The Supreme Court’s unwillingness to intervene in a fight among states over taxing income from remote work may spark a jurisdictional revenue war. In August, the Court refused to take up a lawsuit by New Hampshire against Massachusetts’ practice of levying income taxes on Granite State residents employed by Bay State companies but working from home during the Covid lockdowns. Now New Jersey officials, who filed an amicus brief in the case because the state’s telecommuting residents are similarly taxed by New York, have proposed a law that would let the state tax telecommuters, including possibly tens of thousands of Empire State residents now working from home but employed by Garden State companies. The in-your-face legislation also provides incentives for Jersey residents to challenge New York’s law in tax court—one of the only venues left to residents after the Supreme Court decision. Given that several hundred thousand New Yorkers once commuted to other states to work and may now be staying home to telecommute, Albany risks losing revenues.
Beginning in March 2020, Covid restrictions brought a sharp rise in telecommuting, or working remotely from home. Studies have suggested that, during the pandemic’s initial phases, up to 36 percent of all private-sector employees, or about 43 million people, worked at home at least one day a week, and 15 percent, or about 18 million, telecommuted full-time. Census data before the pandemic found that as many as 6 million workers regularly cross state lines to go to their jobs. So it’s likely that several million current telecommuters have jobs with firms in another state. In New Hampshire, about 15 percent of residents with jobs—some 84,000 workers—commuted to Massachusetts pre-pandemic.
When Connecticut deposits roughly $4.1 billion into its pension funds this fall, it will mark the third consecutive year the state used its budget surplus to whittle down the massive pension debt accrued over more than seven decades.
Connecticut had reported more than $41 billion in combined debt among its pensions for state employees and for teachers following the 2019 fiscal year. According to Pew, that represented 14.8% of Connecticut’s personal income at the time — more than double the national average of 6.8%.
Connecticut was one of just 10 states that topped the 10% mark, and ranked eighth-worst overall. New Jersey finished at the bottom with pension debt equal to 20.2% of statewide personal income.
Two Connecticut governors have tried — and failed — to shift some of the massive cost of teacher pensions onto municipalities, arguing it’s inherently unfair for the state to foot the entire bill. Education equity advocates hope to resurrect that debate this year — with a big twist. Rather than trying to bolster the state’s coffers, the Connecticut chapter of Education Reform Now (ERN) wants the state to bill the wealthiest school districts and use at least some of those resources to help the poorest communities.
Connecticut’s second-largest education-related expenditure — about 7% of the General Fund or $1.44 billion this fiscal year — is the required annual contribution to the teachers’ pension fund. That hefty pension contribution consumes resources that normally would be spent on school operations or other core programs in the state budget. For most states, this pension expense is much less. According to ERN, Connecticut is one of only seven states that spare towns from contributing toward teacher pension costs.
That doesn’t mean there’s nothing important in the budget. Connecticut is in the midst of a two-year plan to put nearly $6 billion in federal coronavirus aid to work to bolster its schools, health care system, economy, and state and local governments.
While the plan is generating big surpluses in state finances, the jury is still out on the overall Connecticut comeback. And since the state will invariably face a fiscal shock in 2024 — when $6 billion in federal aid has expired — Lamont is cautious about tackling anything more ambitious right now.
The state has the legal maximum in its rainy day fund, $3.1 billion or 15% of annual operating expenses, and already made a supplemental $1.6 billion payment last fall to reduce pension debt.
But with a nearly $2.5 billion surplus projected for the current fiscal year, the state can keep its reserves full, reduce more pension debt and help do more for those hardest hit by the pandemic, Walker said.
Yet an analysis by the CT Mirror shows that more than six out of every 10 federal relief dollars built into the new state budget that began July 1 effectively will wind up in public-sector pension accounts.
And while Gov. Ned Lamont and others insist the new state budget — and the billions Congress sent to Connecticut via the American Rescue Plan Act — will be used to heal the state’s wounds, others question whether the administration’s priorities are askew. Pension debt deserves to be addressed after being ignored for decades, they say, but that shouldn’t come at the expense of the state’s response to a once-in-a-century health and economic crisis.
Analysts project the newly adopted $46.4 billion, two-year state budget will close in July 2023 with $2.3 billion left over — an amount that exceeds the $1.8 billion in federal coronavirus relief built into the budget. Because the state’s rainy day fund already is filled to the legal maximum, those dollars must go into either the pension fund for state employees or the retirement system for teachers.
And that’s in addition to the nearly $6 billion in required pension deposits Connecticut already plans to make as part of the two-year budget. That’s a supplemental payment of more than 35%.
