It's Not Just Illinois: Connecticut Faces Friday Day Of Reckoning

With Illinois facing a Friday night deadline by which it has to come up with its first fiscal budget in three years or face a downgrade to junk resulting in what a policymaker called a "death spiral", another mini drama is taking place in Connecticut, which is also facing big budget problems as wealthy residents, hedge funds and major corporations flee the state's high taxes and its fiscal future gets murkier by the day.

Just today, we reported that Aetna, the insurance giant founded in Hartford where it has been for the past 164 years, announced it would move its headquarters to New York City despite intensive lobbying efforts by Connecticut officials. The move, which followed a departure by GE of its Fairfield HQ of 40 years, is a blow to the company’s hometown, which is facing severe financial problems. Hartford's problems are a representation of the troubles facing the entire state: while Illinois' story is familiar, Connecticut has the distinction of the third-worst ratings in the country, only behind Illinois and New Jersey after S&P, Moody's and Fitch all downgraded the state last month in what officials described as a "call to action" for state leaders.

“We’ve been downgraded by everybody in the last six months, and in the last year two or three times,” Senate Republican President Len Fasano said cited by Fox news. “If we don’t pass a budget, I think we will see a further downward spiral.”

And, just like Illinois (and 14 other states), Connecticut faces a Friday day of reckoning: the state has yet to pass a fiscal 2018 budget by the June 30 deadline.

“We must immediately take the necessary steps to mitigate the current year deficit and then balance the ... budget with recurring measures to reduce spending and structural solutions to our long-term problems,” a spokesperson for the Connecticut Office of Policy and Management said in response to Moody’s downgrade.

It's not just the rating, however.

Connecticut’s deficit has reached $5 billion, and according to an analysis by Pew, the state only has $240 million in its 'rainy day fund'; just five states have a smaller cushion. Much of the financial troubles are tied to the state’s pension system, which two-term Democratic Gov. Daniel Malloy’s office is seeking to address with a new plan to save the state $24 billion in “coming years.” One solution offered by Malloy is to require new state employees to be covered under a new hybrid pension system. The agreement, which Malloy’s office made with the state union, is tentative and awaiting legislative approval.

“Connecticut can and will adopt a responsible, balanced budget for the coming biennium—the question is how best to handle our finances until that happens,” Malloy said. He offered a short-term “mini-budget” to allow “more time to negotiate a full budget, without making our current problems any worse and without further jeopardizing the state’s bond rating.”

But, like in Illinois, Republican Fasano told Fox News the governor’s budget is not seeing support on “either side of the aisle.” “His proposal decimates municipalities, social services and has no support, so we did our own budget,” Fasano said. “He has really shown the propensity of turning this state in a very negative direction.”

What makes things even more complicated is the even split in the State Senate:

Fasano serves as the State Senate’s Republican president in conjunction with the Democratic president. This is a special situation, as for the first time in decades, the State Senate is split evenly in the historically blue state.


“We are tied, 18-18, and that’s making it more difficult because the Democrats can no longer plow across the finish line a progressive agenda, fiscally speaking—so they can’t figure out what to do,” Fasano said. “Senate Republicans are the only ones with a line-by-line, detailed and balanced budget.”

Fasano claimed the budget put forth by Senate Republicans changes taxes and includes structural provisions that would help keep businesses in the state, although if Aetna is any indication, it's not nearly enough.

“We are doing things to try to attract people to stay here as best we can, given the fact that we have a $5 billion deficit,” Fasano said. “If we do not pass a budget by June 30, we have sent a message, I think to everyone, that we have no idea what we’re doing, and that is not going to give [comfort] to people to buy or stay here.

Those who have already left the state, mostly affluent hedge fund managers who have migrated to Florida, already got the message.

And while Aetna's depature was a hit to the state, the state capital Hartford has been struggling with a financial quagmire of its own, even as we reported in early May, meeting last month to discuss the option of filing bankruptcy. “We know that now more than ever, we are in competition across all industries –not just with Massachusetts or New York state, but more specifically with Boston and New York City,” Malloy said last month.

Another problem is the fundamental deterioration in the state's economy.

Connecticut’s unemployment rate rose to 4.9 percent in April, up from 4.5 percent in January. “Keeping those employees in Connecticut is far more important than where Aetna plants its corporate flag,” Malloy said. Malloy is looking to boost jobs with the approval this week to begin construction on the state’s third casino.

The Democratic governor remains optimistic, however, and his office told Fox News that companies like Xerox, Sikorsky, and Vineyard Vines, among others, have committed to the state over the last two years. But Fasano said he spoke with GE executives before they left and they cited state financial issues.

