Who gets the credit for the budget stability that so many states are seeing across the country? The honor goes to (drumroll, please) Robin Hood!
You might remember, as the legend goes, he was either a nobleman or a member of the yeoman class. Dressed in green clothing, wearing a hat with a feather, he robbed from the rich (Peter) and gave to the poor (Paul). His “Band of Merry Men” along with the ever-present Maid Marian were all part of the transfer of money from one to another.
So how does this relate to state budgets across the country, including Connecticut?
According to a recent survey by the National Conference of State Legislatures (NCSL), most states are enjoying stable revenue conditions, with only a few likely to continue to face serious revenue challenges. This is a much different story than a year ago when the vast majority of states were looking at rocky financial roads, local economies were lagging, technology was disrupting the jobs of the last decade and the stock markets were incrementally improving.
March 11, 2020 hit hard when the World Health Organization declared a pandemic over COVID-19. It wasn’t long before nearly all states declared a state of emergency and braced for dire financial straits as the weeks and months dragged on with little or no letup in the pandemic.
In stepped (drumroll again, please) Robin Hood, a.k.a. the federal government.
By last August 31, the federal government forked over a whopping $1.3 trillion in aid packages, with a significant amount of $150 billion going directly to state and local governments. Between unemployment assistance, “PPE” assistance, disaster relief help and rental assistance, an additional $500 billion found its way to the 50 states. Indirectly, the first phase of the Payroll Protection Program infused more than $525 billion in local state coffers and the local economy. As states became fortified with the help of the federal government, the federal deficit grew by 2% or an additional $4.7 trillion.
With Robin Hood’s largesse having been spent, what’s a state to do? According to the NCSL survey, many states aren’t faring as well as Connecticut. Listed in the danger zone are Alaska, Hawaii, New Jersey, Maine, New Mexico and New York. A strong cohort. Those states are exploring enacting unitary tax models, taxes targeting CEO pay and high-income citizens, as well as increasing corporate taxes and expanding taxes on all kinds of services and remote transactions. Interestingly, Connecticut has many of those taxes in our tax structure already—except for taxes on high-income earners.
Governor Lamont all but promised in his budget address that he would not support any form of taxes that would incentivize high-income earners to leave the state. His solution was to increase the “use tax”—meaning legalize the use of recreational marijuana, the use of sports betting and taxing the use of our highways by commercial trucks. Meanwhile, some members of the Democratic party—which has strong majorities in the legislature—support taxes on the high-income earners and other taxes the Governor opposes. It remains to be seen if they are willing to take on a fairly well-liked Governor who is adamantly against those ideas.
That leaves some to wonder: Will Robin Hood return?
It’s very likely that he will, and expect that he’ll look an awful lot like Joe Biden. The president has proposed stimulus relief of $1.9 trillion, including an additional $350 billion for state and local governments.
While we wait, the state budget process marches on. And outside Connecticut, one of the nation’s most accurate predictors of financial and technology trends is suggesting that the national economy may not be as stable as some think. Jeff Brown—who is best known for predicting the tech bust in 2000, the housing bubble, the strange movement in bitcoin and other such notable economic shifts over the past decade and a half—is predicting that the economy is on the cusp of something not seen in 20 years. Brown predicts some of the tech stars will go the way of the fax machine and drop dramatically. He sees a splintering in the markets and that a small segment of the tech world will rise as other more traditional techs will falter. Yikes!
As scary as that is, it should not be a surprise if you consider how COVID 19 has changed the world forever. Seniors (the largest age demographic in the country) who a year ago didn’t know the difference from Amazon or Netflix; a like or a share; FaceTime or Zoom, now do their banking and buy their food, books and movies online. So many things are available online and can be bought from any corner of the world with a click, and those new habits we’re all learning are disrupting local commerce, especially our local retail stores, food establishments, entertainment venues, etc.
Buying local supports local jobs, the local and state economy and state tax models are built on harnessing revenue from the economies in their borders. So even if Robin Hood rides this one more time, Connecticut’s leaders are going to have to look to longer-term solutions than a generous fellow in green tights.
Just this week the Connecticut legislature took the first step in that direction when the House passed a Lamont administration initiative to position Connecticut as a driver of data center economy. Just as former Governor Malloy was departing for office, he endorsed and supported an energy and innovation hub in New Britain, anchored by a fuel cell-powered data center. This tweaked the interest of other interested data center developers to take a second look at Connecticut as a home base. The emergency bill that passed this week in the House will take a huge step toward transforming our economy, attracting the large “cloud” companies that rely on large data centers that this legislation will draw.
So while Connecticut’s state and local budgets await a second visit from Robin Hood, we can take heart that the Governor and an overwhelming bipartisan majority in the state House took swift action to seize the opportunity to harmonize tax policy with a transformative economy that may yet help Connecticut sustain and thrive through dramatic shifts in the markets and the economy at large.