More gambling, less tech support, no way to build state economy

Even the most starry-eyed optimists have to be deeply concerned over the condition of Connecticut’s economy. Barron’s business and financial weekly reports that Connecticut’s finances rank 48th among the states based on a combination of factors, including debt, unfunded liabilities, jobless rate, gross domestic product growth, tax burden, and population trends. Only New Jersey (49th) and Illinois (50th) are in worse shape. Overall economic growth for Connecticut was 0.6 percent in 2014 versus 2.2 percent for the nation.

Despite the state’s economic problems, legislative leaders rammed through a new two-year budget laden with hundreds of millions of dollars in additional taxes, including job-killing measures that would triple the tax on computer services and significantly reduce Connecticut’s research and development tax credit program. Both measures would make Connecticut less competitive in areas vital to creating well-paying jobs and building a 21st-century economy.

The new computer-related tax would hit Connecticut’s insurance companies particularly hard, while James Baxter, Senior Vice President of development at Boehringer Ingelheim USA, the largest biopharmaceutical company headquartered in Connecticut, warned that the reduction in R&D credits would hurt aerospace, defense, biotech and other industries that depend heavily on R&D to bring new products to market. Baxter noted that the tax credit program has been one of the Connecticut’s most successful drivers of economic activity, with $109.2 million of government credits spurring $3.14 billion in investments by Connecticut businesses from 2001 to 2012. “Those figures,” Baxter said “are astounding and demonstrate the tremendous return on investment for the state.”

While legislative leaders were making things tougher for many of Connecticut’s most promising industries, they were bending over backwards to find ways to prop up the state’s faltering casino industry, which is losing jobs and revenue as the Northeast becomes oversaturated with casinos. They finally pushed through a bill creating a process that could lead to the owners of Foxwoods and Mohegan Sun opening a satellite casino along I-91 north of Hartford and eventually to additional satellite casinos along I-95 and I-84 in Fairfield County. In addition, they revived legislation to allow the state lottery to install the casino game keno in restaurants, bars, taverns and convenience stores.

Expanding gambling while making it harder for computer service and R&D-related businesses to grow is no way to improve Connecticut’s economy or quality of life. The main benefit of Foxwoods and Mohegan Sun to Connecticut’s economy came from their success in bringing new money in from outside the state, but with out-of-state customers increasingly disappearing, the casinos’ jobs and profits are increasingly being funded by the gambling losses of Connecticut residents, resulting in what Nobel Prize-winning economist Paul Samuelson called “the sterile transfer” of money without creating any new value.

Although opening satellite casinos would keep some portion of Connecticut gamblers and their dollars in Connecticut, it would do nothing to bring out-of-staters back. Instead it would encourage Connecticut gamblers to gamble more frequently and entice thousands of Connecticut residents who do not currently gamble to begin doing so, with an attendant increase in gambling addiction and the social costs it creates.

According to a recent study from the Institute for American Values, a leading non-partisan think tank, casinos represent a regressive tax that hits low income people, minorities, and the elderly the hardest, thereby contributing to economic inequality in America. Overall, the study concludes, the new regional and local casinos drain wealth from communities, cannibalize nearby businesses, hurt property values, and reduce civic participation, family stability, and other forms of social capital that are at the heart of a successful society.

In the face of mounting criticism, Gov. Dannel P. Malloy has proposed rolling back some of the tax increases in the new budget that would be most damaging to the state’s economy, including those related to computer services and R&D. The governor and the legislature could take another important step toward helping Connecticut’s economy in the upcoming special legislative session by reversing their support for expanded gambling.

Robert Steele of Essex was a U.S. Representative from eastern Connecticut and is the author of “The Curse: Big-Time Gambling’s Seduction of a Small New England Town.” State Senator Tony Hwang, R-Fairfield, is an assistant Senate minority leader.

 

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