Huge State Tax Burden? Nope. Mushrooming State Payroll? Nope Again.
May 15, 2011
Throughout much of this year's budget debate, a lot of myths and misconceptions were bandied about as facts. On the theory that good information begets a good outcome, let's examine some of those myths:
• The state's budget has exploded: We have "spent our way into oblivion," as my old boss, former Gov. Lowell P. Weicker Jr., put it last summer. WRONG. Between fiscal 2000 and 2011, Connecticut's budget grew by 63.6 percent. The capacity of the state to fund the budget — as measured by the personal income of Connecticut residents over that period — grew by 63.3 percent.
• The state employee workforce has increased exponentially. WRONG. The number of positions funded in the state budget for fiscal 2000 was 46,286. (And just for historical reference, in fiscal 1990, total appropriated positions were 47,420.) The number of positions funded in the state budget for fiscal 2010 was 46,570, but the number of positions actually filled on May 31, 2010, was 43,583 — 2,703 LESS than funded in fiscal 2000.
• State employees are more highly paid than private-sector workers in Connecticut. WRONG. A study published by the Political Economy Research Institute at the University of Massachusetts in September 2010 found that, when age and educational level are taken into account, the average public-sector worker in Connecticut makes about 2 percent less than the average private sector worker. And at the upper end of the pay scale (at the 90th percentile level), the public sector worker at that level is paid about 5.5 percent less than the comparable private sector worker.
• State employee pension costs are out of control. WRONG. The annual cost to the state to fund the state employees' retirement system consists of two parts: the "normal cost" and the cost of the amortization of unfunded past service liabilities. The normal cost — the amount needed to be set aside and invested annually to fully fund future benefits earned in the current year — has increased only in line with state payroll costs. Because state employees agreed to a modification of their pension system in 1997, including requiring new employees to contribute toward the cost of their benefits, the normal cost each year for these new employees is less than 5 percent of payroll.
But there is a large overhang of pension costs stemming from the period before 1984, when the state set aside NOTHING toward the cost of future benefits. This failure, together with the failure to fund increased liabilities generated by unplanned early-retirement incentive programs, and the underfunding of this segment of pension costs in some recent years, has been the cause of the massive overall increase of pension costs.
This unfunded liability, mostly for already retired workers, won't go away under any circumstances short of state bankruptcy (an outcome that would prevent the state from selling any bonds for infrastructure).
• Connecticut has the third highest tax burden in the country. WRONG. This contention is based on counting as part of the taxes on residents the income taxes paid to other states (like New York) by Connecticut residents who work out-of-state, the property taxes on second homes in other states owned by Connecticut residents, the sales and amusement taxes paid to hotels and amusement parks in other states visited by Connecticut residents, and the oil and gas severance taxes paid to states like Alaska, Louisiana and Wyoming, and passed through to Connecticut consumers as part of the cost of gasoline and fuel oil.
When total tax burden subject to Connecticut control is measured by state and local revenue as a percentage of the total personal income of the state's residents, as computed by the New England Public Policy Center at the Federal Reserve Bank of Boston, Connecticut's tax burden ranks 48th — third from the bottom — among all the states.
• Business taxes are extremely high in Connecticut. WRONG. The respected accounting firm of Ernst and Young presented data in 2010 to the Council on State Taxation, an offshoot of the Council of State Chambers of Commerce, which showed that the total state and local tax burden on businesses in Connecticut, as a share of gross state product, was tied for fifth lowest among all states. Total state and local tax burden on business, as a share of total taxes levied by state and local government in the state, was second lowest in the country. And the percentage growth of state and local taxes on business from fiscal 2005 to 2009 was the lowest in the country.
Though it appeared the governor an union leaders reached an agreement Friday that will close the remaining budget hole, the issues will be with us for years. Hopefully future deliberations will be based on facts, and not on mistaken beliefs that lead to calls for unrealistic solutions.
Bill Cibes served as Secretary of the state Office of Policy and Management under Gov. Lowell P. Weicker Jr..
Reprinted with permission of the Hartford Courant.
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