Commuters in Greenwich waiting for the 7:21 a.m. train to Grand Central Terminal.
(That domed roof building in the background is a Lexus/Rolls Royce dealership)
BY COURT ORDER Home foreclosures like this one in Norwalk
rose nearly 70 percent statewide in the first seven months of 2008.
"Gardeners and chauffeurs will see less work” in lower Fairfield County, says Steven Lanza, executive editor of The Connecticut Economy.
By MARGARET FARLEY STEELE
Published: September 26, 2008
WITH Wall Street’s losses rocking the global economy, state officials and others say the shock waves will reach Connecticut, where thousands depend on New York’s financial arena to make their living. But, they say, it is lost state income tax rather than lost jobs that will hurt the most.
State government relies heavily on income taxes paid by its wealthiest citizens, many of whom live in Fairfield County, earning incomes of six, seven and eight figures from Wall Street jobs and investments.
When those who work in the financial services bring home less money, public services in the entire state suffer. “You may not see a lot of people losing jobs, but those that do will affect us on the revenue side,” John Tirinzonie, an economist for the State Department of Labor, said last week.
The state’s coffers had suffered even before Lehman Brothers’ bankruptcy filing and the takeover of Merrill Lynch this month. “This will make it worse,” said Jeffrey Beckham, a spokesman for the state’s Office of Policy and Management. “When Wall Street sneezes, we catch a cold.”
Forty-five percent of the state’s personal tax receipts come from residents of Fairfield County, whose wealth is rooted in Wall Street. And 30 percent is from people earning more than $1 million a year, most of whom live in Fairfield County — “what we refer to as the investor class,” Mr. Beckham said.
For years, “Fairfield County has subsidized government spending in other parts of the state,” said Steven Lanza, executive editor of The Connecticut Economy. It was hard to balance the current budget, he said, and it will be tougher next year, given that thousands of Connecticut residents earn their living in New York’s financial sector.
The state’s biennial budget is intact until next June, so service cuts won’t be seen before then. But when the next budget comes up for review, “the whole panoply of services will be on the table,” Mr. Beckham said. “We’ll have to take a look at all of it.”
A sense of the dollars involved will emerge in January, when estimated tax payments are due, but the budget office will not have solid figures until after the state income tax filing deadline in April.
Connecticut is heavily dependent on the financial services industry, through the pay packages and peripheral jobs the industry brings. Each Wall Street job is believed to support at least three others throughout the region, state officials said. In lower Fairfield, reduced spending means “gardeners and chauffeurs will see less work,” said Dr. Lanza, a professor in the University of Connecticut’s department of economics.
In Stamford, Mayor Daniel P. Malloy said he wished that the government had stepped in sooner to stem the crisis. “There’s nervousness, but people believe in the long-term strength of Fairfield County,” he said, noting that he spoke several times this month with Mayor Michael Bloomberg of New York City, who said last week that his administration was considering a 7 percent property tax increase on homeowners in January to offset losses caused by the crisis.
Tighter lending policies resulting from the nation’s mortgage crisis have delayed some building projects, Mr. Malloy said. Plans for a new Ritz-Carlton have stalled, but redevelopment of Stamford’s South End will proceed, he said. RBS, which plans to open new headquarters next spring or early summer, recently bought an adjacent parcel, doubling its property. “We’re in regular contact with them,” he said.
“We are a lower-cost alternative to New York,” Mr. Malloy said. Because job reductions in Manhattan would be more cost-effective than layoffs in Stamford, he is optimistic that fewer jobs will be slashed in his area.
How the hedge funds concentrated in lower Fairfield County will fare remains to be seen. “Some of these folks will do well picking up the pieces of others’ demise, and others will close up,” the mayor said. “We don’t have any clear signs on that.”
STAMFORD’S downtown stores are preparing for “the weakest Christmas in a decade, and some of the restaurants have taken a hit,” Mayor Malloy said. But liquor stores’ sales are up. “People are staying in and having their wine at home with their home-cooked steak,” he said.
Some experts believe more businesses will fold, contract or consolidate, putting others out of work. For now, though, in-state jobs are holding steady while the overall number of unemployed is rising. Statewide, unemployment rose to 6.5 percent last month, inching past the national average of 6.1 percent.
That might indicate the job losses are tied to employment outside the state, Dr. Lanza said. “There could be 10,000 jobs lost in New York, so we’ll see more people unemployed” in Connecticut, he said.
Mr. Tirinzonie, the economist, said unemployment in the Stamford-Bridgeport corridor rose to 6 percent in August from 4.2 percent a year earlier. The speed with which the federal government stems the hemorrhaging on Wall Street will make a difference in the number of jobs lost, he said. “Sooner or later it may affect Stamford, but nothing near what we’re seeing on Wall Street,” he said.
Although jobs statewide are still up over last year, Mr. Tirinzonie anticipates an overall loss of jobs by year’s end, “but hopefully on the minor side.”
Dr. Lanza said, “This is not good for the housing industry.”
As job losses mount, so will foreclosures, economists said. In the first seven months of this year, they increased 69.66 percent, to 3,215 from 1,895 in the same period last year, according to the Warren Group, which tracks real estate data in New England. New Haven County topped the list with 1,015 foreclosures, but Hartford County had the biggest percentage increase — up 131.6 percent, to 755 from 326.
Statewide sales of single-family homes from January through July tumbled 25.31 percent, and the median price fell 8.33 percent. Fairfield County sales plunged the most, 32.24 percent, with the median price dropping 10.61 percent, to $545,250 from $610,000.
Although some experts forecast a turnaround by next year, Dr. Lanza thinks it will take until 2010, when he believes house prices will stop falling. For now, lack of available credit and tighter lending policies are squeezing an already struggling market.
Casey Eggart, 31, of Bridgeport, had no trouble buying his house five years ago. “It was 5 percent down, no credit check, nothing,” he recalled. This summer, Mr. Eggart, a carpenter and the manager of New England Eyecare in Norwalk, tried to buy a home in foreclosure in Bridgeport that had sold for $260,000 in 2006 and was then priced at $99,000. Each of several banks approached for a mortgage quickly granted preapproval with a 5 percent down payment, but subsequently tightened their requirements, one wanting 25 percent down, another demanding a signed lease on Mr. Eggart’s house, which he planned to rent out after renovating the new one. “I think they’re misleading everybody,” he said of the lenders.
After the federal government agreed to bail out American International Group, the State Insurance Department’s consumer affairs division received several hundred calls from consumers worried that their annuities would be lost. “We try to instill some calm and a rational view,” Insurance Commissioner Thomas R. Sullivan said. He said he was concerned about churning — moving an annuity to another company and incurring transactional fees. “I’m fearful that consumers will make decisions that aren’t thought out,” he said.
“A.I.G. and its underwriting affiliates are still sound, solid, functioning affiliates,” he said, stressing that the problems had occurred at the holding company level. Also, even in the worst case, safety nets exist in Connecticut, he said. A guaranty fund for annuities and life and health insurance protects investments up to $500,000. A guaranty fund for property insurance safeguards claims up to $400,000.
Other insurers might benefit from the A.I.G. crisis. “I would suspect competitors would view this as an opportunity,” he said.
A version of this article appeared in print on September 28, 2008, on page CT1 of the New York edition.
Edited by milbank, 28 September 2008 - 03:11 PM.
Thanks for the heads up Teaparty. My plan at this point was to be a spectator for the first half hour of the wacky hour at least. I want to see what the other surfers do at the beaches I frequent. Whichever way it goes, there's going to most likely be a strong undertow. We shall see.
