For the past few months state officials have been bracing themselves for news about what the financial meltdown on Wall Street might mean for Connecticut’s budget.
Using history as his guide Steven Lanza, executive editor of The Connecticut Economy gave government officials the bad news Wednesday during a presentation at the state Capitol.
Lanza told officials that direct industry loss of financial services jobs will likely top 30,000, while indirectly it could trigger reductions of more than 55,000 jobs. “So total job cuts could approach 90,000,” he said.
What’s worse is based on the job losses in the financial sector the state could be facing a deficit exceeding $1 billion in this fiscal year, he said.
The state had planned for a 4.7 percent, or $800 million, increase in the state’s budget last fiscal year. Since earnings have been growing at a 4.7 percent annual rate in Connecticut this decade, “that increase seemed entirely reasonable,” he said. However, if 90,000 people lose their jobs and earnings slump by $4 billion, then the state’s take of that tax revenue would drop nearly $375 million.
“Connecticut will probably become one of the hardest hit states in the country,” Lanza said.
So what’s an elected official to do?
“Increasing taxes makes matters worse,” Lanza said. “And you don’t necessarily want to make across the board cuts.”
He said the state should think about doing the least amount of harm when it comes to spending cuts, especially when it comes to funding institutions of higher education. He said when the state is in a recession enrollment in colleges and universities increases as people return to school for more training and new skills.
Even in these tough economic times, he said, the state should be thinking about positioning itself for the future.
The latest edition of The Connecticut Economy also includes reports on mortgage foreclosures, the comparative cost of living in Connecticut, and the Massachusetts experience on health care.