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State quietly improves amid bashing

October 6, 2018

There is no winning argument on the campaign trail that the Connecticut economy is good, or even okay. Republican Bob Stefanowski could win the governor’s seat by bashing the state of the state’s prosperity, and Ned Lamont, the Democrat, disagrees only on what to do about it, not on the woes.

We’ve heard all the negative statistics and they are not wrong. In 2017, we barely created any new jobs and the state economy actually shrank by 0.2 percent after adjusting for inflation.

But quietly, Connecticut has shown some signs of life. Just in time for the new governor to take over, the state is poised to post some respectable numbers between now and the end of 2018 — in tax collection, jobs, income, house prices and overall growth.

Nobody is saying happy days are here again, we’re gonna party like it’s 1987 and Colonial Realty is flipping buildings like burgers. What we have, though, is the unsteady, uncertain birth of a turnaround.

“We do have some good news that can be looked at even though we ranked 49th in terms of GDP growth last year,” said Donald Klepper-Smith of DataCore Partners in New Haven, who analyzes the economy for Avangrid and other clients.

Yes of course there’s a caveat. This is Connecticut, land of the debt overhang and liabilities that took decades to build up. And there’s a sharp disagreement about whether we need smarter investment leading to lower taxes or a promise of lower taxes with no way to make that happen.

Regardless, the numbers for how we’re doing right now are better than you think.

Revenue gains

We know we have a projected surplus for the current fiscal year totaling just under $170 million, but what does that mean? We’re also staring a $2 billion shortfall in the face for fiscal 2020, which starts next July 1, and more than $2.5 billion for fiscal 2021.

Early next month, right after the election, we’ll see those future shortfalls shrink by a few hundred million dollars.

Here’s how: The surplus this year is largely because tax collections are up, and they’re up across the board except in cigarette taxes. Corporate earnings, sales taxes, wage and salary withholding and quarterly payments from financial gains are all up measurably.

That means that as soon as Nov. 9, perhaps a few days later, the governor’s budget office and the nonpartisan legislative budget office, along with the state Comptroller, will spit out a new “consensus revenue” calculation for fiscal 2020 and beyond.

Look for that revenue projection to rise by $300 million to $400 million, which means the shortfall shrinks accordingly. Yes, I get that some of the gains we’re seeing are from confusing new tax laws creating excess withholding, especially for business partnerships, which we will have to refund.

Still, much of the tax collection increase is real.

Job barriers

Jobs, the big kahuna of economics, are on pace to come close to the 1 percent threshold, or 17,000 for the year, if we finish out the fall with decent gains. That’s a rough measure of a good year, and since the recession, we’ve never quite crossed that barrier.

We all talk about how our recovery lags other states. We’ve regained less than 90 percent of jibs lost in the recession; the nation is at 225 percent and Massachusetts is up 350 percent, more than fourfold — gospel numbers that Klepper-Smith recites like a fan naming Super Bowl winners.

Important stuff for the long view but what we feel now is what’s happening now and consider this: If the state Department of Labor reports a decent month of gains for September, in its monthly update due at the end of next week, we could break through three psychological barriers.

If we show a net gain of just 400 jobs, we’ll break back over 1.7 million for the first time since June 2008. If the tally is 1,800, we will show a gain of 20,000 jobs year-over-year. And if private-sector job gains top 1,000 or so, we will have added 100,000 during Gov. Dannel P. Malloy’s eight years in office.

The fact that 15,000 government jobs have disappeared during Malloy’s two terms is partly due to cutbacks at the Native American casinos, which count as governments, and partly reforms — including hefty cutbacks that Malloy had to make, well into the thousands of jobs. That’s been necessary for long-term growth but it has hurt the economy during his years.

The 20,000 year-over-year figure is not likely to hold up; Klepper-Smith points out that we’re on pace for perhaps 7 or 8 tenths of 1 percent, in the 12,000 range. Even that would tally as improvement.

Psychology makes a difference. And when the big annual job revisions come in March, it’s worth remembering that initial data tends to under count on the way down, and under count on the way back up.

Bashing matters

Go read any of the conservative Facebook pages and websites out there, bashing every sign of progress in Connecticut. That’s hurting the state and prodding more people to leave, which is, our biggest problem by a longshot.

It’s not that I want to paint a falsely rosy picture. It’s that some of that bashing — not all, but some — is just a disguise for antigovernment ideology, classism and even racism when it comes to boosting cities.

I got into a verbal brawl on one of those sites last month — not a liberal troll, just keeping them honest — over the $15 million State Bond Commission authorization to demolish the Pleasure Beach Bridge in Bridgeport, among other projects. A few people posted that such spending only extends the city’s dependance and advances a “welfare state” for “ghetto rats” who live there. (’Getto rats,’ one racist idiot wrote.)

I’m embarrassed to report those uncivilized slurs by two or three people who don’t represent decent conservatives, but they illustrate a point. Of course we know the state’s capital spending on infrastructure is totally unrelated to a city’s dependence on the state, and we know that cities are failing not because they’re mismanaged but because of their borders and shrinking tax bases due in large part to housing policy.

The point is that anti-Connecticut arguments are built on a psychology of anger that feeds on, and exaggerates, poor growth numbers. This state suffers from that syndrome even in good times — worse in bad times.

A small turnaround in those numbers may go a long way.

Growing growth

On Nov. 14, right after the revenue update, we’ll receive a preliminary report on gross domestic product for the state, the overall growth number for the April-June quarter. We’ve swung and missed at the post-recession recovery in overall growth but guess what — for the last three reported quarters, we’re right on track with President Donald Trump’s America.

That’s more than a 2 percent annual rate, adjusted for inflation. For all of 2018, Klepper-Smith projects 1.5 percent to 2 percent growth, not bad for a state that has seen its economy shrink even as the nation has recovered.

“One of the things where we’re starting to see some light at the end of the tunnel is the wealth effect,” Klepper-Smith said. “Stocks are up and housing prices are up.”

Housing prices are up by 3 percent or even 4 percent this year, obviously unevenly, and the S&P 500 is up another 13 percent year-over-year. We’re house-rich and market-rich, especially in Fairfield County, and that boosts spending by a percentage of the paper gains — the wealth effect — which helps growth.

Klepper-Smith doesn’t see a dramatic turnaround anytime soon. And we can and do disagree on how Connecticut should regain health. The good news is, better numbers are upon us.

A national recession would throw all bets out the window but at least then Connecticut would not suffer as an oasis of dung in a sea of gold.

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