Gov. Ned Lamont helped to hand out more than $1.3 billion on Tuesday by voting to have the state borrow money to pay for various infrastructure projects, state grant programs, improvements at a mental health center in Bridgeport and a new train station in Enfield.
In total, the State Bond Commission, which Lamont leads, agreed to fund more than 50 different projects, programs and initiatives — some of which were championed by state lawmakers who are heading into a campaign season next year and are eager to bring home financial wins to their district.
The more than $1 billion in spending that was approved Tuesday will be financed through state revenue and general obligation bonds, which Connecticut officials market to Wall Street investors and will eventually need to repay with interest.
Connecticut frequently relies on that type of borrowing capacity to finance school construction efforts, capital projects at state universities, transportation upgrades, building maintenance projects, land preservation deals and the smaller community projects that often benefit state legislators. This week’s meeting marked the third bond commission gathering this year.
State legislators largely control the first step in the borrowing process by adopting a two-year bond package, but after that, the governor and the executive branch get to decide what gets funded and when.
Eight residents of a Connecticut nursing home have died during a COVID-19 outbreak that has lasted nearly six weeks.
A total of 89 employees and residents have tested positive since the outbreak began at the Geer Nursing and Rehabilitation Center, located in Litchfield County, in the Town of Canaan, on Thursday, Sept. 30.
“Despite seeing significant numbers of residents recovering from Covid,” the facility’s chief executive Kevin O’Connell and nursing director Cady Bloodgood said in a statement. “testing has resulted in one additional positive case among fully vaccinated residents and staff members. Sadly, we have lost eight residents with serious underlying health issues to Covid.”
We call it the “Zombie Index” based on the work of Edward Kane, a prolific and respected finance professor at Boston College. Back in 1985 and 1989, Ed wrote two books warning about taxpayer exposure to losses from bank deposit insurance schemes, before we knew what hit us in the savings and loan crisis. Ed coined the term “zombie bank” to identify effectively-insolvent banks that were allowed to remain open by regulators and others. Deceptive accounting principles greased the wheels for regulatory forbearance, making “zombies” appear to be solvent.
Zombies had incentives, in Ed’s terms, to “gamble for resurrection.” Insiders could capture the upside of riskier investments, while prospective losses could be socialized through the government’s sponsorship (and ultimately, bailout) of deposit insurance systems. These incentives ended up magnifying taxpayer losses during the 1980s deposit insurance crisis. Those losses ran in the hundreds of billions of dollars and helped set the stage for the massive financial crisis of 2008-2009.
According to statistics from The Associated Press, the five states with the highest percentage of a fully vaccinated population are all in New England, with Vermont leading, followed by Connecticut, Maine, Rhode Island and Massachusetts. New Hampshire is 10th.
Case counts in Vermont, which has continually boasted about high vaccination and low hospitalization and death rates, are the highest during the pandemic. Hospitalizations are approaching the pandemic peak from last winter and September was Vermont’s second-deadliest month during the pandemic.
Even though the state’s coffers, for now, are awash in money, a huge fiscal cliff looms two years from now, when billions of dollars in federal stimulus grants expire.
Despite a record-setting rainy day fund and a new biennial state budget free of major tax hikes, unprecedented unemployment and deep pockets of urban poverty could easily shift Connecticut’s tax fairness debate — which accelerated this past spring — into high gear in 2024.
“We came out of a year from hell, and I think it was really important we came together in terms of our budget,” Gov. Ned Lamont said last Thursday, one day after lawmakers had adjourned a session that adopted a $46.4 billion, two-year state budget that makes big investments in municipal aid, education, health care, social services and economic development — all without major tax hikes.
But about 4% of that plan, nearly $1.8 billion, was propped up by one-time federal coronavirus relief, most of which will have expired after the coming biennium, which starts July 1.
Question: When was the last time a Connecticut legislature was poised to adopt a state budget with a $2.3 billion surplus built into it?
Answer: Never, until now.
Democrats and Republicans alike were expected to vote for the $46.4 billion, two-year package when it goes before the House of Representatives on Tuesday. But even though about 5% of the funds appears to be left unspent, the anticipated surplus would become a payment into the state’s pension accounts.
That’s because the budget, which boosts spending 2.6% in the fiscal year beginning July 1 and by 3.9% in 2022-23, really is the first of its kind under a new system designed to bring stability to state finances.
Connecticut is four years into a savings program that limits spending of income tax receipts tied to capital gains and other investment earnings, but this is the first time since 2017 that analysts are projecting big revenues from Wall Street before legislators actually approve a budget.