Connecticut, nation’s wealthiest state, spiraling into financial despair
While Illinois has been under the microscope for its $15 billion backlog of unpaid bills, multi-billion dollar pension crisis and paralyzing political polarization, it is not the only state facing pressure to pass a spending deal by June 30.
The nation’s wealthiest state, Connecticut, is also facing a series of challenges as it remains unable to strike a budget deal with the new fiscal year approaching on Saturday. It is likely the state will enter the new month without an approved two-year budget, but a so-called provisional “mini budget” is still on the table. This last-ditch option includes $300 million to balance out spending cuts the state would be prompted to make in order to keep up with the deepening deficit.
Revenue shortfalls in the state register around $450 million for the current fiscal year alone, while estimated deficit totals are projected to clock in near $5 billion for the 2018 and 2019 fiscal years combined, according to The Connecticut Business & Industry Association. Debt outstanding levels and unfunded pension liabilities relative to revenues are among the highest of any state in the country, Moody’s Investors Service said in May.
As previously reported by FOX Business, income-tax collections are projected to fall in fiscal year 2017 for the first time since the recession.
Connecticut's financial despair comes despite the state government’s approval of one of its largest tax rate increases ever in 2015.
The three major rating firms have downgraded the state’s credit rating in response to the ongoing budget crisis. In its most recent downgrade, which landed Connecticut with the third-lowest rating out of every state behind only New Jersey and Illinois, Moody's said “the downgrades reflect continuing erosion of Connecticut's finances, evidenced by the pending elimination of its rainy day fund, growing budget gaps and rising debt levels.”
However, the situation could get worse still.
On Thursday, health insurance giant Aetna announced it would move its Hartford, Connecticut-based headquarters — after more than 150 years in the state — to New York City in late 2018. The company cited a lack of access to talent as one reason it was leaving its Connecticut base, and said Thursday its long-term commitment there will depend on the state’s “economic health.”
Earlier this year, General Electric (NYSE:GE) announced a similar move, shipping its headquarters from Fairfield, Connecticut to Boston, Massachusetts.
Without tax income from GE and Aetna, the state will lose a significant amount of revenue.
Aetna said it paid $65 million annually in state taxes to Connecticut as of 2015 and expected that total to increase by 27 percent as a result of the business tax increase. In 2015, GE, Aetna and Travelers (NYSE:TRV) wrote a letter to Gov. Dannel Malloy (D-Conn.) saying they were considering “whether it makes any sense” to remain in the state in light of the massive tax hike approved that year.
While Aetna said Thursday it will keep thousands of its Connecticut based associates on the payroll for now, it will be closely watching what happens in the state legislature over the next few days.
“The company remains hopeful that lawmakers will come to an agreement that puts Connecticut on sound financial footing, and that the state will support needed reforms to make Hartford a vibrant city once again,” Aetna said in a statement on its website Thursday.
Gov. Malloy said Aetna's exit is "an important reminder to be competitive [and] immediately take the necessary steps to produce a balanced biennial budget" in a statement Thursday.
When asked why lawmakers have been unable to reach a spending deal, Gov. Malloy's office told FOX Business "you'd have to ask them."