Who Killed Cock Robin? Connecticut’s Disappearing Surplus

This campaign year Governor Dannel Malloy had hoped to present voters with a tax rebate drawn from a budget surplus. The rebate, a slender $55 per person, disappeared because the budget surplus disappeared. On Tuesday, the bad news filtered down from the legislature’s nonpartisan Office of Fiscal Analysis; state income tax receipts for the current budget ending June 30 will fall $357 million short of what had been budgeted. The crystal ball gazers in the Malloy administration affected surprise; the governor was disappointed. He wanted everyone to know, however, that in the event Connecticut produces a future surplus, some of the over-taxation would be remitted to taxpayers by Mr. Malloy, assuming the governor is returned to office in the next election cycle.

A number of economists, the usual culprits, were trotted out to explain who killed Cock Robin.

The explanations were lucid and nuanced. One economist connected with UConn explained why “less than three months after the administration touted a $213 million surge in income tax receipts, on Wednesday, it likely will report a revenue loss close to twice that size,” according to a story in CTMirror.

“We are in a very, very different kind of world,” said Professor Fred V. Carstensen, who heads the University of Connecticut’s economic think-tank. Yes indeed, “Graduate assistants at The University of Connecticut, “according to the piece in CTMirror, “have voted to unionize -- making them the school's largest union, with 2,135 members.”

The brave new world has arrived, even at Connecticut’s most pampered university. Mr. Malloy has consistently thrown tax dollars in UConn’s direction. The governor could well afford to be generous after having imposed on struggling workers in the state the largest tax increase in Connecticut’s history. Alas, it was not enough and, shortly after arriving at UConn, the university’s new president, Susan Herbst, raised tuition. UConn has become the prodigal son of Connecticut’s progressive governor. The disappearing state surplus, Mr. Carstensen was careful not to mention in his remarks to CTMirror, was to be carved out of that massive tax increase. But somewhere on the road to prosperity, the tax increase was offset by a decline in business activity.

From Economics 101, possibly still taught at UConn, we know this: Raising taxes during the state’s longest and most crippling recession is not likely to increase business activity. That was the message delivered by then President John Kennedy in 1962 to the New York Economic Club. And it is growth in business that floods national and state treasuries with surplus wealth.

In his eye-popping speech, Mr. Kennedy reasoned: 1) increasing taxes to finance future federal programs was no longer possible because there are rational limits to all good things, and successive tax increases had outstripped the tolerance levels of taxpayers, a situation remarkably similar to present conditions in Connecticut following two massive tax increases; 2) therefore, it would be prudent to increase future revenues by decreasing marginal tax rates, which in turn would increase business activity, thereby flooding federal and state treasuries with a net increase in taxes that later might be used to finance Great Society programs. Mr. Kennedy was right on all counts.

According to Don Klepper-Smith, once chief economic adviser to former Gov. M. Jodi Rell and presently an analyst with DataCore Partners in New Haven who is often cited in Connecticut news accounts, Connecticut is facing a “non-traditional business cycle,” and traditional tools previously used “for fixing the state budget in the two decades before the Great Recession” -- most notably a boost in the income tax – are no longer effective. In times past, Connecticut’s “heavy reliance on Wall Street and investment-related income taxes” brought the state budget from red to black.

Not anymore.

Following the CTMirror report, the Hartford Courant noted that all of Connecticut’s revenue streams were down. Projected Revenue was down $461.5 million since January. The state income tax, Connecticut’s largest revenue generator was down from $9.021 billion in January to $8.632 billion. The income, sales, corporate profits, inheritance and estate, and cigarettes taxes were all down.

The way to recovery for Connecticut – a long and painful road – was sketched out by Mr. Kennedy way back in 1962: Reduce taxes and excessive regulation; cut spending every year until Connecticut’s economy shows positive signs of recovery; extend the retirement period for state workers; de-unionize government operations wherever possible; end practices such as binding arbitration that drive up municipal costs; reduce municipal mandates and vote out anyone who has sacrificed the long term health of the state for temporary political advantages.

