Hartford Business Journal

20 Hartford Business Journal • January 23, 2017 www.HartfordBusiness.com OPINION & COMMENTARY EDITORIAL Tax hikes not a budget-balancing solution T he debate over raising taxes in Connecticut will likely heat up in the weeks ahead as lawmakers begin to tackle billion-dollar deficits projected for each of the next two fiscal years. Although few, if any, policymakers are openly discussing a desire to raise taxes, pres- sure to do so — from state employee labor unions and others — is already mounting. The progressive Connecticut Voices for Children advocacy group, for example, issued a report last week urging lawmakers to consider more than $3 billion in tax hikes, mainly targeted at wealthy individuals and businesses. Their "menu of revenue options" includes: • Increasing the income tax's top marginal rate by one-half of 1 percentage point ($238 million); • Boosting tax rates on capital gains and dividends-related earnings ($134.6 million); • Applying the sales tax to services ($730 million to $1.5 billion); • Enacting a sweetened beverage tax ($85 to $141 million); • Instituting a low-wage employer fee ($305 million). We can't blame Connecticut Voices, whose mission is to promote the "well-being" of children and families, for pushing for revenue it thinks will help its core constituency, but the policy ideas are misguided and will only worsen the state's fiscal crisis. While the tax hikes could raise extra revenues in the short term, they will dampen long-term business confidence and investment and encourage more taxpayers, including some of our highest earners, to flee the state. To be clear, Connecticut's economy will be hurt by any path legislators choose. Significant budget cuts will impact nonprofits, school systems, state contractors and any other individuals who draw a paycheck (directly or indirectly) from the state of Connecticut. In the short term, austerity will result in job losses and funding reductions that curb economic activity in the state. Likewise, tax increases will move money out of the private sector and further erode the public's confidence in government's ability to get its fiscal house in order without con- tinually asking more from taxpayers. That, in turn, will make it harder long term to retain and attract skilled workers and employers, a trend already taking hold in recent years. From July 2015 to July 2016, Connecticut experienced a net domestic out-migration of 29,880 people, leading to a third straight year of population declines, thereby shrinking our pool of taxpayers. Of course many factors, including our aging population seeking warmer climates, con- tribute to the population shift, but people — especially younger workers — are attracted to dynamic cities and states that offer economic certainty and abundant job opportunities. That's why in addition to making tough choices on budget cuts, lawmakers must also develop a more comprehensive economic development strategy that revamps our tax structure and better prioritizes investments in education, transportation, and economic development to ensure the state can compete for jobs with Boston and New York City, which are big draws for Nutmeggers even though they are higher-cost locations. We also have a moral obligation to care for the most needy, without breeding a cul- ture of lifelong government dependency. There will be no easy choices in the weeks ahead and we understand many current policymakers aren't responsible for the fiscal mess we are in. Our budget problems are partly the result of prior administrations' and legislative leaders' poor fiscal management. The key now will be avoiding the sins of our fathers and setting a more stable path forward. n HARTFORDBUSINESS.COM POLL Does your company require some employees to sign noncompete clauses? ● Yes ● No To vote, go online to HartfordBusiness.com. Last week's poll results: Will a Trump administration be good or bad for CT's economy? 57.3% Good 25.2% Bad 17.5% Not sure RULE OF LAW Making the political case to save Hartford By John Horak T he political case for regionalism has been a constant during the four decades I have lived in Connecticut. It has been advanced in two forms with superficial dif- ferences and a common denominator. When presented in economic dress, the argument is that it makes no sense for a small state to be sub- divided into 169 towns and cities — with each municipality bearing the cost of adminis- tering its own schools, fire, police and other departments. When presented in social-justice garb, the argument puts the spot- light on the wealth disparities (especially in the public schools) between municipalities sepa- rated by no more than a common road or slice of turf, and argues that our municipal boundary lines are both an anachronism and an artificial border wall that unjustly favors the residents of West Hartford and Simsbury, for exam- ple, at the expense of the poorer residents of Hartford. The issue is front and center because of Hartford's perilous financial condition, and Mayor Luke Bro- nin has been taking his case for regional- ism directly to subur- ban voters (including public meetings in West Hartford and Simsbury). Putting aside the "not in my back yard" irony of blue state suburban affection for the borders, I believe there is enough com- mon sense appeal to the possibility of cost sharing and expense reductions to discuss a form of regional compact for Hartford area municipalities — but only if the discussions are founded upon three principles and subject to two conditions. The first principle is that there is nothing inherently wrong with having 169 municipali- ties in the state. As Aristotle said, we are politi- cal animals, and people commonly organize themselves into territorial political units based on cultural and geographic factors. These same units can band together to become a part of a larger whole in arrangements that balance each unit's economic and political autonomy with the benefits and requirements of being part of the whole. For example, we live in the United States of America because each of the 50 states retain considerable power and authority over their own fiscal affairs while being a part of one country. The second principle is that each unit, act- ing under its elected leadership, is responsible for its own fiscal affairs — managing its rev- enues and expenses, balancing its assets and liabilities, paying its bills, and the like. In this regard, and even after allowing for Hartford's small property tax base, the Dillon Stadium and the Yard Goat's ballpark fiascoes of 2016 speak to an enduring hard wired level of mismanage- ment that is the fault of the city's elected leaders and the people who wanted them in power. They (not the suburbs) are responsible for the current predicament (and they should own up to it). The second principle — that each unit is responsible for its own finances, must be bal- anced against a third principle, which is that the members of the whole (here the munici- palities in Greater Hartford) should be will- ing, in a reasoned way, to assist a troubled member — if for no reason other than their self-interest in keeping the region of which they are a part solvent and stable. However, "reasoned" assistance should be neither a "blank check" bailout for past sins, nor part of a short-term fix that kicks the can down the road to a later day. This is where the two conditions mentioned above come in. First, any regional compact of assistance should be offered as an element of a bank- ruptcy reorganization of the city under Chap- ter 9 of the bankruptcy code. The rationale for this condition is that the new money (which includes any money saved by regionalizing) would be on the table to help with the future — not to pay for past financial sins or for unsustainable union contracts, which would be disposed of and/or restruc- tured by the court. This would be an easier political sell to the towns and cities in the region (helping to build a sustainable region in the future), and is a common in corporate finance when new money comes in to help finance a debtor's exit from bankruptcy. Second, the political system that brought Hartford to this point would have to yield some of its financial sovereignty to the municipali- ties in the region. The form that this would take is up for grabs and politically sensitive, but the point is that it would be unreasonable to expect suburban voters to help finance the city without some checks and balances in place to be sure the same thing does not happen again. In my June 20, 2016, column ("Hartford should consider bankruptcy") I expressed profound sadness at the condition of our Capital City, and described bankruptcy as a "robust corrective mechanism" that could wash away liabilities in an amount sufficient to pave the way to a brighter future. There is good reason to believe that some form of regionalism could be a part of that process — and it may be that bankruptcy and regionalism are both necessary conditions to the realization of that future. n John M. Horak is the director of TANGO Non- profit Education and Consulting. John Horak ▶ ▶ The Dillon Stadium and the Yard Goat's ballpark fiascoes of 2016 speak to an enduring hard wired level of mismanagement that is the fault of the city's elected leaders and the people who wanted them in power.

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