On Monday, statewide research group Connecticut Voices for Children dropped an extensive report concluding that “Connecticut’s economy has serious problems.”
During the last several years, New Haven and Connecticut have been hit hard financially by the economic shutdown produced by the pandemic. New Haven Mayor Justin Elicker’s administration spent much of 2020 and early 2021 trying to navigate an extensive budget crisis, and fiscal year 2020 ended with a significant deficit. The state also took a hit, and the budget Gov. Ned Lamont proposed in February was nicknamed the “COVID Comeback” budget.
This summer, the city’s financial worries seemed to ease when the city secured $50 million from a new program, coined Tiered Payment in Lieu of Taxes, or PILOT, that appropriated additional state funds and helped close a $53 million hole in the budget. From Hartford, the Office of the State Treasurer began to send out press releases heralding several signs “of a recovering economy.”
But the new report, published by Connecticut Voices for Children and titled “The State of Working Connecticut,” concluded that the Nutmeg State may have dug itself into an economic hole in the years since the Great Recession from 2007-09. Recovering from the most recent COVID-induced recession will be a slow and painful process, report author Patrick O’Brien told the News.
“We’re in a deeper hole because of the Great Recession preceding the coronavirus-induced recession, but the coronavirus-induced recession itself hit Connecticut harder,” O’Brien said. “It’s this deeper hole that we’re in, and we’ve seen in 2021 that our recovery’s been slower. We’re on track to recover more slowly from our deep hole than the U.S. as a whole.”
In the period between the Great Recession and the pandemic, Connecticut has ranked 49th in the nation in terms of growth of economic output. During the same period, according to the report, wage inequality has risen. Worker power, defined as the ability of workers to demand their desired pay, has also plummeted. The report correlates this trend with the decline of unions. Now, the report claims that Connecticut’s presumably slow recovery from the current recession has the power to drag down the nation’s recovery.
Connecticut State Treasurer Shawn Wooden said that Connecticut is emerging relatively slowly from the pandemic recession. Although the state’s unemployment rate has improved, it has not done so to “the same degree as the national unemployment rate,” Wooden wrote two weeks ago in a press release. Still, he expressed optimism about the future.
“As businesses continue their return to normal, helped by increased vaccinations and, more recently, full FDA approval of the vaccine, it is expected that employment will continue to grow,” he wrote. “Job opening data and wage increases are being implemented in order to attract workers back into the workforce.”
But Monday’s CT Voices report did not hint at an imminent bounceback. Rather, it pointed out that through each of the last three recessions, Connecticut has taken years to recover. This time around, O’Brien said, the case is not likely to be any different.
Plus, according to the report, it is impossible to pinpoint exactly what aspect of the job market requires increased financial stimulus to see additional growth, as recessions tend to strike Connecticut’s economy across the board.
“The striking thing was that the economic contraction has basically just — it’s been sweeping in its scope,” O’Brien told the News. “We’ve been with below-average job growth in every major sector. That has translated into below-average economic output in every sector of our economy, with one exception, which was information.”
Economic disparity and PILOT
The group’s research notes that wealth gaps in Connecticut have grown to dangerous levels. Wage inequalities, the report indicates, have risen steadily over the past three decades to rates higher than the national.
If wage rates would have risen at the same rate across the board as workers in the upper class since the 1970s, the average Connecticut worker would have earned just under $30 an hour last year instead of $24.65. The racial wage gap has also worsened, according to the report. A Hispanic worker, for example, today makes an average of $17.36 an hour. If the gap remained the same rate as in the 1970s, that wage today would be $29.52 an hour.
O’Brien said that PILOT funding could theoretically help shrink the gaps of economic disparity along lines of race and class, but that it could mean cutting funds elsewhere.
“You can make the case that increasing spending in some of the municipalities would obviously target the groups that we’re talking about,” he told the News, referring to communities of color and lower-income groups. “But the question is that if you don’t want to increase overall spending, what exactly do you want to cut?”
The Elm City has taken steps in securing additional PILOT funds. With the passage of the PILOT program this summer, the city received $90 million in extra funds from the state this year.
In response to hearing about the bleak conclusions of the state report, New Haven Budget Office Director Michael Gormany noted that the city has implemented unique policies that have lessened the impact of the pandemic on New Haven’s finances. In the winter, the city was projecting a $14.8 million deficit, but that projection has continued to drop.
“Our operating budget for fiscal year 2020 had a minimal deficit, so we were able to weather the storm financially by putting in internal expenditure control,” Gormany said. “Right now we’re working on publishing the [fiscal year 2021] pre-audit report which will show those financial results, but we’re expecting that [the city’s deficit] will be much lower than what we were projecting.”
At a Board of Alders finance committee meeting on Monday, Gormany noted that tax collections “look really strong,” and that collections are up $11.8 million compared to last year.
Still, O’Brien’s report stresses that the state’s issues are extensive and require long-term change. He did not suggest exactly where to shift funds in budgets; rather, he pointed to broader options, including a shift to a progressive tax system.
O’Brien writes in the report that Connecticut’s wealthy pay less in taxes percentage-wise than working and middle class people. In the report, he specifically calls for a child tax credit and more taxes on capital gains.
“It would boost the economy because the expansionary effect of the tax cut component is significantly larger than the contractionary effect of the tax increase component,” he wrote. “And it would support working- and middle-class families, especially families of color, by decreasing their disproportionate tax burden.”
Earlier this year, Elicker similarly called on Lamont to increase taxes on Connecticut’s wealthy, specifically its billionaires.
The 2021-22 fiscal year began on July 1.