Personal income taxes and corporate taxes generate more than half of state’s $18.7 billion general-fund revenue. Fixed payments like debt service, pensions, retiree healthcare and Medicaid total about $9.4 billion.
“Obviously, you want to see revenues matched to expenses in a sustainable manner," said Robert Amodeo, head of municipal bond investments at Western Asset Management. “It’s going to be a significant challenge if you’re erasing a major source of revenue."
Stefanowski has said he wouldn’t start cutting taxes immediately, focusing on spending reductions during his first two years. He said he would phase in tax cuts when revenue targets are met.
He also wants to renegotiate contracts with government employees that expire in 2027, put new employees in 401(k)-style retirement plans and reduce the state work force through attrition. Connecticut has a $71 billion unfunded pension liability according to Moody’s Investors Service, second only to Illinois as a percentage of revenue due to decades of underfunding.
Stefanowski grew up in New Haven and spent most of his career at GE, where he worked his way up to a company officer under Jack Welch and ran its corporate financial services business in Europe. He left GE in 2007 and became chairman of 3i Private Equity Group in London. In 2011 UBS hired him to restructure its investment bank after rogue trader Kweku Adoboli lost $2 billion.
“Every organization that I’ve ever worked in you can cut 5 to 10 percent of waste," Stefanowski said. “I’ve done a lot of turnarounds. The state of Connecticut is a $40 billion biennial budget. That’s a big, ugly turnaround."
This article was provided by Bloomberg News.