Examining 27 years of taxes and spending
In the 30 or 40 years following his move to Connecticut with his wife in 1970, Ledyard resident Bill Hakkinen found that "everything was kind of steady" and the economy was humming along.
But eight or 10 years ago, things changed, said Hakkinen, a retired Pfizer engineer.
"Every time we talked to neighbors and friends who live in Connecticut, invariably we got around to the topic of taxes," he said, "and generally the question is: Where does all the money go, you know?"
Hakkinen asked The Day a question that was the close winner of a recent CuriousCT voting round: "How much money has Connecticut received yearly since 1991 from income, sales, fuel, cigarette and other taxes? How much did it spend on salaries, pensions, funds given to towns, infrastructure, etc.?"
In each of its annual reports, the Department of Revenue Services includes a page showing collections for each type of tax. Reports dating to 2007 are listed on its website, while The Day obtained tax collections going back to 1990 through a Freedom of Information request. These are gross numbers, whereas the annual reports of the state comptroller include net collections after tax refunds.
Connecticut is one of 41 states that takes individual income taxes out of residents' paychecks, becoming the last of the 41 to implement an income tax for fiscal year 1992, which began July 1, 1991, and ended June 30, 1992. At the same time, the sales tax was reduced from 8 percent to 6 percent.[naviga:img src="https://www.theday.com/assets/news2019/graphs/curiousct-taxes/ct-tax-revenue.svg" alt="" align="right" width="420" height="299" border="0" vspace="5" hspace="5"/]
The subsequent year, income tax was the source of 32.6 percent of the state's total tax revenue, whereas it grew to 55.2 percent last year. That's higher than the national average, according to the U.S. Census Bureau.
Bill Cibes, who headed the state Office of Policy and Management when the income tax was implemented, called it "by far the most progressive of the various taxes that we have, so to put an increased reliance on the income tax was probably a wise move."
Along with economists and other budget officials, Cibes cites multiple obstacles to comparing Connecticut to other states. For example, other states are more reliant on fees and tolls, while some have county-level governments or school districts with their own taxing authority.
Spencer Cain, former chief budget analyst for the state's nonpartisan Office of Fiscal Analysis, cautioned that when analyzing growth in tax revenue, it's "very difficult" to "separate policy from just growth."[naviga:img src="https://www.theday.com/assets/news2019/graphs/curiousct-taxes/ct-tax-revenue-proportional.svg" alt="" align="right" width="420" height="354" border="0" vspace="5" hspace="5"/]
For example, the legislature has made multiple changes to income tax rates since 1991, bringing it from a flat rate of 4.5 percent to seven brackets ranging from 3 percent to 6.99 percent, according to the Office of Legislative Research. On the other hand, the Great Recession led to a 15 percent drop in income tax revenue in fiscal year 2009.
Fred Carstensen, director of the Connecticut Center for Economic Analysis, is alarmed at the discrepancies between income tax revenue and household income, and between sales tax revenue and household consumption. Using the Bureau of Economic Analysis for comparison, he said the state was collecting $220 million less in sales tax and $490 million less in income withholding than it should have over the past five years.
Even before adjusting for inflation, revenue from the gasoline excise tax peaked in 1997, when the tax was 39 cents per gallon. Legislators decreased it to 25 cents per gallon in 2000, where it remains today. But this is separate from the petroleum products tax, which has been volatile in its revenue yields over the years.
"Cars are getting more economical, so you can drive farther for the same amount of gas, which means you can drive farther for less tax payments," said Don Peppard, professor emeritus of economics at Connecticut College. He said that, along with the growth in electric cars, is a problem for state governments across the country.
In 2018 dollars, cigarette tax revenue grew 67.2 percent from 1992 to 2018. The cigarette tax in Connecticut is $4.35 for a 20-pack, the same as New York and lower only than Washington, D.C. The state's cigarette tax was 50 cents in 2002 but has been raised eight times since.
