Is Connecticut’s economic flat roof in danger of collapse?
February 9, 2011Record snow and ice has pummeled Connecticut families and businesses this winter and forecasters say the end is not in sight. As the precipitation continues to fall it’s soaking into the already snow packed roofs causing collapses all around the state. Experts say the sponge like roofs are the ones most at risk and the only way to alleviate the pressure is to shovel. Connecticut policy makers need to apply that tactic to our fiscal flat roof before it succumbs to the pressure of high debt, high unemployment and high taxes.
The mounting stress on our state’s operating budget didn’t happen over night. But if we don’t address the crisis now it will become very difficult if not impossible to dig out. Recently, Moody’s investors Service announced it was going to use a new reporting method. No longer will Moody’s separate soft debt pension obligations from bonded debt. Instead, the investment house will show a States total obligation; pension liabilities and debt. Taking into account this new method, Connecticut went to the top of a dubious list of states with the highest debt burden. Our state’s bonded debt is $19 billion and we haven’t consistently paid enough to pension obligations over the years, leaving our fiscal flat roof with the stress of $72 billion in unfunded liability according to the State Office of Fiscal Analysis.
It may not be clear if Moody’s will lower the state’s ratings from good to bad, but Fitch Ratings Service did in 2010. At the time Fitch analysts wrote, “The state relies on borrowing to address its ongoing fiscal challenges in the context of already high liabilities and large projected structural gaps.” And the Connecticut Mirror, an online newspaper noted in February of 2010, “When it comes to long term obligations, Connecticut has one of the worst balance sheets in the nation.”
We are one of seven states estimated to run out of money to pay public pensions by 2020. The others are Illinois, Indiana, New Jersey, Hawaii, Louisiana and Oklahoma according to Joshua Rauh of the Kellogg School of Management at North Western University.
So how do we begin to shovel? We need a bipartisan team of workers who have the strength to consider closing pension funds to new hires, cap pensions and COLAs for existing workers, raise the retirement age from 55 to 65 years, require employees to contribute more to their pensions and move the state work force from a defined benefit to defined contribution plan.
Governor Dannel Malloy has said several times there will have to be “shared sacrifice” and “universal sacrifice” while I agree, our towns and cities have been stretched already. We need to have serious talks with our public sector unions. 64% of our state employees are in a union. That is the second highest rate in the nation. The mantra of the past that a union’s size and power should shield it from economic storms is no more.
Barry Bluestone, Dean of Northeastern University’s School of Public Policy and urban affairs says, “As taxpayers absorb how well unionized government workers are living versus the rest of the workforce, unions could see more difficult times ahead.” Unless, Bluestone suggests, “…unions make a better case to their consumers – taxpayers – that they are becoming part of the solution, not staying part of the problem.”
This past week Pfizer announced it was taking 1,100 highly paid workers out of Connecticut. Last year, the Chief Financial Officer of United Technologies Corporation, our states largest employer, told a room full of business leaders he would invest “anywhere but Connecticut.” These added stresses to our fiscal stability as a state can not be ignored. The mounting debt, loss of jobs, and our state’s poor attitude toward business all add to the cracking, popping and groans of a collapsing roof. We in Hartford need to start shoveling and fast.