A longtime observer of Connecticut’s economy says plans to cut education grants to towns as a way of balancing the state budget could end up damaging the housing market.
Two different democratic proposals would zero out education cost sharing payments to multiple towns.
Governor Dannel Malloy has said he'll remove the funds from 85 towns under his latest executive order. Meanwhile, the budget proposal just released by Democrats in the legislature would zero out 25 towns and reduce funds to a further 25.
Economist Don Klepper Smith of Datacore Partners believes that’s a mistake.
“If you start cutting those grants, it stands to potentially elevate the level of local property taxes here, which would make the cost of housing less affordable, at a time when the lack of affordable housing in the state is already a major economic development issue,” he told WNPR.
Klepper Smith said the health of the housing market can have a knock-on effect on consumer confidence, through a phenomenon called the wealth effect.
“For every dollar you earn in your housing value, you’ll go out and spend seven cents in the near term economy because of that increased wealth. And it also works in reverse – if you lose a dollar in housing value then you will curtail spending,” he said.
Klepper Smith said he’d rather see legislators focus on saving money in state government through efficiencies and privatization, as well as driving down labor costs.
