Hartford Business Journal

20 Hartford Business Journal • December 21, 2015 www.HartfordBusiness.com OPINION & COMMENTARY EDITORIAL CT's good, bad and ugly 2015 T his is Hartford Business Journal's last regular issue in 2015, so it's a good time to reflect on the year and assess the good, bad and ugly events that impacted our economy and business community. The good Connecticut continued to gain ground in its economic recovery in 2015, even if the pace of growth wasn't robust. Through November, the private sector added about 26,700 jobs and the state's unemployment rate stood at 5.1 percent, the lowest it's been since early 2008. Home sales are up about 14.2 percent this year, although prices continue to lag. Meantime, the state's gross domestic product grew 4.8 percent in the second quarter, putting Connecticut ahead of the nation's 3.8 percent growth. Downtown Hartford's resurgence also gained steam in 2015 as hundreds of new apartments came online, many of them filling quickly with Millennials and aging empty- nesters exercising their desires to live in urban environments. Construction of a minor league baseball stadium and UConn's new downtown campus also got underway as did plans for a broader redevelopment of the city's Downtown North corridor, which last week landed a Hard Rock hotel and cafe as a major tenant. Next year will be another important stepping stone for Hartford's renaissance as more apartments come online and the Hartford Yard Goats kick off their inaugural season. The true test in Hartford's progress will be whether or not the city attracts more activity and visitors outside the workday and on weekends. The bad Connecticut's fiscal crisis dominated the headlines in 2015, as budget deficits opened and closed the year, with more troubled waters brewing in 2016 and beyond. Despite job gains, Connecticut's slow economic recovery has stalled growth in income and other tax receipts, forcing Gov. Dannel P. Malloy and state lawmakers to pass tax increases and spending cuts throughout 2015 to rectify budget deficits. State lawmakers have still failed to come up with ideas that confront Connecticut's structural deficit problems, and further red ink is projected for the next two fiscal years. An inability to navigate Connecticut's choppy fiscal waters poses one of the biggest threats to the state's economy. The only way Connecticut gets out of its fiscal morass is through more robust economic growth, but before that happens the business com- munity needs a more reliable tax and regulatory environment. The ugly The $1 billion in tax increases passed by state lawmakers in June created a new wave of animosity from the business community that still hasn't been totally reconciled. Very rarely, if ever, do major corporations speak out publicly against state poli- cies, but it happened in 2015 when General Electric, Aetna and Travelers issued public statements condemning the General Assembly's biennial budget passed in June. A new unitary reporting system for corporate taxes, reductions to research and development tax credits, and restrictions on carried-forward losses were among the changes that drew the ire of CT Inc. Hospitals too waged a verbal war, largely with Gov. Dannel P. Malloy after the Demo- crat proposed $60 million in funding cuts to care providers, and then accused top hospital executives of being paid excessively. Make no mistake, Connecticut's tenuous business climate took another hit in 2015. Yes, lawmakers smartly rolled back some of the tax hikes they passed in June, but the idea that the business community can rely on the legislature to create a fair and reliable business environment went out the window. And with the threat of further deficits in the years ahead, there are no signs that more tax increases won't be on the table. n RULE OF LAW Legal system rewards bad legislative behavior By John M. Horak T he Connecticut constitution is the supreme law of the state, and the Gener- al Assembly is subject to its directives. However, this principle may have been turned on its head in a Nov. 17, 2015, opinion letter of Attorney General George Jep- sen in which he con- cludes that a spend- ing limit added to our constitution in 1992 has "no legal effect" because, in essence, the General Assem- bly has chosen to ignore it. When this same issue was pre- sented to former Attorney General Richard Blumenthal in 1993 he reached a different conclusion: The con- stitutional spending directive to the General Assembly cannot be rendered meaningless by a refusal to abide by its terms. If Jepsen is correct there is, in effect, no legal limit on how much the legislature can spend, and the 80 percent of voters who approved the consti- tutional amendment in 1992 might as well have stayed at home. These dueling legal opinions deserve taxpayer scrutiny as the legislature slogs its way through its self-inflicted financial crisis. As