Hartford Business Journal

20 Hartford Business Journal • April 24, 2017 www.HartfordBusiness.com OPINION & COMMENTARY EDITORIAL Malloy's economic record mixed G ov. Dannel P. Malloy surprised few people with his announcement April 13th that he won't run for a third term. With an approval rating hovering around 29 percent, there is no clear path to victory for the Democratic governor, even though the election is still more than a year away. As he heads into his final year-and-a-half in office, Malloy so far has established a mixed economic legacy. He's tried to be a pro-business governor, aggressively working to keep companies in the state through tax breaks, grants and other incentives. He's also made long-term investments in bioscience, transportation and higher-ed that aim to build and accom- modate Connecticut's economy of the future. But he's presided over a painfully slow-growing Connecticut economy that has still failed to recover all the 119,000 jobs lost during the Great Recession. He also pioneered two of the largest tax hikes in Connecticut history, which have failed to put the state on a path toward fiscal stability or provide avenues for long-term job growth. Our regulatory environment remains overly burdensome. Grading Malloy's performance is no easy task. His critics, who are many now, point to the state's lackluster growth and continued fiscal crisis as evidence of failed leadership. But we can't deny Malloy inherited a state in fiscal disrepair not of his own making. We also can't deny that Malloy has failed to deliver long-term fixes. The truth is, there hasn't been and won't be a magic bullet to solving Connecticut's huge debt and unfunded liabilities that are the main instigators to our budget deficits. To his credit, Malloy has taken steps to shrink the size of state government and curb some spending, but he hasn't wrung enough short- and long-term savings out of state employee unions — which are likely to retain their political power and influence long after Malloy leaves office. He still has time to redeem himself. As part of his current proposed two-year bud- get, which seeks to close a $3.6 billion deficit, Malloy is asking for $1.6 billion in union concessions over two years. It's a big number some predict is impossible to achieve, but Malloy has threatened to lay off up to 4,200 state employees if his demands aren't meant. Malloy said he plans to expend any and all the political capital he has left with lawmakers before he leaves office. We have no doubt the hard-charging former mayor of Stamford will continue to push his agenda, and try to implement his recent prescription of fiscal austerity. If his final two-year budget creates a more sustainable fiscal future, the epilogue to Malloy's biography could be much different than if it was written today. He must, however, not give in to new or higher taxes, something influential state employee unions and some Democrats are demanding. Malloy was never going to be a popular governor. Beyond his prickly personality, the state's structural fiscal crisis meant Malloy would have to make tough decisions that would anger constituents of all stripes. He's certainly done that, and while we disagree with some of his policy remedies, we do applaud his efforts to begin to truly address some of our budget maladies that other governors overlooked because it was politically unpopular. That includes taking steps to address our state's massive unfunded retiree pension and healthcare costs. At his press conference announcing he wouldn't seek a third term, Malloy said his administration has always "tried to play the long-game for Connecticut, not doing what is politically expedient." We agree with that in some respects, although he has included fiscal gimmicks and overly ambitious economic projections into some of his budgets causing them to fall out of balance nearly as soon as they were adopted. Let's see if his last act as governor commits to better and more sustainable budget practices. His legacy depends on it. n HARTFORDBUSINESS.COM POLL Has Gov. Dannel P. Malloy been an effective chief executive of Connecticut? ● Yes ● No To vote, go online to HartfordBusiness.com. Last week's poll results: Does having a wider array of restaurants and cuisines available locally make you more likely to dine out? 63.9% Yes 36.1% No RULE OF LAW Let's tax Yale — Here's why and how By John Horak T he state's fiscal problems are still in search of a solution as we reach the midpoint of the 2017 legislative ses- sion, which is nothing more than a tug of war between the state employee unions (the gover- nor has asked for $700 million in concessions), and taxpayer wallets and pocketbooks. In the midst of the dissonance, union leadership is con- tinuing to call for higher taxes on the rich to prevent state employee layoffs and