That would be a start along a path to recovery.

Is Malloy Fooling All the People Some Of The Time Or Some Of The People All Of The Time?

One news publication apparently has an ear for a political pitch:

“In the first-term Democratic governor’s recent speeches, echoes can be heard of the broad themes that President Obama successfully used in 2012 to make a case for his second term, despite stubbornly high unemployment and a tepid economic recovery, the same conditions confronting Malloy.

“Like Obama, Malloy is asking for more time to overcome fiscal challenges left by a Republican predecessor, rattling off statistics that point to progress and ignoring those that do not. And like the president, the governor acknowledges the electorate’s fears and frustrations about the pace of recovery.”

The publication notes that Governor Dannel Malloy has not yet formally announced his candidacy. His on the stump remarks are styled by the publication as a “soft opening of Gov. Dannel P. Malloy’s unannounced re-election campaign.” Pause for a moment over the oxymoronic expression “soft opening of an unannounced campaign.” It is not modesty but rather political calculation that so far has prevented Mr. Malloy from shouting his candidacy for governor from Connecticut rooftops.

But suppose – just to suppose – that the state’s recovery from the national recession, always painfully slow in Connecticut, has been impeded by measures adopted by Mr. Obama to spur the recovery? In that case, would Mr. Malloy be willing to detach his political program from the usual made-in-Washington campaign script and head out, to vary a term use by Huckleberry Finn, “for the territories?” For Huck, “the territories” were potential states in which slavery had not yet had a chance to put down roots, an important consideration for his friend Jim, over whom the possibility of enslavement  hung pendulously like a damoclean sword.

It is true that a progressive script disclaiming responsibility for a lackluster economy did work well for Mr. Obama, even though he had occupied the presidential office for the preceding four years. A few months into his second term, however, Mr. Obama’s inauthentic campaign “reality” crashed into real reality. The Benghazi imposture, the raid by the Internal Revenue Service (IRS) on the constitutional privacy rights of much derided and inoffensive conservative organizations, the defection of Edward Snowden to Russia and the consequent drip, drip of previously closely guarded spying methods of the American spook machine, the abject surrender of Mr. Obama’s Middle East policy to President Vladimir Putin of Russia, the stressful – some would say fatal -- architectural fault lines in Obamacare, and a continuing lack luster economy, all this and more has rubbed raw the trust Americans place, almost as a matter of course, in their president. The principal features of the Obama-Malloy script are a ganglion of suppositions, many of them untrue or doubtful.

No doubt new presidents and governors “inherit” problems from their predecessors. However, along with the manageable difficulties come certain benefits. Both Mr. Obama and Mr. Malloy did pledge to overcome the difficulties of their predecessors, and both inherited, along with a weakened economy, a constitutional framework they did not have to invent from whole cloth, business enterprises they did not have to establish from the ground up, and traditional economic configurations they did not have to configure from scratch – on the whole, a rich, even an enviable patrimony. As for the “inherited problems,” both chief executives were swept into office on pledges that they would settle them; and if the problems remain unsettled or grow more severe during their time in office, one always hopes voters will have the good sense to throw the bums out. Grousing about predecessors after one has had years to implement plans offered in campaigns to solve such problems borders on whining.

During the soft opening of his thus far unannounced political campaign, Mr. Malloy, borrowing a page from the Obama campaign, boasted that jobs in Connecticut were on the uptick, presaging a recovery flowing from Mr. Malloy’s sagacious political programs. That soap bubble burst when it collided with a less politically campaign oriented report issued by UConn economists.

