Once known for its robust growth, the implosion of Connecticut’s economy following the Black Monday stock market crash of 1987 led to sweeping tax changes, the gradual erosion of its revenue stream and slowing of economic growth.
A generation later the 2008 recession hammered financial services, insurance and manufacturing with job losses. Faced with 9% unemployment and exploding pension debt then-Gov. Dannel Malloy cut thousands of government jobs, raised taxes twice and negotiated labor concessions. To bring new businesses to the state he offered tax incentives, but the state economy remained in a slump up to the 2019 pandemic.
Connecticut’s “disparities in GDP and job growth, in comparison to the national average, have cost Connecticut billions of dollars in unrealized tax revenue and 248,000 potential jobs since 2007,” wrote Brandon Whiting of Inside Investigator.
After the recession, states which increased investment in essential services recovered job losses. Connecticut reduced investments in education, healthcare, housing and transportation and is still short by 7,200 jobs.
State support for the University of Connecticut has been declining since 2000. Just between 2009 and 2021 undergraduate tuition and fees rose by 54%, student support was cut by 23% and block grants cut by 34%.
Connecticut’s financial support for students wanting to attend college lags behind most other states. Only 3% of higher education funding is allocated to need-based aid and the aid itself is only $253. Student debt is now 5th highest in the nation.
In the last two years community college students were hit with reductions in course locations, library hours, support services and a tuition hike of 11%. These cuts make it difficult for students to finish their education and enter the workforce.
K-12 education funding has been cut by $407 million [inflation adjusted] since 2017. This has contributed to as many as 119,000 Connecticut youths who are not engaged in school or in work. These disconnected youths have problems of mental health/addiction, poverty and homelessness.
It’s an issue raised by Joe DeLong, CEO of the Connecticut Council of Municipalities and state leaders. Without substantial reinvestment in counseling, vocational instruction and career planning to help these youths regain their footing the state could lose between 750 million and 5.5 billion in future revenue losses.
Every now and then hope is rekindled by positive news, such as the $100 billion private investment in state industries facilitated by Yale’s Jeff Sonnenfeld et.al and the marketing firm AdvanceCT. This investment was expected to produce a turnaround for the state’s stagnant economy. Sure enough, by the end of 2023 the economy moved the needle by 2.1% in real growth.
Is this growth due to the abundance of federal pandemic relief funds or to the $100 billion private investment itself? We will have to wait to find out, but in the meantime the absence of job gains shows the economy is not out of the woods. “Connecticut’s job growth is trapped in a frustrating holding pattern.” At the same time, other states in the region and country are experiencing significant job gains.
After a decade of economic stagnation Connecticut is finding itself without many of the resources needed to capitalize on that $100 billion private investment.
What are those resources? As has been pointed out by CBIA’s President Chris DePentima in his “Opportunity Connecticut” plan, there’s a lack of affordable housing and a lack of access to affordable health care. There’s a “lack of coordinated economic development” for numerous jobs which do not require a college education. There’s also the absence of a refundable child tax credit and affordable child care which would allow spouses to enter the workforce.
Worst of all, Connecticut doesn’t have enough people! During the last decade the national population surged by 7.4%, but Connecticut didn’t attract significant numbers of new residents. This has left the state with too few applicants to fill job openings. “It’s a matter of getting people in the state and keeping people in the state to fill those jobs.” So now “Attracting and retaining employees is a top priority for Connecticut employers.”
A 2022 state inflow/outflow analysis of jobs shows the number of Connecticut residents employed out of state exceeds the number out-of-state residents employed in Connecticut by 55,014, a number which more than doubled over the last decade. Why? Neighboring states have better economies. “Massachusetts has a robust economy that has been growing strongly for 25 years, generating lots of jobs, pulling in new companies, generating lots of tax revenue…”
Has there been any real wage growth in the last few years to attract workers? When inflation is taken into account, the picture is far from rosy. In 2023 Connecticut average wages increased by 3.1% but after inflation this became an average real ‘growth’ of -.9%! From 2021-2023 average real ‘growth’ for the middle class was -4.8%! Low wage workers got a scheduled $.66/hour wage increase in January but much of this has also been eroded by inflation.
Since 1979 average real [inflation adjusted] wage growth nationwide for low income workers ranged from .38% per year up to .53% per year for upper middle income workers through 2023.
The cumulative impact of four decades of wage stagnation is evident in reports developed by Connecticut’s Department of Revenue Services. These reports show an extraordinary proportion of households in the lowest income ranges. The lowest decile [10%] of income alone contains nearly half the households in the state.
Have there been any significant gains in meeting the critical need for affordable housing? In May 2024 legislators expressed frustration with the slow rate of progress. Only 28 of 169 municipalities have the required 10% of housing units that are affordable.
Due in part to limited supply and high interest rates, housing consumes too high a percentage of household income. Homeowners and renters are also being squeezed by the rising cost of food, energy, rent, taxes and tuition with almost nothing in real wage growth to pay for new expenses.
Connecticut’s capital investment has been 41% lower than the national average and it’s spending is near the bottom of all states. State leaders have been trying to get by with insufficient revenue so they don’t have to ask the most affluent residents to pay a more proportional share. This has left the state relatively unprepared to capitalize on the $100 billion private investment.
Because the state has not been attracting significant numbers of new residents for years there aren’t enough people to fill current jobs. There’s no child care tax credit or affordable day care. Education funding has been scaled back in multiple ways. Finally, High living costs and a critical lack of affordable housing deter prospective residents from settling here.
Connecticut has a lot of work to do before it can sustain a growing economy. It needs to reform its dysfunctional revenue system to properly fund essential public services and pay for capital investments that sustain economic growth. It’s only the recent $100 billion private investment/pandemic relief that puts Gross Domestic Product into positive territory. But GDP is the sum of government spending, investment, consumer spending and net exports and Connecticut has been deficient in these measures for decades.
What else should the state do to sustain its fledgling economic growth? Address the needs raised by CBIA and others to lower the cost of childcare, energy, healthcare and housing. Address the needs raised by CCM to provide support, vocational education and career training for disconnected youth. Generate new revenue of between $1-3 billion by fully staffing the Department of Revenue Services.
William Buhler of Cromwell is Chair of the CSEA Legislative Action Committee.
