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October 2008

Vol. 86, No. 8

CONNECTICUT AT A CROSSROADS

Which path will the next

General Assembly take?

The answer depends on voters’ choices in November

By Diane Friend Edwards

Over the final weeks of this election season, the presidential contestants will surely dominate the headlines. After all, both Republican and Democratic tickets have great historical significance, and the country will be riveted as we get closer to Nov. 4.

From the perspective of a Connecticut businessperson, however, the candidates who in many ways matter the most are the ones vying for the General Assembly seats right here at home.

“The laws and regulations that have the biggest impact on your day-to-day business operations are those at the state level,” says CBIA President and CEO John Rathgeber.

Although the governor’s administration and state legislators have made some improvements to Connecticut’s business climate in recent years, competitor states and countries keep forging ahead. At the same time, business costs and other pressures on Connecticut companies keep increasing.

“It’s getting harder and harder to be competitive in Connecticut,” says Sam Bergami, CEO of Alinabal Holdings Corp.

In fact, the state and its businesses are approaching a critical crossroads—one direction leads to greater prosperity, the other to economic decline. The next General Assembly will play a critical role in determining our path as it makes decisions affecting several key areas: state spending and taxes; overall business costs, including those for workers’ compensation, energy, and health care; education; and transportation.

With a few weeks left until Election Day, you still have time to contact the candidates in your state Senate and House districts to find out what they plan to do about those issues. You’ll find contact information on CBIA’s elections Web site, CTbizVotes.com.

Here is an overview of the issues legislative candidates and voters should be thinking about.

State spending and taxes

The state’s recent surplus might lull people into thinking all is well with the state budget. Not so.

“Fiscally, the state is facing significant challenges,” says Rathgeber. “A deficit is likely in the current fiscal year, and shortfalls are expected in the biennial budget legislators will adopt next spring.”

For one thing, the slower economy has hurt tax revenues. “Revenues could drop precipitously this year,” compared to what was estimated when the current budget was approved, says Robert Genuario, secretary of the governor’s Office of Policy and Management.

Meanwhile, many of the same things straining business budgets—especially energy and health care costs—are squeezing the state budget too. When legislators draw up the budget for fiscal years 2010 and 2011, they will face three significant problems, says Genuario:

1. State expenditures tend to increase faster than revenues unless steps are taken to curb spending. The cost drivers include rising medical costs for state employees and retirees as well as people in nursing homes and on welfare. “We’re also subject to binding arbitration and collective bargaining, which tend to drive up costs. There’s also [pressure] to contribute more state funding to municipalities for property tax relief,” he says.

2. “When the legislature adjusted the budget for fiscal year 2009, it built in several structural holes,” Genuario says. For example, legislators used surplus money to pay for teachers’ pensions in FY09. “In FY10, we’re not likely to have a surplus. We will have a recurring expense, but no recurring funding source.”

3. The weak U.S. economy makes it “difficult for us to predict whether [tax] revenues will increase at the same rate they would in an average year.”

What’s more, Genuario says, policy decisions concerning energy costs, health care coverage, education, and “ensuring we have appropriate 21st-century transportation systems” will have budget implications, he says. Legislators will also face the usual pressure from special interest groups to increase spending for their particular issues.

Connecticut’s constitution requires a balanced state budget. To avoid a deficit, “the General Assembly and the administration will have to make state operations more efficient and prioritize programs to reduce spending,” says CBIA’s Rathgeber, “or else they will have to raise taxes”—something no one wants.

“Raising taxes will hurt an already troubled business climate,” says Bergami.

According to the nonpartisan, nonprofit Tax Foundation, which monitors state and federal fiscal policy, Connecticut already has the eighth-highest state and local tax burden in the country and the 12th-worst business climate from a tax perspective.

In 2007, Expansion Management magazine ranked Connecticut 50th among the states in terms of the General Assembly’s impact on the business climate. The ranking reflected the state’s overall tax burden, how effectively tax dollars were being spent, and how state government was managing its debt.

 

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