Latest issue of The Connecticut Economy sheds light on public revenue and spending

Connecticut continues to boast the nation’s highest per capita income, but the state is among the bottom four in the percentage of that income used to fund state and local public services, according to a report in the latest edition of The Connecticut Economy: A University of Connecticut Quarterly Review.

In a study seeking to empirically determine the optimal amount of funding states should devote to public services without adversely affecting a state’s economy, Steven P. Lanza, executive editor of the magazine, collected 16 years (1993-2008) of personal income and government spending data for the 50 states from the U.S. Bureau of Economic Analysis and the U.S. Census of Governments. He finds that Connecticut under-spends on most government activities, including education and infrastructure, while spending more than the optimal amount on health care.

“Public spending in the Nutmeg state averaged just 17.6 percent of income in the years surveyed, more than six points below the optimal share,” Lanza writes. “With such a lean public sector, Connecticut essentially forfeited an additional 1.2 percent in yearly income it would otherwise have earned, had it adopted the optimal mix,” because public services could have been added that would have helped the private sector grow. According to the study, the optimal share of non-federal public spending is about 24 percent of income, somewhat higher than the 50-state average of 22 percent, and well above the figure for Connecticut.
Lanza also points out that public opposition in Connecticut to the expansion of government services may reflect dissatisfaction with the present tax mix, which seems to rely too heavily on property taxes and too little on “other revenue”—a category that includes tolls, excise taxes, or other special revenue sources.

The Connecticut Economy’s other editors, Prof. Dennis Heffley and emeritus Prof. Arthur W. Wright also weigh in with articles based on recent research. Wright considers whether the recent downturn in casino revenues can be staunched, and Heffley examines teacher salaries in Connecticut.

In addition to briefly tracing the history of Connecticut casinos—Foxwoods and the Mohegan Sun—and their significant contribution to state and local revenues since the early 1990s, Wright examines the impact of the recent recession on this source of public funding. He also considers how the anticipated rebound in casino gaming revenue in Connecticut might be affected by the expansion or development of new casinos in surrounding states.

Professor Heffley compares the annual wages of teachers—pre-school, kindergarten, elementary, middle school, and high school—across states and finds that Connecticut ranked 9th, 4th, 3rd, 1st, and 4th, respectively, in May 2009. But, according to the same data from the Bureau of Labor Statistics, Connecticut also ranked 2nd in annual wages across all occupations. Relative to the all-occupation figure, Connecticut ranks 41st, 15th, 5th, 6th, and 17th in teacher pay for the five categories. At the March 15th press release, it was also noted that, relative to other states, Connecticut has been falling in the rankings of teacher pay over the last decade.

Read the complete issue of The Connecticut Economy here.