The report noted "Connecticut has not created and sustained net new jobs in 25 years. The extraordinary persistence of weak job creation argues powerfully for profound structural weaknesses in the state's economy, weaknesses that surely predates (sic) the devastating recession that hammered the state economy at the opening of the 1990s or the financial crisis in 2007-2008." The report did not stress that the “profound structural weaknesses” began in the state with the imposition of the Lowell Weicker income tax, that it took ten years for the state to recover the job losses incurred during the Weicker recession, or that Mr. Malloy’s “solution” to the budget deficits left to him by his predecessors, the largest tax increase in state history, was eerily similar to Mr. Wicker’s false solution. With considerable chutzpah, the UConn economists suggested that job losses in the state could be stemmed, if only temporarily, as soon as Mr. Malloy begins to spend bonded money already allocated for capital expenditures – perhaps by adding a few more buildings or professorships to UConn. Demands of this kind should be made discreetly.     

The real solutions to years of anemic economic growth lie outside Mr. Malloy’s progressive fantasy world. Stop borrowing money, except for justifiable state-wide capital projects; this year, the Malloy administration borrowed nearly a billion dollars to finance a change in state accounting processes. Reduce municipal mandates, thus relieving the pressure on town officials to increase property taxes. Cut business taxes across the board, and end the crony capitalism that transfers taxes from the dwindling savings accounts of   hard pressed taxpayers to the budging pockets of tax gobbling CEOs of multi-billion dollar corporations. Cut spending. Establish term limits; more elections more often are a corrective for voter apathy. Tell the unions in Connecticut that no one has a right to strike against the public safety, anytime, anywhere, for any purpose.  Govern wisely, parsimoniously and well. And try as much as possible to keep your grubby hands off people’s bibles, their wallets and their guns.

These steps on the road to recovery would mark a promising beginning. 

More Taxes On The Way, Connecticut’s Receding Tide

Now that Republicans have been cut out of the budget loop by Governor Dannel Malloy and progressive leaders in the General Assembly, future budgets will be assembled by Mr. Malloy, tax hungry progressives in the state legislature, SEBAC, a coalition of union leaders authorized to negotiate contracts with the state, and economists at the tax gobbling University of Connecticut (UConn).

According to a story that ran in CTNewsJunkie, “Economists at the University of Connecticut recommended Thursday looking at instituting a statewide property tax to close more than $1 billion funding gap in the state’s education cost sharing formula.”

In the UConn report, contributing economist Stan McMillen notes that Connecticut has underfunded its statutorily required share of educational funding to municipalities for the last 5 years by about $1.09 billion. The UConn report weighs a few gap filling options, including a sales tax increase to 8.3 percent and a boost in the income tax of 13.8 percent, although the report seems to favor the statewide property tax as an “outside the box” solution to the problem.      

When asked whether he anticipated any negative consequences from enacting a new tax, Mr. McMillen said, according to the CTNewJunkie report, “it was a ‘pay me now or pay me later’ issue.

“’We’re underfunding by $1.09 billion. That’s going to have downstream consequences,’ he said.”

Long ago and far away, during the gubernatorial administration of maverick Governor Lowell Weicker, it was generally assumed by the state’s administrative arm – the governor, the Democratic majority in the state legislature, municipal politicians and the state’s media – that, confronted with a budget deficit, the state of Connecticut should increase taxes. Connecticut, it was often said at the time, was suffering from a revenue and not a spending problem. This theory, happily embraced by all whose futures depended on rapidly increasing taxation, could be entertained only in a state in which personal income was consistently rising.

Somewhere along the line, the theory was found wanting. In a recession, the receding tide lowers all the boats – the obverse of President John Kennedy’s sage observation that “a rising tide lifts all the boats.”

In a 1963 speech to the Economic Club of New York, Mr. Kennedy explained in great detail how he proposed to raise the tide and consequently lift all the boats. Mr. Kennedy was intent on increasing revenue by – and here it is necessary for progressives to hang onto their red Phrygian caps – decreasing business taxes. Once the rising tide had flushed money into federal coffers, the federal government would have the resources necessary to inaugurate Great Society programs.

