Quantcast

Opinion: How to save Connecticut from insolvency

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.

 

Revenue Policies

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.

 

Spending Policies

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.  

11 comments

Piberman October 14, 2018 at 1:29 pm

Well considered advise. Could have been written a decade ago. And that’s the problem. Neither CT elected officials nor voters amongst our 169 towns and cities have much interest in resolving CT’s well documented fiscal and economic problems. Nor the unprecedented power of our State and Municipal public Unions – amongst the highest paid in the nation.

We don’t see much attention given to CT’s depressed cities where 1 in 3 live. Without robust modern cities encouraging hi-tech computer industries CT will remain as it has been – some 130,000 wealthy residents in a Gold Coast adjacent to NYCity and the rest of the State with average incomes and prospects.

The first order of business ought be a full time well paid and well staffed Legislature replacing the part timers currently governing our State. Few of whom have either significant professional or business backgrounds. Without a competent and well educated State Legisalture there is no major improvement for CT on the horizon. Changing Parties moves the pieces on the chessboard. But not the strategy for success.

Lisa Brinton Thomson October 14, 2018 at 1:47 pm

Agree Peter. Connecticut’s problem is it’s preoccupation with Washington instead of paying attention to financial matters closer to home.

Mike OReilly October 14, 2018 at 6:21 pm

Why is James Miller the only one in our state who can provide such clear solutions to our states insolvency? I will vote for which ever candidate for Governor grasp these solutions. I suspect I would be in good company if more citizen’s have the opportunity or make the time to read this.
Candidates Stefanowski and Lamont do you endorse these policies?

cc-rider October 14, 2018 at 6:35 pm

All three of his revenue policies result in reduced revenue to fix a massive deficit??? This sounds a lot lot the Kansas example.

Kevin Kane October 14, 2018 at 8:32 pm

So sad, so true. Imagine that: someone from the private sector distilling the problems and offering solutions. I’ll be looking for the James Miller box to check on my ballot.

John Levin October 15, 2018 at 1:12 am

“Second, we should eliminate the Estate Tax, which causes wealthy retirees to leave for Florida and other lower tax venues.”

Seriously? The choices are eliminate the estate tax or not eliminate the estate tax? There is no option to change how it works, perhaps adjust rates and brackets? Is your claim of ‘flight to Florida’ supported by evidence? How much does CT take in from its estate tax? Who has been paying it? Or avoiding it? Sorry, but your ‘eliminate’ solution will serve a few dozen families in CT exceptionally well, but that does not make it a wise policy by any measure.

That said, I like your Spending #4, but I am poorly equipped to analyze it properly. Isn’t this recommendation is impossible to institute retroactively, as the state already has contractual obligations to retirees that cannot be abrogated. And I think that it already has largely been instituted prospectively, and thus already is in place for current employees/future retirees. If these are true, then Spending #4 is actually completely meaningless.

Joe October 15, 2018 at 1:34 am

Mr. Miller is smart and he has common sense and good ideas.

If we completely eliminate our income tax, private sector money and people would pour into CT like Niagara Falls.

Mr. Miller didn’t mention one of our biggest economic problems. Connecticut is a sanctuary state.

Illegal immigration has doubled our ed costs and taxes, over used our infrastructure and social services and wrecked our labor pay system.

That’s a huge drag on the economic well being of legitimate Connecticut citizens. It’s so unfair.

Unfairness and good business don’t mix.

David Mapley October 15, 2018 at 7:24 am

Well written James.. I think we have all realised that overtaxing and political cronyism is bringing CT to the brink of ruin, and as a microcosm we see the same in Norwalk. I have posted on Facebook “Norwalk Taxes Too High”, which aggregates research on our issues, and at the City level you have various commissioners sniping and undermining the administration of our City, usually a great expense to us. James made many good points, but people flow was interesting. In search of good schooling I have lost 3 neighbours in 2 years, yet NPS trumpets that 44% of schoolchildren get free meals – what are we becoming, a charity house for economic migrants? We even pay to teach kids English which is laughable, when half the world studies like crazy to master the language of global commerce. Hopefully we vote in better qualified people at the upcoming elections and turn this sorry economic mess around.

Pros & Cons October 15, 2018 at 10:21 am

Perhaps reasonable to look at public pension base and eliminate overtime, etc. (something that’s already done with some groups) but seriously questionable, unfair and unreasonable to lump everyone together for flat rate cap, especially since this seems to include public sector folks who are not even state employees.

alan October 16, 2018 at 8:55 am

How about NOT spending $5.5 MILLION on land in Orange that one of Malloy’s donors paid $500K for three years ago?
Just one tiny “deal”, that was exposed to the light of day and was structured to escape public scrutiny.
Hartford and New Haven and Waterbury are sucking the life out of this state. Malloy used DECD as a vote buying machine, and our children’s children will be saddled with the debt.
One thing is constant in the Land of Steady Habits and that is corruption.

Jeff October 16, 2018 at 10:27 am

We need to eliminate pensions going forward, and shift to a DC plan with match comparable to the private sector. The retiring generation did a great job of guaranteeing themselves pensions, but kicked the burden to current workers by failing to run a government that properly funded these future obligations.

Leave a Reply

Your email address will not be published. Required fields are marked *

*

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>