Connecticut Economy

        We find ourselves in 2017 in a negative mindset on the economic trajectory of Connecticut. The taxes and the schemes to nickel and dime businesses and individuals are having a cumulative impact. Substantial businesses such as GE and Aetna are leaving and decent individual earners are on their way out. As a result, we have fewer tax receipts. As a resident of Fairfield County, I can confirm that there are fewer financial jobs in Fairfield County and I understand that they are being paid less. This means fewer dollars to Hartford. Even if the taxes and nickel and dime schemes were not increased any more, Hartford’s tax receipts next year are likely to be less than this year. There are actually very wealthy people who have family living in Connecticut, but they live in Florida and will specifically avoid setting foot in Connecticut for fear the revenue collectors will send them a huge tax bill. What is that for liberty and the freedom to move around the country? So they live in Florida and avoid even stepping foot in the beautiful State of Connecticut because The Hartford Club has scared them away. We will not benefit from them buying more property here; improving their homes here; dining here; starting businesses here; and, certainly not retiring here. The tax regimen and arbitrary taxation of Hartford is punitive.

        So how did we get to about the 47th worst fiscal health in the nation out of 50 states when Connecticut has the highest per capita income? The political class in Hartford has failed us. The Hartford Club, which is the employees and pensioners of the State of Connecticut, the elected members of the General Assembly and Senate, the Governor, the judiciary and anyone who has or can get a contract with the State of Connecticut, has been looking out for themselves, the citizen be damned. The Hartford Club assumed that Fairfield County would bail the state out yet again. But as we saw with the last round of tax increases and nickel and dime schemes, people with jobs are leaving the state. We can no longer increase our tax burden. We can no longer create new nickel and dime schemes to create new “revenue streams.”  We actually have to cut taxes and lessen the nickel and dime schemes to capture the attention of businesses and individuals that there will be a new trajectory for Connecticut.

        Connecticut has gone over the limit, joined by proud cities such as Hartford, New Haven, Bridgeport and Waterbury use a significant portion of their tax revenues to service debt and pay for benefits for retired workers. In fiscal year 2017 Waterbury is paying more for health benefits for retired workers, $41.6 million, than for current city workers, $38.4 million. “Connecticut’s Broken Cities: Laying the Conditions for Growth in Poor, Urban Communities,” January 18, 2017, Stephen D. Eide, Yankee Institute, p. 5. Almost 40% of Hartford’s budget is to service past debt and pay for the health care and benefits for retired workers! How can you run the schools; fix the roads; pay the police, fire fighters and municipal workers; and, have any money to do anything else? While the average Connecticut municipality receives 22% of its revenues from the State of Connecticut, Bridgeport, Hartford and New Haven receive 47% on average from the State. “Connecticut’s Broken Cities: Laying the Conditions,” p. 4.

        We must climb out of this hole together. To reverse the downward trajectory, we must change “The Business of Connecticut is Government,” to “The Business of Connecticut is Business.” If your child asks you for advice: “Mom, Dad, I have job offers in Connecticut, North Carolina, South Carolina, Florida, Texas and Idaho. The jobs are all pretty similar. What do you think I should do?” You know that your advice will probably be a state other than Connecticut. That is a sad statement on the state of affairs here in Connecticut and how The Hartford Club has failed. We have among the best-educated, most productive and highest-income residents in the country. Ibid., p. 3. So I propose that most of our decisions in Hartford should be: “How does this decision help us get business into the state?” We should not be increasing the cost of hiring people. We should not be increasing the administrative nightmare of establishing a manufacturing facility or other employer here.

        When we are told some of the budget numbers for the State of Connecticut and for some of our larger cities, those numbers seem intractable. Yet, at the same time, we are informed that the level of benefits and the terms of employment exceed the average of the 50 states. What if our terms for retirees were at the average of the private sector? What if our terms for retirees and present employees were at the average of the 50 states? If the average contribution by a public employee in the 50 states is 6% for something, why would our Connecticut employees be contributing 4%? What is a deductible for a health benefit were x instead of y?  What if new hires were enrolled in a 401(k) program as in private business versus a guaranteed retirement pension? The answer is that The Hartford Club did not protect the taxpayers and citizens as it should have. Our public unions are very capable and nimble for their members. The public unions have done their job to the best of their abilities.