This is what Mr. Kennedy said:

“There are a number of ways by which the federal government can meet its responsibilities to aid economic growth… the most direct and significant kind of federal action aiding economic growth is to make possible an increase in private consumption and investment demand -- to cut the fetters which hold back private spending. In the past, this could be done in part by the increased use of credit and monetary tools, but our balance of payments today places limits on our use of those tools for expansion. It could also be done by increasing federal expenditures more rapidly than necessary, but such a course would soon demoralize both the government and our economy. If government is to retain the confidence of the people, it must not spend more than can be justified on grounds of national need or spent with maximum efficiency.

 “The final and best means of strengthening demands among consumers and business is to reduce the burden on private income and the deterrents to private initiative which are imposed by our present tax system – and this administration pledged itself last summer to an across-the-board, top-to-bottom cut in personal and corporate income taxes to be enacted and become effective in 1963…”

Mr. Kennedy was as good as his word. His program was enacted and a cataract of funds poured into the national treasury. Following Mr. Kennedy’s tax cuts, enacted after the president’s death in the Johnson administration, unemployment was reduced from 5.2% in 1964 to 4.5% in 1965 and further fell to 3.8% in 1966.  Though it had been estimated that the cuts would result in a loss of revenue, tax revenue increased in 1964 and 1965. The tide had lifted all the boats. After Mr. Kennedy’s assassination, his successor, President Lyndon Johnson, diverted some of the swelling revenues to finance his Great Society programs.

Would it not be a useful idea for someone in UConn’s economics department to record Mr. Kennedy’s address to the Economic Club of New York and run it on a continuous loop through the ear buds of the professoriate at UConn?

In the meantime, the idiot notion that Connecticut is suffering from revenue rather than a spending problem has been exploded even within the editorial pages of the state’s left of center media -- following the largest tax increase in the state’s history, which followed 22 years after the second largest tax increase in state history. That silly idea ought to be permanently buried in the fever swamps of progressivism.

The Malloyalist Propaganda Machine

After it had been pointed out that his drawings were hypercritical and highly unflattering representations of his subjects, a famous caricaturist responded,“What’s the point of having absolute power, if you are not prepared to abuse it?”

Roy Occhiogrosso, Governor Dannel Malloy’s Senior Advisor and a fierce Malloyalist, should have internalized the quote so that he would be able to flourish it when asked by reporters why the governor thought it necessary to recruit dozens of state officials as propaganda agents.

The Fish Wrap For June

The Malloy administration – and other culprits – have poured hundreds of millions of dollars into UConn. And UConn had shown its gratitude by hiking tuitions – again, according to a report inthe Stamford Advocate.

“Under the plan adopted by the trustees in December, tuition would jump to $10,368 for tuition and $25,303 with other costs by the 2015-16 academic year if the state allocation increased by at least a half percent each year.

“With no state increase, the cost will go to $10,536 for in-state students and $25,590 when room and board are added in by 2015.

“The tuition increases are being used to hire 275 new faculty, starting with 65 for this fall.”

Washington Looks Like North Korea

Connecticut sympathizes, having experienced a similar problem just before the onset of Winter.

“Power officials said the outages wouldn't be repaired for severaldays to a week, likening the damage to a serious hurricane.”

The energetic Governor Dannel Malloy – just returned from a trip to the constellation Orion where, according to reliable reports and press releases, he had dusted off two of the stars in Orien’s belt – is on his way to D.C. to fix all that.

$6 Million Fire Caused By Bachelors Who Couldn’t Read

"On June 22, Shiflet was named in a three-count misdemeanor criminal complaint accusing him of causing the Sunflower Fire, which has destroyed 17,618 acres (and is now 80 percent contained). A Tonto National Forest spokesperson estimated that fire suppression efforts have so far cost $6 million.”

The report does not indicate whether Mr. Shiflet's fiancé is reconsidering the wedding.

