Is Connecticut's budget stalemate sending businesses to the sidelines?

CBIA's 2017 2nd Quarter Economic and Credit Availability Survey found that just 29% of business leaders have a positive outlook for their firm—down from 37% in the first quarter.

Budget stalemate: Q2 2017 company outlookFifty-seven percent expect stable conditions (up from 47% last quarter), while 14% had a negative outlook, down from 16%.

The survey also showed that just 23% of businesses expect to increase their workforce, down from 26% in the first quarter, while 66% forecast no change (66%), and 12% plan reductions (8%).

"The survey is indicative of an economy that is growing, just quite slowly," said CBIA economist Pete Gioia.

"However, it's clear that as the budget stalemate continues, more and more businesses are avoiding making major investments until they see signs of predictability and stability.

"That means a budget with no tax hikes—sooner rather than later."

Budget Stalemate Continues

Connecticut is now eight weeks into the new fiscal year—that's two months without a state budget, with lawmakers yet to agree on a tax and spending plan for 2018 and 2019.

DataCore economist Don Klepper-Smith said the latest quarterly survey highlights how critical the outcome of budget negotiations will be for the state's economy and job growth.  

"Businesses generally remain optimistic with respect to their own sales and business activities, but less so when it comes to state finances and overall Connecticut economic growth," he said.

"Importantly, businesses are looking for state finances to reflect some degree of fiscal discipline before they make big long-term commitments."

As the budget stalemate continues, more and more businesses are avoiding making major investments.
— CBIA economist Pete Gioia
The survey was emailed to business leaders mid-July through mid-August.

Both Gioia and Klepper-Smith stressed that any budget solution must avoid broad-based tax hikes, particularly given the damage caused by massive increases in 2011 and 2015.

Connecticut has recovered just 82% of the 119,100 jobs lost during the 2008-2010 recession and at 5%, its unemployment rate is the highest of the New England states.

The latest quarterly InformCT Consumer Confidence Survey showed 56% of residents don't believe the state's economy is improving, up from 44% in the first quarter.

Credit Availability

Credit conditions remained strong in the second quarter, with 83% of those surveyed reporting no issues with availability.

Nineteen percent characterized Connecticut’s current credit conditions as excellent or good, while 62% called conditions average, and 21% said they were fair.

The survey found:

  • 33% of respondents used financing in the last three months (compared to 30% in the first quarter of 2017)
  • The same percentage of firms in the second quarter met their borrowing needs as last quarter (86%)
  • 62% expect the lending climate to remain stable over the next three months (59%), 21% say it will be fair or poor (24%), and 18% believe it will be good or excellent (16%)

National Issues

Businesses were also asked about the impact of current national economic and policy issues.

Forty percent said low inflation had no impact on their business, while 37% said it had a positive effect.

Half of respondents (51%) say lower oil prices have positive effects for their firm, while 28% said low prices negatively impacted them.

More than two-thirds (68%) called federal tax reform (for example, a proposed 15% corporate rate) a positive move.

Forty-three percent said repealing and replacing the Affordable Care Act would have a positive impact, 17% saw it as a negative, and 15% saw no impact.