“They said Connecticut continues to tax at rates that make it unaffordable for businesses, people to stay here and didn’t see what Connecticut looked like seven or eight years from now,” he said. “... That’s the same analysis I’ve heard from a number of businesses as to why they’re leaving. The progressive agenda this governor put forth is now coming home to roost.”

* * *

So will CT pass a state budget? There was some 11th hour hope on Thursday, when AP reported that Connecticut House Democrats said they've come up with a two-year budget proposal that could be ready for a vote on July 18. The last minute $40 billion two-year plan would increase the state's 6.35% sales tax to 6.99% to help maintain funding to cities and towns. It would also provide municipalities with additional ways to generate local revenue and restore the local property tax credit against the personal income tax.

The proposal was being offered up Thursday as lawmakers grappled over whether to pass Democratic Gov. Dannel P. Malloy's three-month, stop-gap budget before the fiscal year ends on Friday. Malloy says it will be less draconian than having him run state government using his limited executive authority.

And, of course, there's disagreement, about whether to vote on the mini budget. If the disagreement is not overcome by Friday, Connecticut could soon be in the same financial straits as Illinois.

Incidentally, the muni bond market - with its usual glacial delay - finally noticed that not all is well, and today yields on AAA-rated 10-year muni bonds rose 7 basis points to close at 1.95% , the biggest one day absolute increase since Dec. 15. There was a similar move for 5-year muni bonds which rose 5bps on the day to end at 1.34% now up 10 bps week-to-date, also the largest day-over-day move since December 15.


takeaction montresor (not verified) Thu, 06/29/2017 - 18:02 Permalink

These are all DEMOCRAT run cities that spend more than they take in...OVER promised and then want help.  And what help do "They" want...HIGHER TAXES on the few people that are working...really?.FUCK YOUUUUUUUU....and all of your union bosses that never realized the day of reconing is here....I pray that there is NO bailout tothe taxpayer again...WE HAVE TO GET THIS RESET GOING NOW....No more Can KICKING. 

In reply to by montresor (not verified)

New_Meat Pure Evil Thu, 06/29/2017 - 20:56 Permalink

don't "want ouit" fucking GE is "out" and are now parasites here in the Commonwealth.Immelt is gone, perhaps he got his nuts back.GE wants to do software shit--knurd can't lift the hammer kinda' shit.  That's the way to make a conglomerate v. a startup.Hey ORI!  Are you out there?  Back in the day, were you a knurd?one wonders ;-)- Ned

In reply to by Pure Evil

VD (not verified) takeaction Fri, 06/30/2017 - 07:49 Permalink

more than half the homes in cities like New Canaan and Greenwich are for sale, the prop taxes which used to be low have been creeping up at fast clip. tony ghost towns and overcrowded dumps is what's in store for CT's future-- actually that dismal future is already here.

In reply to by takeaction

drgizmo takeaction Fri, 06/30/2017 - 17:03 Permalink

I done some research ... seems you can not exceed 17% in collected revenues no matter how much you try to charge ... some kind of psychic barrier we humans have ... the is max we will give up with out a fight ... you can get more but it takes a gun... also if you exceed 33% in collection of any thing you die ... business, combat units ... a lot of stuff has this 1/3 breaking point.

In reply to by takeaction

Anon2017 montresor (not verified) Thu, 06/29/2017 - 20:46 Permalink

Connecticut continues to rank high in surveys of wealth or income per capita by state. But rich/high income folks are leaving e.g hedge fund traders. My guess is that by the time Aetna finishes reorganizing its work force, a lot of back office work will have been transferred to India. As an aside, Dell has its "Help Desk" in Hyderabad, India. When I bought a new Dell computer in 2013, and needed help, the folks at Hyderabad spent many hours on the phone with me and got me up and running and upgraded to Windows 8.1. They are Dell's secret weapon, as far as I am concerned. My next computer will also be a Dell.  

In reply to by montresor (not verified)

bloofer Anon2017 Thu, 06/29/2017 - 20:56 Permalink

Income per capita is meaningless outside the context of the cost of living. The houses that cost $2 million for the quarter-acre (or whatever) would, in my area, buy you a 5,000 sq. ft. home (resembling a Mediterranean villa) on ten acres, with a quarter-acre man-made lake and an indoor pool. Such homes are, of course, only owned by high-up politicos.

