This is one of those situations where we might be able to take two seemingly incongruous facts and put them together to find a deeper meaning. Ready? Fact number one: Connecticut is one of the richest states in the nation depending how you measure such things. Fact number two: Connecticut has managed to run up nearly $75B in debt and is teetering on the edge of being in worse financial shape than Puerto Rico. (The Daily Beast)
Connecticut, the richest state in the nation, has racked up $74 billion in debt. Its finances have more in common with Puerto Rico than Massachusetts, as the home of America’s financial wizards struggles to pay off its massive obligations big as the bills com due on decades of mismanagement.
While ballooning payments for public employees’ guaranteed pension and health benefits for public employees and teachers are the main cause of Connecticut’s fiscal misery, the state continued borrowing with the abandon of a teenager let loose in a Forever 21 with her parent’s credit card. Jobs lost during the recession have not returned. Its youth and future tax base is fleeing for New York and Boston. Fortune 500 companies are following them out of town.
And it could get worse before it gets better.
The Daily Beast article somewhat plays it down, but the chief driving factor for this unfolding disaster is the public employees’ guaranteed pension and benefits funds. The same as we’ve seen in Chicago and other major cities, promises were made during times of high employment and revenue with no foresight as to what the long term costs would be when all of those public servants aged out of the workforce and continued to live on for decades, being augmented by ever larger armies of workers. As is the case with government at every level, the unions negotiated sweet deals with nobody putting any thought into arguing on behalf of the taxpayer from the other side of the table. Now the bill has come due and even in a state as prosperous as Connecticut has been, the revenue stream is never enough to feed the beast.
The result, as the article indicates, was predictable thirty years ago. When the state first started getting into serious financial trouble in the late eighties a debate arose which led to the enactment of a state income tax and legalized gambling at casinos. A fresh flood of revenue came into the state’s coffers which, if properly managed, might have at least put off the looming disaster for a generation or more. But that would have required redirecting cash into the pension funds and a reserve stockpile. Instead the state rushed into a renewed frenzy of spending, which the article details nicely.
How many states do we need to see this story unfold in before we realize that this formula simply doesn’t work? And we’ve got the same problem looming on the horizon for the federal government. The responsibility of saving for a long term income above and beyond social security falls on the shoulders of the worker in the real world. The days of privately funded, fat retirement plans in the private sector are essentially gone. But the government continues to keep up with this unsustainable system on all levels. Sooner or later the chickens will come home to roost. That’s already happening in the liberal paradise of Connecticut. Perhaps everyone can learn a lesson from their errors.