I cannot analyze the impact of getting to average, but accountants and actuaries could show how the budget issues may not be insurmountable if we work towards the average?

        Let us return to the positive. There is something we can do to free our state from the death grip of The Administrative State. What in fact is the logical conclusion of passing new laws and rules every year? While the legislator can boast on their resume of the new laws or amendments they passed, does the legislator and Governor boast of the laws and regulations taken off of the books? Are new laws and rules how the legislator proves their mettle? Think what a morass of laws and rules we may face in 50 years? 100 years?

          The natural state of men and women in nature is freedom. We are social animals and enjoy each other’s company,. . .most of the time. In fact, we have found that through the division of labor, we are able to experience a higher standard of living versus if each of us tried to do each task in our lives ourselves. Perhaps one person is better able to work on an assembly line and another person is better able to oversee a construction crew. And yet, another person is better able to be a school teacher?

        The Tenth Amendment to the United States Constitution states: “The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people.” So of all the powers in the world, the federal government and the states only have those specifically granted to them by the people. And both the U.S. government and the government of the State of Connecticut have been formed to serve the people. The citizen is sovereign!

        The State works for the citizen. That has been reversed in Connecticut. We all work for the state. Do not expect a paycheck in your mailbox. Rather you must work for the state and send it money. When you buy gas you pay $.25 per gallon, cigarettes, $3.40 per pack, liquor, $5.40 per gallon, wine, $.72 per gallon and beer, $.23 per gallon. In Massachusetts you pay $.24 per gallon for gas, $3.51 per pack of cigarettes, $4.05 per gallon of liquor, $.55 per gallon of wine, and $.11 per gallon of beer. Colorado will charge you $.22 per gallon of gas, $.84 per pack of cigarettes, $2.28 per gallon of liquor, $.32 per gallon of wine, and $.08 per gallon of beer. I do not know whether we receive better roads or services as a result of these higher taxes?

        In Connecticut, you would expect the tax on gas to be used for our roads and bridges, but you would be disappointed. The Hartford Club regularly steals some of it for the general fund and the gas taxes do not go 100% to our roads and bridges. We have heard The Hartford Club talk of instituting tolls on our highways again. Oh, and they promise that there would be a “lockbox” to ensure that those tolls would go only for roads and bridges. You can be sure that when The Hartford Club orders the tolls they will order a specially made mallet to break that “lockbox” wide open. That mallet would be placed behind glass with the label: “Break in emergency only!” And how long would it be before the legislature declares a fiscal emergency? . . . . . Last week.

        You buy lumber at the lumber yard, you pay tax. You buy paint to paint your house, you pay tax. You buy a car, you pay tax. You buy food, you will pay tax on something. Somebody fixes things at your home, you pay tax. You hire a worker, you pay tax. You fire a worker, you pay amongst the highest workers’ compensation payments in the nation. You work for the state and the state says these taxes are not enough.

        How much more complicated is your life today than in 1975? How different is it to drive on the street? How much different to buy food in the supermarket? How different to buy clothes? How about having a kid play in a local sporting league? How different for you to go to work? The rules instituted since then pile one on the other. Some of the rules may make our food safer and our cars safer. We have so many rules today, that we probably violate more than we know. It is almost assured that any business today is violating state of federal laws or rules that they have no idea exist.

        So here is a start towards greater liberty. There is an inhumane law in the State of Connecticut. It is a human right to earn your living and put food on the table with the strength of your hands and back! That is as basic as speech, press, assembly and religion. The state may not prevent me from working with my hands or back to feed my children. But it does. To work at someone’s home to plant a bush; cut the grass; paint a door; fix a screen door; or, do work inside, you must be a Registered Home Improvement Contractor and pay an annual fee to the state to exercise a basic human right. People in socio-economically disadvantaged communities have even less money to pay these fees. The Home Improvement Contractor Act even contemplates barring you from working with your hands and back if you are a bad worker. The state has no place to bar me from working. The market will determine whether I can work again or how much I should earn. The fiction that the state has assured quality workmanship and timely completion of work is preposterous. That fraud and breach of contract by workers or homeowners have been vanquished because of this inhumane scheme is ludicrous. There will always be fraud and breach of contract. Fund the courts to separate it out.

