Tag Archives: State budgets

Connecticut: Winning By Losing

Just four years ago, the Houston Astros of Major League Baseball was the worst team in the sport. But last week, the ‘Stros won the World Series. How did the organization progress from worst to first in merely four years?

By its own admission, the team won by losing. 2013 was the final year of a three year period when the organization leveraged its abysmal situation to clean house and reinvent itself. That clearance process set the stage for its subsequent success.

The State of Connecticut may be facing a similar opportunity today. Since 2016, two of the fifty largest business corporations in the nation moved their corporate headquarters out of state, with GE shifting to Boston and Aetna to New York City. And Alexion Pharmaceuticals, a firm that had received state funds to establish a New Haven headquarters, announced that it would follow Aetna to Boston.

Nevertheless, based on recent news about these corporations, Connecticut may not have been badly damaged by their departures after all. GE is now reacting to severe financial problems by implementing an immense operational retrenchment. Aetna is negotiating a potential merger into CVS, a much larger corporate entity. And Alexion is reported to have arranged its relocation to divert investor attention from a myriad of legal problems.

Meanwhile, earlier this year, Governor Malloy had been locked in battle with the Republicans and with his fellow Democrats in the Legislature over the state budget. Connecticut had been the only state in the nation to proceed into October without a fiscal blueprint.

But just last week, Republican and Democratic legislators finally resolved the situation by shutting out the Governor and working together to craft a budget. In other words, they simply placed the Governor’s proposals to the side, worked with each other, and passed legislation with a super-majority vote that was impervious to a gubernatorial veto.

So how far has Connecticut progressed this year? Not nearly as far as the Houston Astros have progressed since 2013, of course. No one in the Nutmeg State is declaring victory over its challenges just yet.

Nevertheless, just a few months ago, three ostensibly successful business corporations were preparing to depart the state, and the Governor was locked in a budget stalemate with the State legislators. And today? It appears that Connecticut’s economy may win by “losing” a trio of unstable employers, and its Legislature may likewise win by “losing” a stalemating gubernatorial negotiator.

So how long may the residents of Connecticut need to wait until they can truly celebrate? They may wish to take heart and recall that the Houston Astros merely needed four years to progress from cellar-dwelling losers to championship winners.

So perhaps, for Nutmeggers, 2021 may be a glorious year.

Shell Games And Fiscal Policy

For the past several years, Democratic Governor Dan Malloy of Connecticut and Republican Governor Chris Christie of New Jersey have engaged in a public war of words over fiscal policy. Despite the economic similarity of their northeastern states, the two men have repeatedly clashed on television over their strategies for restoring fiscal discipline in government.

Malloy, following traditional Democratic doctrine, has chosen to maintain government spending in the face of economic malaise by raising taxes in order to eliminate budget shortfalls. Meanwhile, Christie, adhering to classic Republican policies, has slashed spending and reduced taxes in pursuit of the same goal.

So which strategy has proven itself to be the successful one? Regrettably, neither one has done so. During the past month, in fact, both Governors have acknowledged failure.

The first failure occurred in Connecticut, where Governor Malloy had been accused by his political foes of generating $500 million in excess cash by over-borrowing on debt. He had announced plans to spend the cash by mailing $55 checks to Connecticut households as election year tax refunds.

But then the anticipated $500 million budget surplus suddenly vanished with the collapse of overly optimistic economic assumptions. Because the excess cash was needed to finance normal government operations, the proposed tax refund vanished as well.

Meanwhile, in New Jersey, a similar collapse of overly optimistic economic assumptions forced Governor Christie to slash required payments to the state’s employee pension plans. To compensate for unexpectedly low tax revenues, the Governor decided to redirect the funds to finance normal government operations.

Ironically, Governor Christie himself initially agreed to authorize pension plan contributions at levels that would help the state “catch up” for many previous years of fully or partially cancelled payments. His predecessors had often balanced their budgets by redirecting pension funds to meet current needs.

But when Christie found himself in the same situation that had plagued his predecessors, he opted for the same choice that they had made: to shift budgeted pension funds into current year expenditures.

And so the “shell game” of government fiscal policy continues on both sides of the political aisle. Whenever debt generated funds or pension plan funds are shifted to finance current government operations, future budgets become more difficult to balance while the size and scope of government remains unaffected.