Including the four tax types about which Hakkinen asked, the Department of Revenue Services lists 40 tax sources. After income and sales, the taxes yielding the highest revenue are corporation business, hospitals, motor fuels, cigarette, petroleum products, estate and gift, and nursing home user fee.
According to Pew Charitable Trusts, Connecticut ranks 12th highest in inflation-adjusted tax revenue growth from 2008 to 2018, as one of 36 states with tax collections exceeding their peak before the Great Recession.
While Connecticut raised $19.5 billion in state tax revenue in fiscal year 2018, its total expenditures were $40.5 billion, according to data from the Office of the State Comptroller.[naviga:img src="https://www.theday.com/assets/news2019/graphs/curiousct-taxes/ct-total-spending.svg" alt="" align="right" width="420" height="304" border="0" vspace="5" hspace="5"/]
The comparison between state tax revenue and expenditures is not a simple one, considering multiple other sources factor into total state spending. For example, there's federal aid to Connecticut, bonding and pensions, which include contributions from employees as well as the state.
A recent Rockefeller Institute Survey found that Connecticut receives only 74 cents in federal dollars for every dollar its residents pay in federal taxes, making it in the biggest "donor state" in the country. Public officials stress the importance of responding to the upcoming 2020 census in helping Connecticut get more federal aid.
As for pensions, the primary retirement funds into which the state contributes are the Teachers Retirement Board, State Employees Retirement Contributions, Judges & Compensation Commissioners Retirement, and Employees Retirement Contributions in the transportation fund.
Put in 2018 dollars, the state contributed $728.3 million in fiscal year 2001 and $2.5 billion last year across these four funds, per data from the comptroller's office.[naviga:img src="https://www.theday.com/assets/news2019/graphs/curiousct-taxes/ct-retirement-contributions.svg" alt="" align="right" width="420" height="309" border="0" vspace="5" hspace="5"/]
Contributions more than doubled for the Teachers Retirement Board in fiscal year 2006; Cain explained that happened following a requirement for the legislature to pay the actuarily required contribution to keep the plan funded.
Part of the actuarily required contribution for both teachers and state employees "is paying for the unfunded liability portion," Cain said. "That's what a lot of people don't understand: 80 percent of the payment is for what they didn't pay for in the past."
Former Gov. Dannel Malloy became the first governor to make required pension contributions after seven decades of leaving the bill for future generations, the CT Mirror reported. The effect is that the share of the state general fund budget consumed by pensions, retirement benefits and payments on bonded debt went from 10 percent two decades ago to a third now.
But full-time salaries and wages, when adjusted for inflation, were lower last year than they were in fiscal year 2010. Malloy reduced staffing in the executive branch by more than 2,500 jobs, or 10 percent, during his eight years in office, according to the CT Mirror.[naviga:img src="https://www.theday.com/assets/news2019/graphs/curiousct-taxes/ct-salaries-wages.svg" alt="" align="right" width="420" height="307" border="0" vspace="5" hspace="5"/]
Breaking down expenditures by function of government, the comptroller's office shows that the state spent a total of $18.7 billion on transportation, which includes salaries, from fiscal year 2010 to fiscal year 2018.
Hakkinen's question about funds given to towns was difficult to determine because the monies are split across more than 10 accounts.
The Office of Fiscal Analysis shows that total aid — the combination of all grants for all municipalities — was $2.5 billion last year and $2.7 billion the year before. The ability to find totals online in prior years is hit or miss, a struggle The Day also found when seeking older data on transportation and pension spending.[naviga:img src="https://www.theday.com/assets/news2019/graphs/curiousct-taxes/ct-ecs.svg" alt="" align="right" width="420" height="312" border="0" vspace="5" hspace="5"/]
Most town aid is in the form of the Education Cost Sharing grant. In nominal dollars, the grant was $1.4 billion in fiscal year 2001 and rose to $2.1 billion in fiscal year 2016, before dropping each of the last two years. Adjusted for inflation, the grant was slightly lower last year than in 2001.
Connecticut Mirror reporter Keith Phaneuf contributed to this report.