        In this instance, the state has sided against those with little but their hands and backs in favor of those with greater economic resources. It is a familiar tactic going back to the guilds of the Middle Ages. Restrict competition. Keep competitors out. Make it harder for people to enter a trade. This is how The Hartford Club works. Eliminate the entire Home Improvement Contractor Act. That is liberty. That returns freedom to the individual. This is the direction the state should go.

        The Hartford Club has also been busy delivering goodies to vested interests, who have made the building of residences more expensive. As a builder, when I review a ranch or other house built in the 1950’s, I find a house with a foundation that has been built properly. The halls are of sufficient width and the bathrooms have sufficient headroom, etc. Who would not like a three bedroom, 2.5 bath ranch from the 1950’s with an attached garage, complete with today’s kitchen, countertops and appliances, plus new tiles in the bathrooms with today’s toilets and faucets. The air conditioning, condensing furnaces, spray foam insulation and windows would also be from today. That is a pretty attractive and solid house.

        Instead, we must install absurd structural elements required by the updated building code. There are more outlets and plumbing features than previously required. This has been done because the sellers of these ingredients get the requirements inserted in the model building codes and the engineers want to show off their skills and complicate simple things further. Then The Hartford Club adopts the new model codes and makes your houses more expensive. Other than the Hurricane of 1938 n New London and environs, how many times have houses been ripped off of their foundations in Connecticut? As consumers, we readily buy houses from 1910, 1920, 1930, 1940, 1950, 1960 and 1970. Some of you may have heard newspapers or home improvement magazines gush over “mid-century modern” houses and how great they are? The writers and decorators love these houses and can’t get enough of them as they introduced new uses of tall ceilings, open spaces and windows. You might even like one yourself? And when were they built? In the middle of the twentieth century, after World War II and into the 1980’s. No building inspector is chasing you out of your mid-century modern house or ranch telling you the house is about to collapse or be blown off of it’s foundation.

        Our State building code needs to be simplified to reduce the cost of a new home by 10-15%. Going back to the building codes of 1955 or the first State Code in 1971 and recognizing some advances such as hurricane clips, fire blocking and GFI outlets will significantly reduce the cost of a new house. A house is the single biggest purchase in the life of most citizens. Let’s make it cheaper. That would be a boost to our economy. When something costs less, you have more of it. This would be more liberty. With more liberty there is more risk. For those who absolutely have to have all of the bells and whistles, a builder will gladly install the latest and you can pay for it. Let the market decide that.

        These excess rules of The Administrative State are not just at the state level. The absurdity of the building rules in Greenwich verge on madness. If you were not versed in the planning and zoning rules, you would cry. On a basic level it has gotten so complicated and time consuming in just 20 years from when I started as a builder, that many projects are not even initiated because of the inordinate time delays. If a professional told you it could take two months to get your building permit twenty years ago, but today that parcel near the water will require six months, you may decline to tackle that project. Who has that kind of time and all the professional fees that have to be consumed in the extra time frame?  An example would be building on a third-of-an-acre parcel in 2011. The parcel was flat and was already a manicured lawn with hedges and plants on the perimeter. There were no wetlands nor steep slopes on the parcel. Besides the complicated planning and zoning rules, the engineer had to prepare a drainage summary report in excess of one hundred pages! That is madness and increases the cost of homes and scares off economic activity. That is The Administrative State in action. Please recognize that nice and well-meaning people work for The Administrative State. But this is part of the diminution of economic activity, jobs and work in Connecticut. People in wealthier communities may not notice it as much, as they have the economic resources to handle the delays and increased costs. But people in socio-economically challenged communities do not have the economic resources to provide all of the things that The Administrative State demands.

        So how do we the citizens regain control of the State of Connecticut so that it is run for us and not The Hartford Club? Article 1, Section 1 of the Connecticut Constitution says that “no man or set of men are entitled to exclusive public emoluments or privileges from the community.” An “emolument” is a “gain from employment or position, salary, fees, etc.” Webster’s New World Dictionary, copyright 1973. Our Constitution continues:

        All political power is inherent in the people, and all free governments are founded on their authority, and instituted for their benefit; and they have at all times an undeniable and indefeasible right to alter their form of government in such manner as they may think expedient.

