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February 2006 — Vol. 84, No. 1

COVER STORY

Reversing the ‘crisis of confidence’ in Connecticut

State must fix three priority issues affecting economic growth and job creation

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Ever since last year’s legislative session, when a number of anticompetitive bills were nearly approved, a “crisis of confidence” has been casting a pall on Connecticut’s business climate, says CBIA’s new president and CEO, John Rathgeber.

By doggedly pushing for higher business taxes and other harmful proposals, such as the “pay or play” health care tax, legislators sent a negative message that apparently soured many executives on Connecticut as a business location. A survey conducted by CBIA a few months after the session showed a surge in the number of executives who would not choose Connecticut if they were to expand or relocate their companies. More than half of the executives responding — 55% — said they would move to another state or country.

“That’s the worst confidence level we’ve seen since 1994,” says CBIA Economist Peter Gioia.

Legislators can restore business confidence, Rathgeber says, by improving three key areas affecting business competitiveness: costs, state infrastructures and workforce skills.

“The focus of this year’s legislative session needs to be making the business climate in Connecticut more competitive,” says Roger Joyce, vice president of engineering at The Bilco Co. in West Haven and chair of CBIA’s board.

Doing that, business leaders say, will allow the state to expand our economy and create and retain good jobs.

Those are not just priorities of the business community — they’re also what the public wants. A Hartford Courant/University of Connecticut public-opinion poll last fall found that citizens’ top concerns, by far, were job creation and taxes.

Not living up to our potential

Connecticut has enormous potential for economic growth and job creation. After all, we have a lot going for us: smart, productive workers; a diverse economic base; high-tech, innovative businesses; an advantageous location; a good quality of life; high per capita income ... the list could go on.

But we also have the fifth-highest business costs in the country; transportation and energy infrastructures that can’t keep up with demand; and a growing skilled-worker shortage. Several studies show we’re slipping in the rankings on some other important economic factors, too.

A recent study conducted by the Connecticut Economic Resource Center (CERC), for instance, benchmarked Connecticut against the 49 other states. Among its findings were several red flags. According to Jim Smith, chairman and CEO of Waterbury-based Webster Bank, which funded the study:

“Connecticut is losing technology jobs. Those are high-paying jobs of the future.
“We have had no net job growth over the past decade.

“We have the highest outmigration of 19- to 34-year-olds, and the highest outmigration of kids 15 to 19. Half our college graduates leave the state. We need to reverse this brain drain,” he says.

“Another issue is affordable housing. More than half of the people who take jobs here over the next 10 years will not be able to afford housing,” Smith adds.

Other problems highlighted by the survey, he says, are taxes, state spending, transportation infrastructure and energy costs.

Overall, he says, “If you look at the last 10 years and extrapolate out over the next 10 years, Connecticut would lose its position as an economic power” if the problems weren’t dealt with.

“Of course, the state is not going to stand by without acting,” says Smith, who chairs the Governor’s Council on Economic Competitiveness and Technology. “I’m very optimistic. Competitiveness is on the tip of everyone’s tongue, and that means actions will soon follow.”

Highest-priority problems

The actions CBIA is urging the state to take this year were developed with extensive input from the board of directors and other association members. The board identified the three highest priorities as:

1. Competitive costs. “Costs need to be made more competitive. In particular, the corporate tax surcharge needs to be repealed,” says The Bilco Co.’s Joyce. Other costs the state should improve — or at the very least, not worsen — are the costs of health benefits, workers’ compensation and unemployment compensation.

2. Dependable transportation and energy infrastructures: “The state continues to have [transportation] infrastructure problems, even though it has started to address them by implementing some of the Connecticut Transpor-tation Strategy Board’s recommendations,” notes Joyce.

“The appropriation last year by Gov. Jodi Rell and the General Assembly of $1.3 billion over the next 10 years for mass transit and highways was a good start,” adds Meredith Reuben, CEO of Eastern Bag & Paper Group in Milford, and a vice chair of CBIA. “But we must further pursue other recommendations of the Transportation Strategy Board,” she says. “As the CEO of a wholesale distributor serving the Northeast, I see firsthand that our infrastructure is not adequately able to meet our commutation and freight movement requirements. We must continue to invest our money and energies in internal mobility and external connectivity to ensure our state’s competitive future.”

Besides improving transportation, Joyce adds, “the state needs to ensure the reliable delivery of energy, especially, electricity. We’ve come close to having brownouts and blackouts.”

3. Skilled workforce. “Workforce issues are another concern. The state especially needs to focus on the technical preparation of the workforce,” Joyce says, as well as on ensuring the next generation of skilled manufacturing workers.

Global competition here to stay

Each of these areas has become more crucial for businesses as global economic pressures keep mounting.

“Indeed, these issues are more urgent than ever!” emphasizes CBIA board member John Kim, president of Prudential Retirement, a division of Prudential Financial Inc., in Hartford. “I believe that globalization and the evolution of a truly global economy may be the single most powerful economic trend of the next decade.

“Globalization means free and open cross-border flows of goods, services, labor and capital,” he says. “Increasing cross-border trends mean a more intensely competitive environment, and therefore the need for greater efficiency and productivity. ‘Local’ markets are no longer protected and are increasingly exposed to global competition as never before.

“There is no reason to expect these global trends to reverse,” Kim says. “Consequently, I would agree that the three specific priority areas identified by the CBIA board are essential for Connecticut-based businesses. Each of the three priority areas either directly or indirectly increases overall productivity and business efficiency. Enhancements in each of these areas would improve the ability of Connecticut-based businesses to compete more effectively in markets which will become steadily more competitive over time,” Kim says.

Working together, not at odds

To fix the state’s problems, Smith says the public and private sectors need to work together. “We need a public/private partnership to craft enlightened economic policies in order to retain our place as a regional economic power,” he says.

Too often, though, public-policy debates have involved pitting one interest group against another, notes CBIA’s Rathgeber. “There is often a debate as to how you divide up the economic pie. It’s a we-versus-they mentality,” he says. “We need to change the focus of the debate, and look at how to expand the economic pie so there are more opportunities for everybody.

“Connecticut is fortunate to have a diverse core of economic-base industries that can thrive in the global marketplace. We need to nurture them,” Rathgeber says. “Legislators and state officials should demonstrate, through all of our public policies, that they value the opportunities and benefits employers provide to Connecticut citizens and communities. They need to make businesses feel confident that Connecticut is a place where they can grow and add jobs.”

 

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