a first step, it is important to under- stand that attorney general opinion letters are not law — they are reasoned predictions of how the courts would decide the issue if it ever got there. These letters are chapters in the spending-cap saga, but not the epilogue; and, as explained below, there is reason to believe the courts would finish the story by agreeing with Blumenthal. Connecticut was in a fiscal crisis in the early 1990s, and a personal income tax was the solution. However, many legislators were concerned that future legislators would not be able to restrain themselves with this new tax revenue, so a spending cap was proposed to ameliorate the concerns and get the votes to pass the tax bill. The grand bargain was new tax revenue in return for a legally enforceable ceiling on spending increases. There were two ways the cap could be imposed, and both were used to seal the deal. First, in 1991 the legislature approved a stat- ute in which it essentially imposed a spending cap on itself. This statute is self-contained in that it defines the economic measuring terms needed to calculate allowable spending. However, the statute did not provide sufficient assurances because a statutory cap is "no cap at all" in that a statute adopted in one legisla- tive session can be eliminated or changed in a future session (with the normal 50 percent majority vote). Relying only on the statute to limit future spending would be like trusting a scofflaw to put handcuffs on his wrists and allowing him to hold the key. Second, concerns about the limited effica- cy of the statute led to the 1992 constitutional amendment described above. The constitu- tional cap is not self-contained. It does not define the measuring terms needed to compute the limit, but directs (it uses the word "shall") the legislature to do so — but with a 60 per- cent majority vote, not the normal 50 percent majority. There is simple genius in the 60 per- cent requirement in that it forces legislators to build consensus; it compels a party holding a 50 percent majority to reach across the aisle and compromise to get the extra votes needed to get to 60 percent on spending decisions. Finally, we are still talking about this now because the legislature has never defined the measuring terms with a 60 percent majority — and the legal consequences of this omission, this gap in Connecticut law, is what Jepsen and Blumenthal wrestled with in their letters. As stated above, Jepsen concluded that the constitutional amendment is of "no legal effect" because of this legislative failure. His opinion relies on dicta (written thoughts on an issue not before the court) in a 1996 Supreme Court case on the issue of whether there is a "constitutional right to a spending cap" that a taxpayer can sue to enforce — not whether the leg- islature can dodge a constitutional direc- tive by omission (a failure to act). The bigger prob- lem with his conclu- sion is that it ignores a legislative conflict of interest: A party with a 50 percent major- ity has every reason not to obey the con- stitutional directive because doing so allows it to adopt its spend- ing agenda without the need to reach across the aisle to get the votes needed to reach 60 per- cent. His opinion gives a 50 percent majority incentive never to obey the constitutional direc- tive, as it can get what it wants by amending the statutory cap as needed to run up the tab (which, coincidentally, is what it did in June). In 1993 Blumenthal deferred to the con- stitution's position at the top of the hierarchy and concluded that the legislature's inaction cannot be interpreted to, in essence, write the constitutional amendment out of the constitu- tion. His reasoned conclusion: The statutory definitions of the measuring terms as approved in 1991 remain in effect, but the 60 percent requirement applies to any attempt to modify them, which means the majority's modification to the statute in June is unlawful. The irony in this saga is that the 1992 amendment was intended to prevent the type of fiscal crisis we have today; and the tragedy is that in the midst of the crisis the legal system seems ready to reward bad leg- islative behavior by giving "no legal effect" to the spending handcuffs the people added to the constitution 23 years ago. n John M. Horak has practiced law at Reid and Riege P.C. in Hartford since 1980. The views expressed are his own. HARTFORDBUSINESS.COM POLL Will a Hard Rock cafe/hotel draw suburbanites to downtown Hartford? ● Yes ● No To vote, go online to HartfordBusiness.com. Last week's poll results: Did lawmaker's deficit-mitigation plan improve CT's business environment? 16.9% Yes 73.8% No 9.2% Not sure John M. Horak ▶ ▶ Relying only on the statute to limit future spending would be like trusting a scofflaw to put handcuffs on his wrists and allowing him to hold the key.

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