GOLDRICK: CT’s Balance Sheets are in Good Shape and Steadily Improving

Submitted by Sean Goldrick, Greenwich

For years conservative commentators and journalists have been claiming that Connecticut is drowning in debt and unfunded pension liabilities.  A series in CT Mirror claimed that the state suffers from “a legacy of debt.”  The truth, however, is that Connecticut’s balance sheet stands in much better shape than those commentators claim, and it’s steadily improving.  Let’s break down the numbers, starting with Connecticut’s bonded debt.  But to understand Connecticut’s fiscal situation, one has to be aware of a critical fact: Connecticut has no county government.

Connecticut is one of just two states without functioning county-level government, having done away with counties in the 1960’s.  When county governments were eliminated, Connecticut was left with a state government and169 municipalities, including a few small cities, and 172 public school districts.  Those municipalities and school districts were incapable of taking on the functions previously handled by counties.  So state government stepped in.  The result is that Connecticut’s state government looks large in comparison with states that operate county governments.  But our municipalities and small cities hold less debt, and are lighter staffed, compared with the municipal sectors of other states.  State government’s support for municipalities is reflected in the fact that each year between a quarter and a third of the state’s general obligation bond proceeds go to support municipalities.  In particular, state government plays an outsized role in funding school construction, which is rarely a state obligation elsewhere.

According to a December 2021 analysis by the Connecticut Office of Policy and Management, our combined state and municipal bonded debt relative to state personal income is 19%, which ranks Connecticut 40th among the 50 states. We’re virtually tied with Texas and Washington, which rank 39th and 38th respectively.  Massachusetts and California feature slightly higher levels of debt to personal income.  New York’s debt to personal income ratio is the highest in the nation.  So Connecticut’s relative debt is higher than average, but by no means is it drowning in debt.

Now look closer.  Connecticut’s state-issued debt, at 15% of personal income, ranks third highest in the nation.  But the flip side reveals that municipal debt, at just 4% of personal income, ranks lower than all but three states, and is virtually identical to two others.  

Compare Connecticut with Texas, which loudly boasts of being a “low tax state,” and one sees that the two states’ municipal and state debt to personal income ratios are identical – 19%.  But the two states are mirror images of each other.  While state-issued debt in Connecticut is equivalent to 15% of personal income, Texas’s state-level debt totals just 4%.  By contrast, debt issued by Texas counties, cities, and other municipalities totals 15% of personal income, while Connecticut municipal debt equates to just 4%.  Hence, the supposedly “drowning in debt” Connecticut maintains a debt to personal income ratio that is identical with supposedly “low-tax” Texas.

And far from spiraling out of control, as a number of conservative commentators claim, OPM’s Fiscal Accountability Report published last November reveals that Connecticut has reduced its bond issuances steadily since 2015 under both Democratic governors Dan Malloy and Ned Lamont.  Indeed, Connecticut’s 2021 issuance of general obligation bonds was just 43% of the amount issued in 2015.  That reduction in debt issuance at the state level is reflected in the fact that the state is set to retire fully 70% of its general obligation debt within the next decade, and 93% within the next fifteen years.  The state’s debt service, at just under 12% of the operating budget, has remained stable for several years, and is projected to remain flat for the next several.

So, far from drowning in debt, Connecticut’s debt to personal income, though somewhat higher than average, is by no means at disastrous levels.  Indeed, we rank similarly to other major states, debt service remains stable relative to the budget, and state-level debt issuance has been reduced steadily for several years.  Clearly, that’s one of the reasons that all four major debt rating agencies upgraded Connecticut’s ratings recently to levels signifying strong investment-grade debt.

Issued debt is just one of the four components of Connecticut’s liabilities, but an important one.  And on that metric, the state is doing well.