John Fund: A failed state debates how to recover – Can Connecticut become an economic contender again?

Connecticut, a state once known for its industry and innovation, is now a crumbling state facing a crossroads election for governor this year. Polls show a race within the margin of error between a Republican who backs supply-side tax cuts to revive the economy and a Democrat who has the support of public employee unions and social justice warriors.

A new poll by Sacred Heart University shows Democrat Ned Lamont with 39.5 percent, leading Republican Bob Stefanowski with 36.1 percent and independent Oz Greibel with 8.4 percent. Among independent voters, Stefanowski leads Lamont 43 percent to 24 percent, which is a jump from last month’s Sacred Heart poll where Stefanowski was ahead by 6 points. Lesley DeNardis, executive director of Sacred Heart’s Institute for Public Policy, says “this race is going to remain neck-and-neck to the finish line.’’

Last week, the Democratic polling firm Public Policy Polling confirmed the race was closing when it found Lamont ahead by only five points.

Stefanowski is a former executive with General Electric and UBS who is an expert in turning around for ailing corporations. He says he can similarly turnaround Connecticut by ending the state’s corporate income tax in two years, with the ultimate goal of phasing out the income tax over eight years. On pensions, he says he will go to court if necessary to win concessions like an end to giving state employees pension credit for overtime work.

Democratic nominee Ned Lamont is best known as the far-left candidate who defeated Senator Joe Lieberman in the 2004 Democratic primary only to lose to him in the fall when he ran as an independent. He claims he will govern in a moderate direction but all indications are he would merely preside over if not accelerate the state’s steady decline.

The state’s situation is dire. The economy has shrunk at an annual compounded rate of 0.5 percent since 2009. The state’s pension liabilities are the nation’s second-highest, per capita, and are projected to grow by half in the next four years. Companies like General Electric have moved their headquarters and more people leave every day than any other state save West Virginia.

The revenue shortfalls such flight has created were exacerbated by the higher taxes Democratic Governor Dan Malloy pushed through the legislature. This year, Malloy is retiring (he has a 15 percent approval rating in the new Sacred Heart poll) and Republicans have a chance to win both the governorship and the State Senate, which is now tied.

Stefanowski believes he can assemble a coalition of Republicans, independents and centrist Democrats to take back the state. His newest TV ad features Jim Grasso, the son of the late Democratic Governor Ella Grasso. In it Grasso says his mother was "a great governor and a proud Democrat" but his mother always did what was right, which is why he's backing Stefanowski. Grasso then argues that Lamont will raise taxes and put up road tolls.

Lamont is dodging questions about what tough spending decisions should be made. Stefanowski is proposing to implement zero-based budgeting. “You’d start with a ‘blank piece, add in only the services absolutely needed while finding creative ways to do things cheaper,” he told me. Even with fixed costs such as debt service and pensions, a quarter of the state’s budget is “discretionary.” That leaves room for cutting waste. Stefanoski would contract out public services to the private sector, starting with the Department of Motor Vehicles. He would protect whistleblowers reporting fraud and reward employees who come up with cost-saving ideas. Public employee hiring would be frozen and gradually reduced through attrition.

Connecticut also needs a healthy dose of political reform. Stefanowski says it’s time for greater transparency in budget matters. He also wants term limits on both the state legislature and governor, a recall of state officials who are not living up to campaign promises, and allowing citizens the same right of a referendum as neighboring Massachusetts allows.

Indeed, Stefanowski economic advisor Arthur Laffer, says Massachusetts represents a success story that Connecticut can emulate on several levels. “The state lowered its personal income tax rate to 5.1 percent,” he told me. Since then, population, employment, personal income, and tax revenues have all gone up!  If the only state to vote for George McGovern in 1972 can do that, Connecticut can find a way back to prosperity.”