Connecticut is in better fiscal shape than is commonly believed, even as the Covid-19 effect continues to ravage the economy.
Of course one might expect such a diagnosis from State Treasurer Shawn Wooden. But in a free-flowing conversation with Business Journal Bureau Chief Kevin Zimmerman, Wooden offered ample proof of how Connecticut has continued to do well ”” at least relative to other states; the how”™s and why”™s behind his personal push for more diversity in business; and, perhaps most crucially, what he sees for 2021.
Obviously you can hardly talk about anything without mentioning Covid this year. How has the pandemic affected your approach to Connecticut”™s economy?
“Covid of course has impacted the world and every state. However, we are in the middle of repositing Connecticut and Connecticut”™s economy ”” efforts that were already in process before Covid hit ”” and our investment portfolio has allowed us to tackle fiscal challenges like the pandemic in a more efficient way than some other states have been able to. We moved pretty quickly to make sure we could withstand the ensuring economic downturn.
“We had to make sure we had the ability to pay our bills when they came due at a time of great financial stress. Fortunately, we were able to build upon some of the work we were engaged in during my first six months in office (Wooden was sworn in on Jan. 9, 2019).
“We began fixing the real problem with the Teachers”™ Retirement Fund (TRF) through restructuring and building in more flexibility within our state budget, which makes it more sustainable for the long term. And we”™ve restructured our investment return assumption by reducing the target from 8% to 6.9%.”
Connecticut was also fortunate to have a historically high rainy day fund, which stands at $3.1 billion.
“Absolutely. And we hired the state”™s first chief risk officer (Kevin Cullinan, who manages investment, operational and enterprise risk related to the Connecticut Retirement Plans and Trust Funds), and we”™ve moved to reduce our exposure to global equities towards an ”˜all-weather”™ portfolio. All of this put us in a very strong position going into this crisis.
“While we were in the midst of the first surge of Covid in the spring, we issued three bond sales (that totaled $1.75 billion at the lowest interest cost on any Connecticut 20-year tax-exempt General Obligation bond sale ever, at 2.31%).”
And what you”™ve accomplished has been greeted by the ratings agencies ”” Moody”™s, S&P, Fitch and Kroll all recently affirmed Connecticut”™s general obligation credit ratings, and Moody”™s, S&P and Fitch all affirmed stable outlooks for the University of Connecticut General Obligation Bonds backed by the state. At the same time, 13 states saw their credit rating or outlook downgraded.
“That”™s very important. The ratings agencies are always kicking the tires, which gives you a really good, independent snapshot of how you”™re doing. We”™ve been taking on our liabilities head-on and have put new discipline in place with the legislature when it comes to the rainy day fund and reduced our revenue volatility. That leads to their seeing we have stronger fiscal governance measures in place. We are staying the course with our repositioning and fiscal discipline and managing for risk proactively.”
As for the rainy day fund itself, I”™m reminded of a comment that Office of Policy and Management Secretary Melissa McCaw made back in April: “Obviously, this is the rainy day.”
“I agree with that completely, and I have been a fierce protector of our rainy day fund. This is very much our rainy day and what we”™re seeing now is exactly what the rainy day fund was instituted for. By contrast, we went into this economic recession with two times as much in our rainy day fund as we did in the 2008 recession.
“But I feel very strongly that just because it”™s there, we should not deplete it. I would expect a portion of it to be utilized (during the 2021 General Assembly session), but I also caution that while it”™s raining today, we don”™t know how long the rain is going to last ”” or when it”™s going to start raining again.
“I believe we would be ill-advised to use the rainy day fund to solve all of our budget problems ”” and I don”™t think that will happen. For the first time in the state”™s history, we were able to make to the State Employees”™ Retirement Fund (SERF) an extra payment ($61.6 million). (Anytime the amount in the rainy day fund exceeds 15% of the net general fund appropriations for the current fiscal year, that amount must be transferred either to SERF or the TRF). I told the governor, ”˜Even if it was $1, that dramatically says a lot,”™ that we were able to do that when we were never able to do so before.”
The federal government received mostly good reviews for the Covid stimulus bills like the CARES Act, but the latest round became something of a last-minute political football between Congress and the president. How do you view those developments?
