The OPM report says Connecticut's job growth since the recession ended in 2010 "has been skewed toward lower-wage industries, especially when compared to the jobs lost during the recession."
Connecticut lost 54,300 jobs in higher-wage industries-45% of all job losses-during the 2008-2010 economic downturn, recovering just 8,900 or 16% of those jobs through September of this year.
In comparison, Connecticut lost 39,400 jobs in lowerwage industries during the recession, recovering 49,300 (125%) of those positions.
"Average annual wages are growing at 1.9% per year in the post-recession period compared to 4.0%
per year before the recession," the OPM report says. "In FY 2019, employment grew 0.4 % while the average annual wage grew 2.8%."
The report also notes Connecticut trails the region and country in a number of key economic growth indicators, including jobs, population, home sales and prices, and gross domestic product.
Fixed Costs
Fixed costs-funding state employee pension and retirement benefits, teacher retirement and
health benefits, debt service, and Medicaid and other entitlements-continue to dominate any state budget discussion.
For instance, active and retired state employee wages and benefits represent 31.7% of fiscal 2020 spending, municipal aid (including teachers' retirement costs) accounts for 21.7%, and 11.6% of this year's expenditures are for debt service.
OPM projects the state's fixed costs will grow an average 4.8%-$2 billion-from fiscal 2020 through 2024 while revenues are forecast to increase an average 2.4%, a gap of $770 million.
While revenue growth is projected to exceed fixed cost growth in fiscal 2024, the state's long-term liabilities-now around $85 billion-continue to diminish Connecticut's ability to properly address essential state services such as education and transportation.
Mccaw told legislators that based on contribution changes made during the 2019 legislative session, the State Employees Retirement System should be fully funded by 2048, with the Teachers' Retirement System following two years later.
Debt service as a percentage of the state budget is also forecast to begin leveling out, growing from the current year 11.7% ($2.28 billion) to 12.7°/o ($2.83 billion) by fiscal 2024, based in part on the Lamont administration's self-imposed "debt diet."
Reserve Fund
The state's reserve fund now stands at a relatively robust $2.5 billion, although Mccaw cautioned that $1.3 billion of that was attributable to "one-time, non-repeatable factors," including the repatriation of deferred overseas hedge fund profits and the new pass-through entity tax.
The fund balance is expected to reach 15% of the annual state budget in fiscal 2021. Under state law, any reserves above that threshold are directed to the state employee and teacher retirement funds and paying down bonded debt.
Both Mccaw and OFA director Neil Ayers warned that the U.S. may be overdue for a recession, given the current economic expansion is now the longest since the end of World War II.
"We're not predicting a recession or predicting a lack of recession," Ayers said.
"We should continue to brace ourselves and be prepared," Mccaw said, adding that while the state
is relatively well-positioned to navigate a moderate economic downturn, it has "insufficient resources" to withstand a severe recession.
Connecticut has not escaped its endless cycle of deficits, as shown by the state's post-recession job and economic growth numbers, an indication lawmakers should put greater emphasis on cutting costs and promoting pro-growth tax policies in the 2020 legislative session and beyond.
