Beneath Connecticut’s Image of Affluence, Deep Fiscal Pain

The reality is different. For the past two decades, the state has finished dead last nationally in creating new jobs. A recent forecast by an industrial consulting firm, IHS Global Insight, projected it would also finish last in job creation over the next five years.

Connecticut’s finances are among the most troubled in the nation: it is last or close to last in financing pension obligations and retaining reserves for emergencies, and near the top in per-capita debt. And on Tuesday, Moody’s lowered its outlook for the state’s bond rating to negative from stable.

Despite already passing the largest package of tax increases in state history, legislators must return to Hartford on Thursday after an agreement with the state employee unions imploded. But the unbalanced budget is hardly the only problem. Connecticut, despite its affluent image and past successes, is facing a startling series of economic and fiscal challenges that it now has no option but to confront.

“No state had more resources and did less with them over the past 20 years,” said William E. Curry Jr., a former Democratic candidate for governor who now writes about state and national politics. “Yeah, we wiped out in finance and real estate, but the real problem was our own poor choices.

“We tried to import jobs you must grow yourself. We tried to save cities with ballparks and convention centers. We borrowed like shopaholics, shortchanged pension funds and barely showed up for collective bargaining.”

Gov. Dannel P. Malloy, a Democrat elected last year, recommended this week that the state eliminate 6,500 jobs — 5,500 through layoffs and the rest by attrition — to help close a projected $700 million deficit in the coming year. The hole was created last week when unions rejected a plan, negotiated by their leaders, that called for wage freezes for two years and a no-layoff guarantee for four years, as well as concessions on pensions and health care. Though 57 percent of union members approved the plan, it failed because collective bargaining rules required that at least 14 of the 15 unions ratify it and that the approving unions represent 80 percent of workers.

The stakes are enormous for Mr. Malloy, who has built a Connecticut-esque image as a rare governor charting a balanced path amid anti-union sentiment; for Democrats who control the legislature and have close ties to the unions; and for the unions themselves, which infuriated many allies by turning down a deal seen as far better than those being offered in other states.

After approving large tax increases this spring, mostly on sales and services, Mr. Malloy has said he would reject any additional ones. And though he was elected with strong union support, he said Wednesday that he now wanted to impose benefit cuts on the unions and would ask the General Assembly to pass legislation changing the way employees’ pensions are calculated, reducing their sick days and freezing longevity payments.

But, according to many experts, the stakes are highest for the state itself. After two decades of stagnation, they say, the state cannot afford the short-term torpedo of mass layoffs at a time of high joblessness; the long-term hit of chaotic, ineffectual state government; or the old option of papering over liabilities with gimmicks and debt.

Fred V. Carstensen, director of the Connecticut Center for Economic Analysis at the University of Connecticut, said the state faced two major, interrelated problems.

The first is fiscal. Due in large part to a 20-year labor agreement negotiated by Gov. John G. Rowland in 1997, Connecticut has been locked into an increasingly untenable relationship with its employees. Under that contract, the state is obligated to pay 10 times as much for employee pension costs as workers do — the second-highest ratio among the 10 largest state pension systems, after Florida. But it has not been paying what it owes into the pension system. A 2010 report said Connecticut had the second-highest unfunded pension liability per capita in the country, after Alaska, at more than $4,500 per resident.

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