Debt diet starts Tuesday, leaving some hungry
Connecticut’s debt diet starts Tuesday morning with Gov. Ned Lamont’s first State Bond Commission meeting. The days of gorging on bond-financed pastries are over.
Tuesday’s list of projects up for approval, outside of transportation, totals just $115 million, less than any Bond Commission agenda I could find, looking back a few years.
Good news for the state’s battered but recovering economy? Eventually, maybe. For now, it means more pain and fewer jobs created with no real savings in the next couple of years.
Like all forced cutbacks, the debt diet comes with lofty goals along with high risk. It’s a long-term play as Lamont pares general fund bond authorizations from an average of $1.6 million a year in the last eight years to $960 million a year over the next two.
The governor hopes Connecticut will benefit by reducing its annual credit card debt, which now totals $2.2 billion a year and rising, even without adding in transportation. Common sense, right?
Ah, but what’s left behind? Two of the biggest areas are economic development and the Connecticut State Colleges and Universities system. The cutbacks are staggering and unsustainable.
The state colleges and universities sought $444 million in capital project authorizations over two years. Lamont’s recommendation: $64 million, or one-seventh of the ask.
“It’s serious,” Mark Ojakian, president of the colleges and universities system, said Monday. “I understand the governor’s desire to keep debt at a manageable level. I’m very concerned though, at what this will do not only to the projects at our two- and four-year institutions, but also the fact that if you don’t do things on time, you end up spending more.”
He’s talking about — in some cases — building maintenance such as roofs, boilers and, believe it or not, asbestos control. “At some point we’re going to need to tap into our operating funds to do the work. I’m not going to put the welfare of our students and faculty at risk when we’re actually talking about code compliance,” said Ojakian, who was a chief of staff to former Gov. Dannel P. Malloy, and whose chief financial officer is Malloy’s 8-year budget chief, Ben Barnes.
Some of the projects on Ojakian’s list are more crucial than others. The $11 million to plan and design a new sports center at Eastern Connecticut State University is obviously not a must-have, for example. The $19 million for the main hall at Northwestern Community College is debatable, but it’s a project that’s already under way.
It’s not reasonable to maintain a system of 12 community colleges and four state university campuses on $32 million a year. And even the projects the state doesn’t need right away would create jobs immediately, and would, we presume, help the system attract students.
Remember that crisis Connecticut faces?
These are projects done largely by local plumbers, roofers, electricians, excavators, architects and on and on. That doesn’t mean we can or should pay for anything our minds can dream up. But let’s be clear, a cutback is something we will feel in jobs and income.
Big-picture, if the state cuts out $500 million a year in bonding, all of it for work done locally, that could easily total 7,000 jobs — which is more than the whole state economy added over the last two years.
And the benefit? The state will save $2 billion over 10 years, Lamont’s budget office calculates, if it keeps General Fund bond issues at $1.6 billion a year, down from a range of $2 billion to $2.4 billion, the state’s limit.
That’s real money for sure, and it would prevent the flow of hundreds of millions of dollars from Connecticut taxpayers to Wall Street bond houses. Even without a debt diet, Friday’s huge bond issue of $850 million reflected Connecticut’s improved standing on Wall Street, with tens of millions a year in savings.
The savings comes down the road, though, because the state already has so much debt outstanding. This year’s dividend from the bond diet? Just $15 million.
In short, the diet makes sense if you think the state resembles a household. In fact, when it comes to capital projects, the state is the opposite of a household. Financial pain is what we feel first after a cutback, and the savings comes later, without assets to show for it.
Here’s why: If I cut out one restaurant meal a week, I can save $1,500 a year or more on my credit card bills. I’m no worse off in ten years and I’ve saved enough to buy my kid a car.
But if I’m the state, I must weigh lost economic activity and investment — if the bonding is, say, for aid to a large manufacturer — against savings I’ll see years later. It might be more like a household skipping a laptop purchase, and thereby losing out on $4,000 a year in freelance income.
The state Department of Economic and Community Development, which offers grants and loans to companies, and readies old industrial sites for reuse, sought $485 million over the next two years. Lamont’s proposal: $25 million, or 5 percent of the request.
Yes, the full request was bloated. But tell that to the 2,000 people who built the biggest ESPN studios back in 2012, prodded by a state aid package, and the 4,000 who still work at the sports network.
Part of the issue here is Lamont wisely trying to whittle down a backlog of money that’s been authorized but not yet spent — at least $2 billion, maybe more than $3 billion, depending on how we count it. That’s a laudable goal. But if it means important work doesn’t get done, it’s counterproductive.
When Lamont celebrates the debt diet Tuesday in the legislative office building, when you read the headlines Tuesday night, think about whether it’s making the state stronger or weaker. The answer isn’t as simple as it seems.