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Legislature Reconvenes: Can Connecticut Move Up?

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Experts offer their insights at 2015 Economic Summit & Outlook

The 2015 General Assembly session opened Jan. 7, bringing with it renewed hope for policy changes that improve Connecticut’s economic competitiveness and the state’s national business climate rankings.

Our newly elected legislators—including 33 freshmen—have until midnight June 3 to get their work done.

During those five months, lawmakers and the administration must devise a new state budget for Fiscal Years 2016 and 2017—no walk in the park given the state’s precarious fiscal position.

Based on consensus revenue estimates released Jan. 15 by the governor’s Office of Policy and Management (OPM) and the legislature’s nonpartisan Office of Fiscal Analysis, Connecticut faces budget deficits in excess of $1 billion in each of the next two fiscal years.

And, although the governor and the legislature have taken steps in the last few years to reduce Connecticut’s long-term debt, the state remains saddled by nearly $70 billion in unfunded liabilities, including obligations for state employee pension and post-retirement health benefits.

Transportation Lockbox

In his state of the state address to open the 2015 session, Gov. Malloy chose not to discuss the budget but instead announced a major initiative to improve Connecticut’s transportation infrastructure as a way of strengthening the Nutmeg State’s economic competitiveness.

Among other things, the governor proposed widening I-95 and fixing its entrance and exit ramps, building new rail stations and upgrading branch lines, and creating a statewide bus transit service.

His speech did not address how the improvements would be paid for, although he promised more details in the biennial budget he’ll present to lawmakers Feb. 18. He also called for protecting Connecticut’s Special Transportation Fund in a “lockbox” to ensure it would be used for transportation purposes only—a step CBIA has long supported.

A Lofty but Achievable Goal

Although the governor called Connecticut’s aging transportation infrastructure “one of the largest challenges we face,” the state’s fiscal condition is perhaps even more daunting—and the most critical factor in strengthening the business climate.

Shoring up Connecticut’s long- and short-term finances without resorting to tax increases or borrowing is the top priority in CBIA’s 2015 Government Affairs Agenda released Jan. 14  and the CT20x17 campaign—a multiyear initiative to make Connecticut a top 20 state for business and economic competitiveness by 2017.

The campaign is backed by more than 80 business, professional, and community organizations, including CBIA.

“Becoming a top state for business as measured by national business climate rankings is a lofty goal for Connecticut,” said CBIA’s president and CEO Joe Brennan on opening day of the legislative session, “but it’s achievable with collaboration from both sides of the political aisle. Our economy is not a Democratic or Republican issue; it affects all of us.”

In practice, says Brennan, that means “state lawmakers need to view every legislative proposal through the lens of whether it will help or hurt Connecticut’s economic competitiveness.

“We have enormous economic potential here, but for a variety of reasons we’re not reaching that potential. We’re optimistic that if business leaders and legislators work together in a bipartisan manner, we can make Connecticut one of the best places to live and work.”

The Power of a Balanced Budget

At the same time state lawmakers were convening at the Capitol, 500 Connecticut business leaders gathered across town at the Marriott for the 2015 Economic Summit & Outlook, where a main topic of discussion was the importance of fiscal stability to the state’s economic health and business climate.

Presented by CBIA and the MetroHartford Alliance and sponsored by Webster Bank, the event featured a keynote address by LEGO Systems President Soren Torp Laursen  and expert commentary on the state’s finances, its economy, and its potential to become a top 20 state for business.

Webster Bank Economic Advisor Nick Perna speaking at the 2015 Economic Summit & Outlook in Hartford.

Nick Perna, economic advisor to Webster Bank, shared an upbeat short-range forecast for the state’s economy, saying that Connecticut’s post-recession recovery is “not that far behind” the nation’s: 1.5% job growth statewide, versus 2% nationally.

Noting that the state added 25,000 jobs in 2014, Perna forecasts gains of 25,000–30,000 jobs this year, but his economic optimism chills when it comes to next year.

“I worry more about 2016,” he said, citing the projected $1.3 billion state budget deficit.

Quoting a recent statement by OPM Secretary Benjamin Barnes, he described Connecticut as being in a “permanent fiscal crisis.”

“It’s important not to underestimate the power of a balanced budget…in terms of what it does for business confidence and public perception,” said Perna, who used New Hampshire’s rise and fall as a cautionary tale.

“For years I…held New Hampshire up as an example, an economic leader in New England,” he said. “Today, they have fewer jobs than when the recession started.”

He acknowledged that part of the Granite State’s problem is a combination of rising costs and an aging population but also pointed to a mix of revenue shortfalls, spending surprises, and a budget thrown out of balance.

Connecticut’s Rocky Revenue Stream

Perna pointed out that Connecticut’s income tax revenue system is much more sensitive to economic cycles and fluctuations which, he said, is not necessarily a problem as long as we use that volatility to our advantage.

Taxing increasingly volatile income, such as bonuses and stock options, has created major budgeting challenges as demands for state spending increase.

“When times are good and revenues are high, we spend,” said Perna.

Instead, he suggested that during good times, Connecticut solidify its Budget Reserve (Rainy Day) Fund “to smooth out the economic impact when things are bad,” adding that the way lawmakers address the state’s fiscal challenges “will determine our future prospects.”

The state’s Rainy Day Fund has been insufficient to cover revenue shortfalls during recent economic downturns.

Two days before the Economic Summit and Outlook, state Comptroller Kevin Lembo made the same recommendation in a statement announcing a plan to boost the Rainy Day Fund by, among other things, establishing automatic deposits whenever the most volatile tax revenue streams produce one-time excess revenue*.

