Is CT's financial glass half full, or half empty?

by Jeff Davis

It is clearly more fun to wake up each day thinking the glass of life is half full rather than half empty, so one can treasure what is good and be grateful.

Ah, but how to keep the glass half full. Or even more. Whether as individuals or businesses, a mixture of good planning and good luck help fill our glasses. But complacency, especially when times are good, can cause the liquid to quickly evaporate. So enjoy today, but keep planning for tomorrow.

It is easy to envision the glass of our state being half full. There is a lot to be grateful for. For instance, the latest revenue projections, compiled jointly by the Lamont administration’s Office of Policy and Management (OPM) and the General Assembly’s Office of Fiscal Analysis (OFA), predicts substantial growth in the projected budget surplus through 2028.

No wonder Gov. Ned Lamont has among the highest favorability ratings of any governor in the country.

On the glass half empty side? Connecticut is one of the few states yet to recover all the jobs it lost from the peak employment levels it reached in March 2008 during the early months of the Great Recession. Think about it. Connecticut, even with a slowly growing population, has fewer non-farm employees than it did 16 years ago.

The dreaded complacency from good fiscal news is shown in a continued unwillingness to tackle the state’s long-term weaknesses. That’s best evidenced by the 2023 legislature, at the urging of Lamont, unanimously extending the fiscal guardrails for another five years, effectively relieving the state’s elected officials from any obligation to deal with underlying structural problems.

The primary example of that hesitancy is Connecticut’s refusal to tackle comprehensive property tax reform resulting in its diminished economic competitiveness. And jobs. According to a major 2022 study by the Department of Revenue Services, our property system disproportionately burdens small business and lower-income residents. The Tax Incidence study determined that the property tax is both the most regressive tax collected in the state as well as its largest revenue source.

In 2015, the legislatively mandated Connecticut State Tax Panel, even though not tasked with examining the state’s property tax system, felt it necessary to include the following: “(1) Property taxes are regressive; (2) The property tax system is detrimental to Connecticut’s economic competitiveness; (3) State grant policies should be re-examined in an effort to further relieve pressure on the property tax to address fiscal disparities across municipalities.”

In 2018, the Connecticut Commission On Fiscal Stability And Economic Growth’s final report effectively reached the same conclusion.

The Institute on Taxation and Economic Policy (ITEP), a non-profit, non-partisan tax policy organization, just issued its 7th edition of “Who Pays?”, the only distributional analysis of tax systems in all 50 states and the District of Columbia. ITEP found that Connecticut has the largest gap between the property tax burden of the lowest 20 percent of income earners and the highest 20 percent as well as the highest property burden on the lowest 20 percent.

When a state has fewer jobs than it did16 years ago, has a property tax system that one nonpartisan group after another cites as regressive and anti-competitive, what is the saying about fool me once?

Simply put, the current level and manner of property taxation undermines economic growth, fosters inequity and impedes efficiency in delivering services.

The Property Tax Working Group of 1000 Friends of Connecticut believes this time of relative strength is the right time to deal with fundamental structural issues that undermine the state’s economic competitiveness. It is time for Lamont and the General Assembly to place the same level of priority on property tax reform as the fiscal guardrails did on reducing pension debt.

The Property Tax Working Group proposes a comprehensive, hold-harmless, phased-in, empirically-based set of proposals that would reform Connecticut’s anti-competitive and regressive property tax system. (www.taxpolicyct.org/)

The plan would cost about $1 billion annually. We unequivocally believe that new state revenue is not needed to accomplish these objectives.

The Working Group’s insistence that no new revenues are needed comes in large part from a study commissioned by Lamont to evaluate how the state should deal with the then approaching reality of an avalanche of state employee retirements by July 2022. The resulting 2021 study, The CREATES Report, suggested there was as much as $1.1 billion in revenues owed the state but not being collected.

The CREATES report also said there could be a $495 million increase in revenues as the tax department continues with a planned digitization upgrade. Additionally, the department should continue hiring auditors. It’s estimated that each hire could bring in an additional $2 million. And OPM and OFA are projecting $1.44 billion in surpluses through 2028.

For Lamont and the legislature, the issue isn’t simply property tax reform. It must also be about tax fairness and economic competitiveness. And jobs.

Jeff Davis of Pomfret is a member of the Property Tax Working Group. The views are his own. This op-ed first appeared in the Connecticut Post/Hearst CT Media.