Congratulations to Connecticut Democrats on their trifecta in Hartford—our new Democratic governor will be utterly unconstrained by Republicans in any position of authority. In fact, any effective pressure on Governor-elect Ned Lamont will all come from his left. Progressive voices in both the upper and lower chamber are now a majority of the majority party.
What does that mean for New Canaanites?
The most immediate impact is likely a tax hike by the middle of next year. The top marginal rate (the one that matters when it comes to economic growth and incentives) will get a big hike. The direct impact will be a bigger tax bill. The indirect impact will be an acceleration of businesses and taxpayers fleeing Connecticut for states that want them. Meanwhile, how many net taxpayers do you know—individuals or businesses—who are moving to Connecticut? Not nearly enough to make up for the losses.
The next impact will be a massive shift of government pension liabilities from the state to the towns such as New Canaan. Connecticut is broke and it was broken by pension liabilities. For decades, the easiest thing for politicians of both parties to do was to increase government headcount while racking up future pension obligations. The future has arrived—the state can’t afford it, so it will hand its obligations to our towns. New Canaan is Connecticut’s piggy bank and Hartford is heading our way with a hammer.
While our taxes and liabilities are heading in one direction, our state benefits will head in another. Tax revenues that had gone to Connecticut’s economically functional towns will be redirected to Connecticut’s economically dysfunctional cities. This will cost us dearly in direct costs but will prove to be doubly expensive as redeployed funds will stymie the need for reforms that would otherwise save our cities from their self-imposed insolvencies. In particular, we will buy out $550 million of Bridgeport and Stamford debt. The lesson is clear: the more you spend, the more bailout money you get. The more revenue a town can raise, the more they will take. Think of the $550 million as a down payment; these bailouts will continue until they run out of our money.
In short, we are about to see a lot of our wealth redistributed among the people, businesses, and towns that earn it to pay for the state government’s unlimited appetite to spend it on those who do not.
If our newly elected local representatives were marginal votes in the newly elected legislature, they could be moderating influences, but with huge new majorities, their votes are not needed. Taxpayers can continue to vote with their feet, but for those left behind, we will see a double-digit adjustment to our property values as markets reflect this new reality (simply adjusting for the after tax net present value).
Government workers who get to skim the overhead and net transfer payment beneficiaries are the big winners while New Canaan is the big loser. In wiping out the few remaining checks and balances in Hartford, New Canaan has practiced a form of economic masochism with costs that will be revealed when you see you state and local taxes next year. If the bond market begins to reflect our precarious position, borrowing costs would rise enough to necessitate further tax hikes. We are only putting off a crisis by hoping the municipal bond market doesn’t notice anytime soon and when it does, the crisis will be smooth and controlled.
So what? So we can take into account a future with much lower New Canaan property values. There are a few things we can do locally. As homeowners and taxpayers begin to notice, our well-intentioned local government is going to catch a lot of flack for upcoming tax hikes. To mitigate taxpayer outrage, they might choose to clarify responsibility by sending out line items on our property taxes that show the large and increasing percentage of local cost that are disguised state costs in the form of unfunded mandates. That can be separated out from the classrooms, police, and parks that have any real benefits. If necessary, we can push back against ever increasing local spending via referendum. There is nothing we can do at the state level. It will be increasingly clear that our only recourse is local; in Hartford, New Canaanites are powerless to stop a bankrupt and desperate state from coming after our town with a vengeance.