Some dummkopf is almost certain to use the property damage as an excuse to call for the elimination of shotguns rather than the extirpation of stupidity, partly the cause of the $15 trillion dollar deficit produced by the geniuses in Washington D. C. which, Connecticut Commentary wishes to point out once again, has been blacked out due to a fortunate energy shortage – and just in time for Independence Day. But it won’t last.

No You, No Me

Life on planet earth would be so much less invasive if there were no people in it, according to Courant columnist Robert M. Thorson, a professor of geology at the University of Connecticut's College of Liberal Arts and Sciences.

“These invasions — trivial and serious — got me to thinking about an earlier biological event that took place about 40,000 years ago in Australia. It was then that humans, an invasive species, first found their way to the island continent on a different kind of an alien ship. Within a few thousand years of human occupation, and completely independent of climate or other environmental changes, most species of large animals in Australia either went extinct or were decimated. Giant kangaroos, flightless birds and what looked like oversized wombats disappeared in a geological flash.”

Nappier Harpoons Malloy

State Treasurer Denise Nappier points out in a letter to the Journal Inquirer important differences between her view on expanded bonding authority and that of Governor Dannel Malloy.

In the course of her letter, Ms. Nappier shoves a boney finger in the governor’s chest and warns, “… when legislation is enacted that will result in unnecessary additional costs of issuing state bonds, and may jeopardize investor confidence in our bonds, it is my duty as state treasurer to speak out against the measure and urge corrective action."

Mr. Malloy wants expanded bonding authority for the Connecticut Health and Educational Facilities Authority. Ms. Nappier wrote that she had always supported the consolidation of two quasi-public authorities, the CHEFA and the Connecticut Higher Education Supplemental Loan Authority, and she heartily agreed with the governor that the consolidation would enhance efficiency. “However,” she writes, “CHEFA’s new authority to issue bonds for UConn is unnecessary, costly, and may confuse investors and undermine their confidence in existing UConn 2000 bonds.”

Apparently, Ms. Nappier had shared her misgivings with Mr. Malloy to no avail.

The new bill just signed into law establishing a new bonding process is, Ms. Nappier stresses, “duplicative of what has been in place for 17 years, and that will surely cost taxpayers much more than what the treasury, as the public financing arm of the state, has provided. Higher costs would result from CHEFA’s administrative fees, as well as likely higher interest costs. Based on comparisons we have done, this new duplicate process could result in additional expenses of more than $8 million on a typical $200 million financing.”

The original UConn 2000 program, Ms. Nappier notes, as initially proposed was a 10-year, $1.25 billion venture. However, the program had been extended a few times, ballooning the cost to $2.5 billion over 23 years. Partnering with the university, Ms. Nappier’s office has issued almost $1.9 billion in new money bonds to sustain the program.

Bonding legislation, Ms. Nappier points out, is exceedingly complex and subject to change. Mr. Malloy and the Democratic dominated General Assembly, Ms. Nappier asserts, ignored “serious implications for expanding CHEFA’s bond-issuing authority.

“This begs the question: Why did the treasury’s attempt to call attention to another ill-advised and poorly crafted provision to grant CHEFA new authority to see UConn bonds fall on deaf ears?

“Simply put, when legislation is enacted that will result in unnecessary additional costs of issuing state bonds, and may jeopardize investor confidence in our bonds, it is my duty as state treasurer to speak out against the measure and urge corrective action.”

Ms. Nappier had advised Mr. Malloy of the legislation’s shortcomings, which he and legislative gate keepers in the General Assembly chose to ignore.

In her letter, Ms. Nappier washes her hands of the predictable consequences: “That the governor chose to ignore my advice will be at his doorstep.”

Republicans are somewhat astonished – though delighted -- by Ms. Nappier’s very public quarrel with Mr. Malloy. Republicans, shooed unceremoniously out of the room when the governor’s office was hammering out its budget with Democratic Party leaders and union officials, have yet to suggest that the governor had loftily ignored the treasurer’s seemingly sound advice because he may have thought she was a Republican.