How would you modify the budgetary practices of our government officials to ensure the long term fiscal solvency of our states?

Government Spending: A Matter Of Priorities

I’ll gladly pay you Tuesday for a hamburger today.

Who coined that famous phrase? It was J. Wellington Wimpy, the intellectual hobo in the classic Depression era comic strip Popeye. Wimpy loved to consume hamburgers, but he was perpetually short of funds, and so he would incur debts (in exchange for meals) that would never be repaid.

Oddly enough, Wimpy was always a well dressed hobo. He often wore a blue suit, white shirt, and red tie, with brown leather shoes on his feet and a sturdy hat on his head. Although the authors of the strip never explicitly identified his original profession, his name and attire served as an effective parody of the banking industry.

After all, a well dressed man like Wimpy likely could have financed his own meals; the fact that he chose to borrow from others was simply a matter of priorities. And though his comic strip peaked in popularity during the 1930s, his strategy of debt financed consumption survives to the current day.

Desperately Seeking Shovels

Consider, for instance, the operating practices of the state of Connecticut. Last week, the Land of Steady Habits was buried in a blizzard. The city of Hamden led the region with 40 inches of snow fall, and the metropolis of Milford was right behind it with 38 inches.

Regrettably, for the residents of Milford, its municipal leaders had not invested in sufficient snow removal equipment to clear the roads on a timely basis. Thus, its citizens were stranded in their homes for days after the storm. Mayor Ben Blake was eventually forced to hire sixteen payloader vehicles from privately owned construction firms to free his own town residents.

So what is the town doing now? Is it establishing a fund to purchase additional snow removal equipment? Well, no … priorities being priorities, the city has issued a call for brigades of citizen volunteers to carry their own shovels to the next calamitous blizzard.

And what are the tax expenditure priorities of the State of Connecticut? If not directed towards snow removal, where are the funds being spent?

$2 Billion And Counting …

Connecticut Governor Dan Malloy answered that question last month with the unveiling of a new investment initiative entitled Next Generation Connecticut. Originally introduced as a $1.5 billion series of investments in the academic programs of the University of Connecticut, the total tab for the initiative was revalued at more than $2.0 billion after its full scope was released to the public.

Ironically, State House Republican leader Larry Cafero predicts that $2.0 billion will also represent the size of the government’s annual budget deficit during the next two years. “We’ve got other problems, too,” protested Cafero when he learned about the initiative. “We have roads, we have bridges.”

Of course, they also have snow. Lots of snow. And an insufficient number of snow removal vehicles to clear it all away. That’s why Mayor Blake issued his call for a volunteer snow shovel brigade.

Investments vs. Expenditures

The Governor characterizes the Next Generation initiative as an investment in the future of the state, and not as a series of expenditures. The bioscience, digital media, and engineering programs at the University are all expected to receive significant funding increases.

The initiative is also expected to increase the size of the student body at the institution. The University’s total enrollment is expected to grow by 30%, or by 6,580 students, with many joining an expanding engineering program.

Other university systems, of course, are choosing far less expensive paths to growth. The university systems of Florida and Texas, for instance, are each focusing on the development of a $10,000 undergraduate degree, one partially based on online education technologies. And university systems from California to North Carolina to Pennsylvania are beginning to embrace the free or extremely low cost offerings of online-only courses that are offered by organizations like Coursera.

Unlike its rivals, the University of Connecticut will be growing in a more traditional manner. And if the institution manages to generate long term economic benefits in excess of $2 billion, it may yet demonstrate that it is the beneficiary of the wiser investment strategy.

Still Wimpy!

Nevertheless, even if the Nutmeg State’s initiative eventually generates a positive return on investment, its strategy will maintain a decidedly Wimpy perspective. That’s “Wimpy” as in “J. Wellington Wimpy,” of course.

After all, Wimpy managed to acquire stylish clothing and to satisfy his taste for hamburgers simultaneously. But he needed to become a debtor to do so, and he never actually paid his debts.

Likewise, the state of Connecticut is managing to build its university system and to (eventually) clear its roads of snow. But it is borrowing billions of dollars to finance its operating activities, and for the sake of the Next Generation initiative, it is about to go even deeper in debt.

Will Connecticut be able to pay its debts, or will it eventually renege on them like Wimpy? The fate of the state hinges on this question, and only time will yield the answer.