I’ve been getting a few questions this past week about the proposal to cut ESC grants to Connecticut municipalities in order to balance the state budget, and whether it represents good economic policy. My response is this: Any attempt to balance the state budget at the expense of ESC grants to the state’s 169 municipalities stands to damage an already fragile housing recovery in Connecticut.

Let’s review a few facts as to where we are with key housing metrics. Sales for single-family homes are up a healthy 6.4 percent year to date through May, according to The Warren Group, publisher of The Commercial Record. But the bad news is that median prices for single-family homes have been extremely soft, showing effectively no change for the first five months of the year. At the same time, we see that new housing starts as authorized by building permits have also been extremely soft, down about 27 percent year to date through May.

To cut ECS grants to municipalities as outlined in the governor’s current proposal would place significant upside pressure on local property taxes and significantly increase the cost of homeownership at a time when Connecticut consumer spending power as measured by real disposable income – income after taxes adjusted for inflation – is running well below historical norms at 0.5 percent year to date. This is far below the 4 percent to 6 percent gains seen in stronger economic recoveries.

Bottom line: In my opinion, to cut ESC grants would significantly elevate local property taxes in the state, making the cost of housing less affordable at a time when the lack of affordable housing in-state is already a major economic development issue. If enacted, ECS cuts would raise local property taxes and also promote a drop in median housing prices from our current baseline scenario, where prices are already softening due to out-migration.

In addition, the wealth effects stemming from Connecticut’s housing market are substantial and need to be considered. For every dollar earned in median housing values, research shows that consumers will spend another 7 cents in the local economy because of the added home equity and generally feeling better off financially. Conversely, any policy initiatives that serve to depress local housing markets and reduce housing values will inevitably have adverse effects on our state and local tax base.

My hope is that the Legislature will find another way to solve its budget problems and NOT allow these ESC cuts to be enacted. Our economic newsletter over the last several years, employing current economic data and Laffer curve concepts, argues that spending cuts are far more effective in promoting economic stability going forward, and that emphasis on new tax revenues means a step-up in outmigration at a time when we’re already seeing 574 people leaving the state each week.

As former chair of the Governor’s Council of Economic Advisors, I would strongly advise the state Legislature to look for further cost efficiencies, economies of scale and privatization, while realigning wages and benefits for state and local government workers to reflect what taxpayers in the private sector are earning. Economic research shows that the private-sector economy is driven by productivity gains – namely, doing more with less. Now is the time for state and local government in Connecticut to do the same. Taxpayers are watching and waiting for some sense of fiscal discipline and the clock is ticking.

Don Klepper-Smith is chief economist and director of research for Massachusetts-based bank consulting firm DataCore Partners.