The next move after General Electric’s decision to quit Connecticut for Boston is to hold Governor Malloy and the Democrats accountable. That will require maintaining a clear distinction between GE’s reasons for leaving Connecticut and its reasons for heading to Boston. The reasons are different.
GE is leaving Connecticut because of Connecticut’s high taxes, its business-unfriendly environment, and its frightening fiscal and economic outlook. What attracted GE to Boston only matters to GE and Beantown.
Don’t let Mr. Malloy and the Democrats switch it up, saying that GE is not leaving Connecticut because of its high taxes but rather to relocate to a research and high-tech oriented urban environment. Don’t let them convince you that high taxes and an unfriendly business environment can’t be the reasons that GE is leaving , because “Taxachusetts” is just the same. Massachusetts taxes are lower and they have been going down, as The Wall Street Journal has reported.
The Sequence is important. GE began considering a move when Mr. Malloy and the Democrats jacked up corporate taxes summarily and retroactively last June. Thereafter, GE examined its future needs and settled upon a research-tech-urban environment as the most desirable for the future.
GE didn’t act just out of pique. It looked deeper and further than June’s tax hike. Connecticut is facing huge budget deficits of $355 million in 2017, $1.7 billion in 2018 and $1.9 billion in 2019, according to the state’s non-partisan Office of Fiscal Analysis. A cumulative deficit of almost $4 billion in an annual budget of about $20 billion is an abyss. Future tax increases are inevitable.
Nor are these projections are dynamic. That is to say, they do not factor in the likely reaction of taxpayers, both businesses and individuals, to the coming succession of tax increases that the state will be forced to levy. Famously, Connecticut is the new Dodge City, the place that a 2014 Gallup Poll discovered half the citizenry wanted to get out of.
Well, they are leaving. The emigrants are higher income tax payers. Connecticut is the only state in the nation where the average income of taxpayers leaving the state is higher than those staying. According to the latest IRS data, between 2011 and 2013, about 95,000 taxpayers left the state; their average adjusted gross income was $112,000 versus an average of $101,000 for the remaining 1.4 million taxpayers. Only 78,000 taxpayers moved into the state, bringing an average income of only $86,000.
In other words, the state’s individual income tax base is eroding quickly. Indeed, after GE’s announcement, the state announced new shortfalls, with income tax receipts for the last six months coming in 2.6% below projections made just last June. So with GE’s departure, a slow exodus may turn into a stampede.
What to do?
Act like bank robber Willy Sutton. Go where the money is — in this case, the expense money. State employee compensation is the biggest single expense in the state budget.
Connecticut state employees enjoy amongst the highest compensation of state employees anywhere, five years after Governor Malloy claimed to have exacted “painful” concessions from state employees. Here’s how the employees’ lead negotiator, Dan Livingston, described the 2011 deal:
- · retirement benefits, “Now we have an 11-year pension and health care agreement... that no other state worker in the country has”;
- · job security, “four years job security. Nowhere else in the country will you find four years job security”;
- · wage increases, “Giving up the raise next year [3%]... to get three threes in a row in the three out years... Arbitrators around the country are ordering four zeros in many cases.”
“Painful?” Only to overtaxed citizens who rely on state services that are now being cut to cover state payrolls. Who wants to pay more for less?
By official estimates, required state contributions to the state employee pension fund, which is the third most severely underfunded plan in the country, will escalate from $1.5 billion today to twice that amount by 2025 and more than quadruple by 2032. That doesn’t include retiree health care benefits.
It is time for real cuts in state employee compensation, primarily retirement benefits.
The problem is that the same guy who negotiated the 2011 deal is, or soon will be, in secret negotiations (they’re secret, so we don’t know) on a new multi-year deal with the public unions which supported him in both his 2010 and 2014 elections. No doubt, that scared GE.
It is not alarmist to say that, even before GE’s departure, Connecticut had entered the beginnings of a death spiral — of increasing deficits requiring more tax hikes leading to mounting taxpayer flight bringing things full circle to insufficient tax revenue and more deficits. That’s what drove GE out of Connecticut. What attracted GE to Boston is another matter.
[email protected], @RedJahncke