“Given the hit that Connecticut, and all the states, have taken, I personally have been very active in lobbying the government for stimulus. That”™s an ongoing effort, since I”™m not only state treasurer but also secretary-treasurer of the National Association of State Treasurers. The CARES Act was very helpful to us as a state, but I”™m continuing to advocate for more support for state and local governments. This is just the beginning ”” we”™re going to need more from Washington.”
Meanwhile, you”™ve been an outspoken critic of the lack of diversity in business and addressed that over the past year in a number of ways. Are there specific reasons that led you to commit so thoroughly to such diversity efforts or is it simply the right thing to do?
“As a fiduciary of pension assets, I”™m committed to maximizing returns while minimizing risks in order to grow the assets for the benefit of those who depend on them. There is a growing body of evidence of the measurable value and outperformance delivered by companies with more diversity on their boards and within their workforces. There is research that shows systemic racism and the enduring economic disparities that have resulted from it constrain our economy.
“Whether it”™s a Goldman Sachs economist or McKinsey, thought leaders have made it clear that the opportunity cost of ineffective and inefficient allocation of capital has cost our economy trillions. A McKinsey study indicates that if our country addresses racial economic disparities, we could grow our GDP by 4%-6% by 2028.
“In response to the horrific killings of Ahmaud Arbery, George Floyd, Breonna Taylor and countless other Black and Brown Americans this year, and as someone who has a front row seat to corporate America, I called on corporate America to come to the table and be a catalyst for change by pulling the levers of power they hold to work towards a more just society. In September, in partnership with the Ford Foundation, we launched a working coalition of CEOs representing multibillion-dollar industries who are committed to advancing racial and economic security and opportunity. The coalition is in the process of developing long-term, measurable and actionable commitments that will address the need for deep, structural changes in order to advance social change, racial justice and greater economic prosperity, both within and outside of their companies.”
With vaccines now in hand, you”™ve called upon Black and Brown leaders to join you in publicly taking the vaccine. Why is there such distrust over the vaccine ”” not just by the general population, but among Black and Brown citizens in particular?
“Our nation”™s history of systemic racism combined with the significant racial health disparities of our current reality, are very concerning for communities of color. Minorities, in particular Black Americans, have historically not received access to the best care, contributing to vast health inequities across our nation. In addition, a number of tragic occurrences such as the 20th century, 40-year long Tuskegee experiments conducted by the U.S. Public Health Service on members of the Black community without their consent, still remain top of mind for many Black Americans. Even earlier this year, a whistleblower reported that at an Immigration and Customs Enforcement (ICE) detention facility there were coerced, hysterectomies being performed, many on Latina women.
“These tragic events have caused much understandable distrust of the U.S. health system among communities of color. However, while I understand where the hesitancy stems from, I want communities of color to know that the vaccine is safe and effective and is the most powerful tool we have to protect our own health, and the health and safety of our loved ones.
“That”™s why, when the vaccine is made available to me, following its distribution to frontline health care workers and vulnerable populations, I plan to take it publicly, on camera. I have also urged other Black and Brown leaders across our state to roll up their sleeves and join me in doing the same. By working together and leading by example, we can reduce the level of mistrust of the vaccine, promote its usage and save lives.”
Finally, the much-dreaded “crystal ball” question: What can we expect in 2021?
“The incoming federal administration is expected to prioritize combating the pandemic. A true economic recovery is dependent on the nation”™s ability to successfully mitigate the spread of Covd-19, combined with how fast the vaccine can be deployed. The incoming federal administration is also expected to support a stimulus package that would prioritize local and state aid, which is what many states, including Connecticut need.
“Focusing on the real economy is vital to driving an economic recovery. Local and state aid provides critical funding to some of our most essential workers; firefighters, nurses, teachers and other public servants who continue to serve on the frontlines of this pandemic.
“In the meantime, Connecticut needs to stay the course with fiscally responsible policies. The major rating agencies news, as well as Connecticut”™s two successful bond sales, demonstrate how investor confidence remains strong and is improving in the state of Connecticut. Certainly our $3 billion budget reserve fund and other fiscal controls are key contributing factors to these results.
“Connecticut must continue to stay focused on responsibly tackle longstanding fiscal challenges, maintaining strong financial governance and saving taxpayer dollars.”