Such a plan, says Lembo, would enable the state to build predictability into the state’s General Fund revenue stream and “limit the need for crisis-driven tax increases and program cuts during economic downturns.”

‘Tame the Dragon’

Concerns about the state’s fiscal situation and other issues were shared at the Economic Summit & Outlook by panelists discussing ways to grow the state’s economy and reach the goals of the CT20x17 campaign.

The panel, moderated by MetroHartford Alliance President and CEO Oz Griebel, included HMS Healthcare Management Solutions President and CEO Donna Galluzzo, Webster Bank Chairman and CEO James Smith, The Phoenix Companies Executive Vice President and CFO Bonnie Malley, and Day Pitney partner Charles Lenore.

Panelists identified transportation, government accountability, and fiscal/tax reform as the critical legislative issues for the 2015 General Assembly.

Smith noted that the state’s long-term liabilities now account for 20% of revenues—the highest percentage in the U.S. With that kind of drag on the state budget, he said, “other important investments are being crowded out.”

Connecticut must “tame the unfunded liability dragon,” Smith added, “the biggest single threat to our long-term viability.”

Day Pitney’s Charles Lenore noted that state tax policies shape the ability of businesses to compete regionally, nationally, and globally and that tax reforms were among the legislative priorities proposed by the CT20x17 campaign partners.

He suggests eliminating the state’s sales and use tax on management and consulting services, arguing, “It’s an anticompetitive tax that costs Connecticut companies 6.35% more for the same services that businesses in other states use.”

Lenore also advocates allowing all companies to use unused, or stranded, tax credits, similar to an arrangement made last year for the state’s aerospace industry.

“They’ve earned the credits by investing in Connecticut, doing the things the General Assembly said it wanted them to do,” he said.

‘Incredibly Skilled Workforce’

Panelists also acknowledged that to become a top state for business, Connecticut needs to nurture the competitive advantages it already has, including its world-class economic base industries.

Galluzzo, who also chairs CBIA’s board of directors, said that the healthcare sector, particularly bioscience, was “one of the economy’s bright spots” and that state policymakers need to build on the power and potential of the state’s burgeoning healthcare industry.

However, she said the recent decision by Texas-based Tenet Healthcare to abandon its acquisition of financially troubled Waterbury Hospital because of regulatory requirements, sent the “wrong message” about the state’s business climate.

Her comments echoed a common theme among panelists, that the state must improve its standings in national business climate rankings if it expects to compete.

The Phoenix Companies’ Bonnie Malley identified Connecticut’s insurance industry as another key competitive asset.

2015 Economic Summit & Outlook panelists (L-R): HMS Healthcare Management Solutions President and CEO Donna Galluzzo, The Phoenix Companies Executive Vice President and CFO Bonnie Malley, Webster Bank Chairman and CEO James Smith, and Day Pitney partner Charles Lenore.

“People say Connecticut used to be the insurance capital of the U.S., but the fact is, we still are,” she said, pointing out that Connecticut is number one for insurance employees as a percentage of employment. And the reason we’re number one, said Malley, is the state’s “incredibly skilled workforce.”

Long considered Connecticut’s key competitive advantage, the state’s highly skilled, well-educated workforce is the most important consideration for businesses making locational decisions, said corporate real estate expert James Scannell, senior vice president, of administrative services at Travelers.

“It’s the key to a company’s ultimate success,” said Scannell, speaking to the summit audience. “You can’t go forward [with a locational decision] if the location is not in the running with a skilled workforce.”

Scannell also identified transportation infrastructure, tax environment, and overall costs as important factors—all areas where Connecticut needs improvement.

Relentless Advocacy

Opening the summit, CBIA’s Joe Brennan issued a vigorous call to action to business community.

“We have to be relentless in our advocacy,” he said, pointing out that the large number of freshman legislators in this year’s General Assembly provides an opportunity to shape the kind of public policy that keeps our economy moving in the right direction.

Brennan’s message was supported by other speakers, including Webster Bank President Joseph Savage.

“We in the business community must be front and center in coaching our legislature on growing jobs and the economy, in setting the tone that says Connecticut is open for business,” said Savage.

CBIA Can Help

One of the best ways to do just that is to become part of the CT20x17 campaign and urge your state legislators to support its goals.

Being an effective advocate for a more economically competitive Connecticut is easier than you might think. When you’re ready to connect with your state senator and representative, CBIA has all the information and tools you’ll need:

  • Identify your legislators (and track the progress of bills) at gov.cbia.com. Urge them to support the goals of the CT20x17 campaign and the recommendations in CBIA’s Government Affairs Agenda.
  • Follow and interact with your legislators on Twitter here. Not sure about the best way to connect with your legislator? Contact CBIA’s Nicole Cline at 860.244.1929 or nicole.cline@cbia.com.
  • Sign up to receive CBIA’s digital newsletters and reports, including the weekly Government Affairs Report.
  • Attend Connecticut Business Day at the State Capitol in March. For details, contact CBIA’s Adam Ney at 860.244.1933 or adam.ney@cbia.com.

In next month’s CBIA News, Brian Flaherty, CBIA’s senior vice president of public policy, will draw on his 16 years as a state representative to discuss the most effective ways to communicate with your legislators about the issues that are most important to you and your business. ■

* Lembo said that three tax revenue streams are particularly volatile—the estimated and final payments portion of the income tax, the corporation business tax, and the inheritance and estate tax—due to the demographic and economic makeup of Connecticut (for example, the state’s high concentration of individual wealth and corporate headquarters—and the related ups and downs of Wall Street).

Contributors: Lesia Winiarskyj (lesia.winiarskyj@cbia.com), Dave Conrad (dave.conrad@cbia.com), and Bill DeRosa (bill.derosa@cbia.com).


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