concessions. For example, in a March 24th Con- necticut Mirror story ("Dems, GOP test their arguments on labor cuts, tax increases") state AFL-CIO President Lori Pelletier argued: "The problem is a lack of political will to require corporations and the wealthiest individuals … to contribute to our economy and our society at the same rates as working and middle class families."), while New England SEIU 1199 President David Pickus said "Rather it is a larger question of, are you ready to have Connecticut become a state to start roll- ing back these recog- nized human rights of workers who dedicate their lives to serving our state?" Candidly, I have trouble reconciling my experiences at places like the DMV with Mr. Pinkus' elevation of meat-and-potato issues like unfunded pension and health - care obligations to the higher plane of "recog- nized human rights" of state employees. But if he really believes this is a matter of human rights I have a sug- gestion for him: He should resurrect last year's attempt (sponsored by Sen. Martin Looney, D-New Haven) to extract some tax revenue from Yale to see if that will get everyone off the backs of union members. A year can make a difference, and as far as taxing Yale is concerned the difference can be found in a recent (March 2017) study entitled "Ivy League Inc.," prepared by an organization called American Transparency (Openthebooks. com). The study discloses the massive federal and state taxpayer subsidies, tax breaks, and payments that flow into the eight elite colleges and universities that comprise the Ivy League, of which Yale is a prominent member. The numbers are pretty stark and the report is easy to find on the internet (where there are specifics to be found), so let me pull out just four Yale numbers for the six-year period 2010-2015 that speak for themselves. First, Yale (as a tax-exempt entity) did not have to pay corporate income taxes (as would other corporations) on the earnings from its $25 billion endowment — a savings of $2.1 bil- lion. Second, it received $2.96 billion from a combination of federal contracts, grants and payments. Third, the state of Connecticut paid $31.8 million to Yale under various ser- vice contracts with state agencies (taxpayers are giving Yale a lot of business). Finally, Yale saved $708 million in munici- pal property taxes (that other corporate enti- ties would have paid over these years). It would be easy to add some anti-Yale spin to these numbers if I were so inclined, but I want to be fair; and, to be sure, Yale could launch in response a fuselage of Ivy League quality analysis designed to rearrange and explain the numbers to make whatever pub- lic relations case it wants in its defense. Nevertheless, I spent over three decades practicing tax law and know the issues pretty well, and when I step back and look at the mas- sive, sprawling and animated economic enter- prise that is Yale, and then see just how much it benefits from federal and state taxpayer money, let alone its use of Connecticut state and municipal roads, bridges, services and the like, it's easy to make the case that Yale could contribute more "to our econo- my and our society at the same rates as working and middle class families." As a technical mat- ter, it would be pretty easy to tax Yale, and I believe that Sen. Loo- ney's proposal to do something like this last year failed so mis- erably (and brought national ridicule to the state) because it was rolled out so badly. In fact, the proposal was based on some hard and competent tax thinking that has float- ed around Congress and Washington D.C. think tanks for years — and it would not "tax Yale" in the broad sense, but it would impose an excise tax only on the income and gains from Yale's endowment (its "savings account"). There is, in fact, a class of tax-exempt orga- nizations (private foundations) that have been subject to a 2 percent tax of this type since 1969, and the Congressional proposal (which Con- necticut could adopt) would piggy back on this same approach (at a tax rate to be determined). Yale's investment earnings in 2014 were $2.9 billion (as reported on line 10 of its publicly available tax return for that year), and I leave it to Mr. Pinkus to do the arithmetic necessary to figure out how much could be extracted to make a dent in the unfunded pension and healthcare obligations owed to his membership as a matter of human right or otherwise. n John M. Horak is the director of TANGO Nonprofit Education and Consulting. John Horak ▶ ▶ When I step back and look at the massive, sprawling and animated economic enterprise that is Yale, and then see how much it benefits from federal and state taxpayer money, … it's pretty easy to make the case that Yale could contribute more 'to our economy and our society.'

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