day in Florida to avoid Connecticut income tax, while continuing to benefit from Connecticut infrastructure and services.
First, end “Welfare for the Well Connected” i.e. all payments and tax incentives to corporations. If we have competitive tax policy, there should be no need for special treatment. These special deals encourage corruption of our politics through pay-to-play schemes.
Second, fund all payments to the state employee and teachers pension systems with 20-year zero coupon bonds that rank pari passu (equal) with the state’s bonded debt. This will remove the incentive of unions to grab cash from the state and give them an equal stake, with all citizens, in the long-term success of the state.
Third, reform the law governing bargaining with the state employees unions and require legislative action to approve contracts rather than the current system that allows contract approval specifically by legislative inaction.
Fourth, calculate all pensions on base pay, eliminate the padding from overtime, and set a cap of $75,000 on all state employee and teachers pensions.
I have had the experience of working with a number of foreign governments that could not pay their debts. I can assure you that no one wins when a government goes bankrupt, and we are on the brink.
This opinion piece originally appeared on CTMirror.org’s “CTViewpoints”. James Miller, a resident of Lyme, was an investment banker at Merrill Lynch from 1984 – 1996. During that time he worked with the government of Argentina to privatize Telefonica Argentina, Telecom Argentina and YPF (the Argentine national oil company). Miller also worked as part of a team advising the Mexican government during the “Tequila Crisis” of 1994-95.