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Tax Collections Could Ease State Layoffs

By Dan Haar

July 02, 2011

The $1.6 billion irony was lost on no one: Gov. Dannel P. Malloy had to sit out part of his "jobs tour" this week to oversee the slashing of 6,500 jobs. That will erase much of the hard-won gains the Connecticut economy has eked out over the last year.

That's too bad because the tour with Catherine Smith, the guv's economic development chief, shoulda, woulda, coulda been a victory lap for a governor who found a truly workable way to meet a budget shortfall. Instead, about 16,000 angry, greedy or ill-informed state workers turned it into a pie in the face, and not the kind of pie you'd eat.

And so lawmakers worked nearly to sunrise Friday figuring out whether to drop the ax themselves or let Malloy hack away on his own. It's true that they denied Malloy the right to cut some collectively bargained rights, like sick days. But not many folks were going to the mat to save state workers' jobs.

Anger will do that, and Malloy, not apparently acting vindictively, is doing what he thinks he needs to do.

But the numbers just might tell a different story. Many, perhaps most, of the layoffs could easily be averted because of higher tax collections.

On Friday, the state comptroller's office issued a report showing a surplus for 2011 of $88.5 million, even after we pulled in enough extra money to back off on borrowing $646 million. The legislature's Office of Fiscal Analysis on Monday pegged the surplus even higher, at $129 million.

When the final numbers are in, tax collection for the fiscal year that ended Thursday will have beaten the forecast by more than $1 billion, perhaps $1.1 billion.

That points to a better tax collection year for 2011-12, even without the $1.5 billion in added taxes and fees that have been tacked on. How much better? That's the 6,500-job question.

The 2012 budget, for the year that started on Friday, already has a healthy bit of growth built in - between 7 percent and 8 percent over Fiscal 2011, not counting the tax increases. But it's 7 percent over the amount we thought was coming in back in April, before the tax collection picture improved by hundreds of millions of dollars.

A look at Connecticut's tax collection record in non-recession years shows that we consistently underestimate how much money is coming in, chiefly in the personal income tax, which rises and falls dramatically. In 2004, two years after the end of a recession, the surplus revenue came to $672 million, followed by $903 million in '05, $865 million in '06 and $786 million in '07.

This is not to say the state should save every job. There should be a reduction because the payroll is bloated. But if we have a good chance of seeing a few hundred million more dollars in the next year just from higher collections, why would we lay off thousands of state workers in haste?

Anger aside, a cut like that would hurt everybody, fanning out across the economy at a time when private employers are just starting to hire. And it's the dumbest way to cut if the idea is to make logical changes.

Here's the prevailing wisdom: Even as Connecticut tax collections have improved this spring and early summer, the world's economy has gotten worse. Oil spiked over $100 a barrel, acting like a giant tax on consumers. Overall growth of the U.S. economy was revised downward, the crisis in Greece is threatening to spread, and unemployment remains around 9 percent two years after the alleged end of the recession.

All of those problems have made the folks who forecast tax collections understandably cautious. Revisions haven't been done yet, but when they are, the growth rates will shrink, even as the base - the final tax take for Fiscal 2011 - grows.

Caution is a fine trait, and economists such as Fred V. Carstensen at the University of Connecticut and Nicholas S. Perna, Yale lecturer and Webster Bank adviser, say we shouldn't count on a big spike in tax collections.

And so we are ready to execute a doomsday scenario. That's like burning down your house because a flood is coming.

Part of the beauty of the Malloy deal with the unions was that it restructured health and retirement benefits to save billions over the next 20 years. We also know that we need to restructure the agencies, cutting jobs that aren't needed, and easing taxes back down.

Malloy of course, didn't want this. Still, his key aide, Roy Occhiogrosso, said Thursday night that if additional tax revenue rolls in, we should use it to strengthen the state's financial house, not save jobs. "How can you use the term 'surplus,' " he said, "when we have the unfunded obligations we have, when we have the debt that we have?"

That's all true, but the economic argument for cutting 6,500 jobs in the summer of 2011 is just not defensible if it can be avoided. If lawmakers and Malloy don't want to borrow money to save the jobs of workers whose union brothers and sisters refused to compromise, fine. But if we lay off all those folks and taxes come in just a few hundred million dollars over forecast, shame on us.