A tentative deal has been reached by the Democratic and Republican leadership in Connecticut’s unresolved budget crisis. According to published reports, there will be no concessions by the state workers’ unions, minuscule cuts to the University of Connecticut and a bail out of the bankrupt city of Hartford. In return, teachers will have to pay one percent more of their salary to their pensions, there will be no sales tax increase and the car tax will be eliminated.
But when the Hartford Courant applauds a deal, there are reasons for rank-and-file Republicans to be cautiously pessimistic. The Democrats own the disaster that Connecticut has become. Our beautiful once-thriving state has been economically decimated as corporations, small businesses, retirees and young people flee. Real estate values have plummeted and the most common sign in our downtowns is “For Lease.”
Under the Democrats, two massive tax increases have been rammed down our throat and a sweet heart deal for state workers’ unions has been put into place until the year 2027. The Yankee Institute, a conservative think tank, estimates their benefits are worth $55,000 a year, not including salary! Yet the two year budget has a $3.5 billion deficit.
But things were looking up. The Republicans submitted an alternative budget, that revised this sweetheart deal, maintained reasonable funding to our towns, closed the deficit and most importantly did not raise any taxes. It appeared to be dead in the water. Then a miracle happened. Several Democrats defected and the budget passed! But Governor Malloy, true to his base, vetoed it.
Malloy and the Democrats were on the ropes. The Governor was forced to slash subsides to towns and voters were livid. All the Republicans had to do was let the outrage increase, until the Democrats either caved or passed politically-suicidal tax increases again. But then the Republican leadership caved and offered the Democrats a lifeline.
There are two major problems with this deal. First, it is mathematically impossible for it to plug the deficit. It will simply force more tax increases and the return of tolls at a later time. But the real disaster is that bails out wealthy bondholders who purchased Hartford’s debt, enabling the city of continue its profligacy. Under this tentative deal, $20,000,000 will be paid to Hartford for “interest payments,” that is to wealthy bondholders.
For example, to build the boondoggle Dunkin’ Donuts Stadium, Hartford issued $50,000,000 in bonds that paid 4% interest tax free. Wealthy individuals scooped them up as rating agencies such as Moody’s considered them to be safe investments. But with Hartford’s contretemps, Moody’s downgraded these bonds to Caa3. This is financial jargon for dog doo-doo. These bonds are now worth about 40 cents on a dollar and wealthy individuals, after losing 60% of their principal, will not buy any more bonds unless the hard working Connecticut tax payer bails them out. Furthermore, the bond ratings of other cities and towns have been downgraded.
This is exactly what is needed. Only the financial discipline imposed by bankruptcy and high lending costs will force our politicians to stop destroying our state economy with boondoggles and confiscatory taxes.
Some Republican leaders want to agree to this deal, win the Governor’s Mansion in 2018 and then implement true fiscal reform. This is a fantasy. Once Republicans control the purse strings, the liberal media and the Democrats will pounce – labeling Republicans as racists, homophobes, misogynists, ageists or whatever is the insult du jour. The skeptical reader has only to see how the national Republican Party caved on repealing Obamacare, after winning numerous elections by promising to do so.
The time to win is now. The Republican leadership should not cave just to win ephemeral plaudits from the media or curry favor with the Democrats. They should insist that the budget they passed by implemented. The Democrats are true to the voters who put them in power. It is time for the Republican leadership to extend their voters the same courtesy, and not snatch defeat from the jaws of victory.