Conn. Const., Art 1, Sec.2.

        We now find ourselves at a point where the revenues that the State takes in have been repeatedly short of the spending obligations and priorities of the State. There has also been the intentional malfeasance by The Hartford Club to underfund the pension system for past state employees. Whilst there has been a default to soak the rich who often live in Fairfield County and to distribute countless nickel and dime fees on the rest of the populace, we are at an end to such near-sighted remedies. People who make money are leaving the state. If money is not welcomed in a state it will go where it is welcomed. Retired people are leaving the State for fear of our inequitable inheritance taxes and going to states where they anticipate they will be more fairly treated. There are fewer financial jobs in Fairfield County and they pay less. So all things being equal, we will collect less next year than this year, and the “emergency” budget negotiations will begin again. Hopefully, we will be pleasantly surprised and a fat bounty will hit our treasury next year and all of our short term concerns will be allayed? But I wouldn’t count on it.

        We still haven’t addressed the core question that our children pose to us: “Mom, Dad, I have job offers in Connecticut, North Carolina, South Carolina, Florida, Texas and Idaho, what do you think I should do?” Mind you, there is some probability that your child may meet someone in the state where they start working and will put down roots, likely raise a family. You know the answer to the question, and it usually is not Connecticut. This is a mindset that we need to reverse. Connecticut is still on its feet, thanks to New York City, the greatest City in the world and the jobs and income it provides and the enterprises related to NYC. We have such beautiful towns with history behind them and town commons and greens, gorgeous harbors and waterways to live on, pretty Appalachian mountains and a willing and educated work force. We sit right in the heart of the Bos-Wash megalopolis that out-muscles legendary California with quality universities throughout the Bos-Wash megalopolis. We already have amongst the highest per capita income in the nation, but must improve our ranking at about 47th in fiscal health.

        We must help job creation and education in our proud cities of Hartford, Bridgeport, New Haven, Waterbury, Danbury, etc. These cities are under a burden of municipal debt for past borrowing and generous benefits to past public employees. It is sobering that Hartford is spending 40% of its present revenues on debt service and benefits for past employees. What is left for roads, schools, police and fire fighting?

        So how do we right-size Connecticut government? When the Yankee Institute examines pension obligations, health care costs for present and past public employees and disability, a similar theme comes through. On many fronts, Connecticut is more generous to its employees, past and present, than the average for the 50 states. What would happen if the rules and benefits were at the average? That does not sound draconian nor mean-spirited. What if that would change the direction of our budget from negative to positive? Is that something to try?

        We do not want to blame the public workers of the state. While the obligations have accrued over decades under the negligent watch of The Hartford Club and threatens to sink the State, it is these same kind and well-meaning state workers who will be at the forefront of making our state great again. They will be the positive agents of change.

        But that change is not happening yet. We see “Today at the State Capital,” on our Optimum cable channel, recounting recent happenings at the State capital. It is few programs that focus on a proactive effort to make our State more competitive. Instead, they speak about commissions and research on anything but creating more jobs, fewer regulations, taxes and fees. Rome is burning on all sides, but you wouldn’t know it watching the cable TV excerpts from Hartford. These same people can be the agents to make the business of Connecticut business.

        With reference to the State’s budget, here may be ways to move the State’s employment policies towards average. Some of these are discussed in “The Connecticut Teachers’ Retirement System: Can it be stabilized,” Yankee Institute, Eric Halpern, April 20, 2017, “Securing our Future: A Menu of Solutions to Connecticut’s Pension Crisis,” Yankee Institute, February 16, 2017, “Connecticut’s Broken Cities: Laying the conditions for growth in poor, urban communities,” Manhattan Institute, Stephen D. Eide, January 18, 2017.