In reply to by Anon2017

Antifaschistische Appreciated Ch… Thu, 06/29/2017 - 18:02 Permalink

dear ZH..Can one of your geniuses write an article on what happens when debt DOESNT get paid back.   Structurally speaking.  who are the losers/winners.   and, when it gets to the FED and the reversal of their journal entries and what is the difference between the FED level and the private bond holders getting screwed....and how much screwing can an economy take in defaults before the system collapses...signed..very interested

In reply to by Appreciated Ch…

Anon2017 Antifaschistische Thu, 06/29/2017 - 20:29 Permalink

1. Casualty insurance companies who own the bankrupt issuer's bonds (e.g. Detroit), may be repaid only pennies on the dollar. It depends on what revenue sources are backing the bonds.2. Ditto for bond funds.3. Ditto for individual investors.4. Municipal retirees may have their pensions cut.5. Businesses which are owed money may not be repaid in full.6. Since the Fed can create its own money, it never really takes losses in any meaningful sense. But when the government just prints money in large amounts to pay its bills, it can easily set off a burst of inflation with a few years delay.  Read about the German hyperinflation of 1923 here:…  The Weimar Republic last less than 14 years. Both the collpase of the German mark and the Great Depression helped bring about its downfall. 

In reply to by Antifaschistische

LawsofPhysics Antifaschistische Fri, 06/30/2017 - 08:44 Permalink

It depends on the scale of the debt as well as whether or not it is public or private.  In short, it can range wildly.  The former Soviet Union defaulted and it was a surprise to many that a world war didn't errupt.  The same thing will happen in the U.S. and China eventually as hundreds of trillions in paper/digital promises will in fact eventually seek out real assets. It would appear that humans stopped learning from history.

In reply to by Antifaschistische

IridiumRebel Thu, 06/29/2017 - 17:53 Permalink

I've owned a house in Connecticut since 2009 and I can't give it away. Meanwhile in South Carolina I get three times the house and three times the neighborhood with 10 times the better schools for the same mortgage price due to taxes.

That state can die.

Refuse-Resist Delving Eye Fri, 06/30/2017 - 08:06 Permalink

There's an elephant in this here room that you all are dancing over and around, but refuse to point out -- vis a vis school performance.Let me name it:  DEMOGRAPHICSTL:DR -- the brown and black kids are at least one SD less intelligent than the white kids.Therefore, any school that is majority white is going to have higher test scores, gpas, and college admissions (as well as less violence,drugs and crime in the school overall) than a school that is majority not white, such as in Boston, Hartford, and most other US cities.  This despite the fact that the lowest performing schools are often the highest recipients of government cheese, because rayciss.If you want a higher quality of life, move away from areas that are full of brown people and move to an area full of white people -- preferable conservative Christian type white people.Even the poorest white people are preferable, dare I say superior, to the wealthiest brown people, in my humble opinion.  Race realists already know that the poor white kids do better on their SATS and go to jail/commit violent crimes at a far lower rate than the richest black kids.  Stats for crime and SAT scores comparing the poorest majority white county in the USA (somewhere in the wilds of WV) to the richest black county in the USA, Prince George near the swamps of DC prove this definitively.I live around poor whites, after having lived around large numbers of blacks for a number of years, and the quality of life here is much better. I have not lost one thing to thievery or had to call the cops one time in 12 years of living here. I don't hear booming bass stereos all the time, nor do I hear screeching negroes walking down my street and loitering around every corner in town.And my friends, I do not miss the negroes or their dysfunction one bit. Whites too have dysfunction, but orders of magnitude less noticeable.Diversity is not a strength. It destroys social trust. It puts affirmative action-ed minorities into important leadership positions for which they are not qualified, which then results in outcomes like Illinois, Detroit, California, Atlanta et al.If you're white and you're living in a heavily minority area,  you don't know what you're missing. I recommend abandoning the vibrant shitholes for safer and friendlier environs post haste.You might earn less $ but the quality of life overall is much better IMO.  But if  you take my advice the one thing you don't want to do when you get here is to impose your beliefs on the locals. Rather, you should make every effort to adjust your posture to fit in.The fact that the locals are the way they are is what makes places like this somewhat more desirable places to live.  We don't want to be turned into Austin (which used to be a pretty cool place 20+ years ago).

In reply to by Delving Eye

OKUSA IridiumRebel Fri, 06/30/2017 - 09:21 Permalink

There is a reason industry is moving to SC. It's all about taxes. Plus it's a right to work state. No unions, with a few exceptions. I live in the CHS area and it is absolutely exploding with new residents. This is one place where the real estate boom will continue on long after the bubble bursts. CHS is a nice historic area, but Greenville is the gym of the state in my opinion.

In reply to by IridiumRebel