  • If nationally teachers pay 8% into their retirement system is 6% acceptable for our workers?
  • Should new state employees be enrolled in a 401(k) retirement plan as is done in private industry versus a guaranteed benefit plan underwritten by the State, or a hybrid of the two?
  • Is 50 for 20 fair to the State taxpayer? (Fifty years of pay and pension for 20 years of work.)
  • Should automatic cost-of-living adjustments to pensions be modified to better reflect actual inflation?
  • Should overtime be excluded from calculating a employee’s final “salary” for calculating retirement pay?
  • Should there be a $100,000 cap on a public worker’s final salary for calculating retirement pay for new hires?
  • Has the legislature been taken out of setting union benefits by collective bargaining?
  • Should the amount that is assumed the pension fund will earn be lowered to lessen exposure to riskier investments, in order to make the fund more stable for existing and future retirees?
  • Should employees contribute at the 5% national average of their salaries towards retirement versus the 2% that some employees contribute?
  • The State Employees Retirement Commission is made up of twelve trustees. Six are appointed by the state employees and six are appointed by the governor. But all 12 must be state employees. Where is the taxpayer representative?
  • For health care benefits, does the state worker have a co-pay and how does that compare to a national average?
  • For health care benefits, does the state worker have an annual deductible and how does that compare to the national average?

Together we can make the pension system’s finances more secure to honor the promises made to past and present state employees.

        What about improving the State’s economy and attractiveness to business? As I set forth in the article on Sweden and Germany, regaining some of our manufacturing base is critical. In 2016, the percent of Germany’s gross domestic product that was manufacturing was 23%, for Sweden it was 16% and for the United States it was 12.27%. Source: World Bank. In 2014, Connecticut’s percentage of  manufacturing was at 10.7% of our gross domestic product. Sweden and Germany consistently generate trade surpluses. Connecticut would have a healthier economy if it made more stuff. What is the sustainability of shipping lumber, scrap metal, scrap paper, plastic pellets and other raw materials across the Pacific to have them fabricated into products, which are then shipped back here for our consumption? If you have seen the rendition of smog coming off of China and dissipating over Japan and the Pacific Ocean, it is quite shocking. If you look at your IPhone from time to time, you will see “Very Unhealthy Air Quality” for Beijing for days on end. According to the International Business Times, in 2010, China sent 8.8 metric tons of plastic debris down its rivers into the ocean compared to .28 metric ton for the United States. That is 31 times as much for China for a smaller economy. That is projected to go up to 17.8 metric tons for China in 2025. Have you heard of the huge mass of plastic the size of Texas floating as one in the Pacific Ocean?

        This means that Connecticut must become more competitive. Almost everything that we do at the state level we should ask: “How will this get us more business in the state?” The business of Connecticut should be business. We must position Connecticut to be more competitive than Massachusetts, New York and New Jersey. Our State deficits have to be managed and taxes reduced. Connecticut should not be a bad place to retire to.

  • How can I95, I91, I84 and Metro-North be improved to help our competitive position vis-à-vis neighboring states?
  • How can our electrical rates be substantially reduced from amongst the highest in the nation? This impacts renters and owners but it also makes us less attractive to manufacturers.
  • Shouldn’t we have better natural gas distribution to the state to help reduce our electrical rates? Why hasn’t that happened? The business of the State has not been to manage these requirements.
  • How do we take advantage of our position in the Bos-Wash megalopolis for the manufacture and distribution of products?
  • Is a container shipping port feasible in New London?
  • Could enterprise zones in our larger cities encourage manufacturing? Would enterprise zones achieve a critical mass of infrastructure and supporting businesses to complement each other?
  • How can we reduce the deleterious effect of the administrative state on starting and running businesses? How can the state get out of the way?
  • How can the state facilitate new businesses and risk taking?
  • According to Zachary Janowski at the Yankee Institute, Connecticut’s worker’s compensation costs are the second-highest in the nation., June 1, 2017.
  • The cost of unemployment insurance per employee is the seventh-highest in the country. Ibid. Should the rules be modified?
  • Simplify the residential building code by going back to the rules from 1955 or 1971, with the incorporation of subsequent, beneficial techniques.
  • Repeal the entire Home Improvement Contractor Act in the interest of human liberty.
  • State taxes and nickel and dime schemes must be reduced, to change the perception of Connecticut.

Together we can save Connecticut from its present trajectory. As Vaclav Havel, the former President of the Czech Republic, said: “The only lost cause is the one we don’t start.” Let’s make the business of Connecticut, business.

 

Peter Thalheim,

Candidate for Governor

State of Connecticut

Maj. Ret., USAR JAG Corps