Business Spoke, Lawmakers Listened
Although the drama and media attention surrounding the state budget peaked in the last few weeks of June, CBIA’s coordinated, strategic campaign to make economic competitiveness a top priority in the 2015 General Assembly began much earlier.
That initiative laid the groundwork for a final, intensive push by CBIA, our members, and partner organizations in the days leading up to the June 29 special session to reopen the budget and roll back at least some its business tax hikes.
The original budget, narrowly passed by lawmakers on June 3, attempted to close a projected $3 billion deficit by increasing spending by $1.28 billion and hiking taxes: much of it on employers: by nearly $1.5 billion over the next two years.
The revised budget passed in the special session reduces the increase in business taxes by about $152 million and reflects measures proposed by Gov. Malloy.
It addresses several major concerns, keeping taxes on data processing and web services at 1% (the original budget pushed them to 3%) while delaying implementation of the unitary reporting requirement within the corporation tax until next year.
‘Undoing Some of the Damage’
“The budget debate, particularly over the last month, served an important purpose,” says CBIA President and CEO Joe Brennan. “It put a spotlight on Connecticut’s economy and the ability of companies to compete in regional, national, and global markets.
“As originally adopted by the General Assembly, the budget hurt companies’ ability to compete. By reopening the budget and making modifications to tax increases, lawmakers have begun undoing some of the damage.”
Brennan points out that the special budget session marked an important shift in direction, adding that policymakers “can’t stop now.”
“We thank Governor Malloy and the General Assembly for responding to the concerns voiced by businesses and their employees. And Republican lawmakers and those Democrats who voted against the original budget also deserve credit, because their concerns gave added force to the call to find a better way. They sent a message that Connecticut’s economic competitiveness is important and cannot be ignored.”
‘Make No Mistake About It’
That’s good news, but even with the revisions, the new 2016-2017 budget increases taxes by about $1.3 billion, including higher levies on employers and reductions in the value of tax credits and operating loss provisions.
“Make no mistake about it, taken as a whole, this budget does not help Connecticut’s overall competitiveness,” says Brennan. “It still imposes a major burden on employers when our economy continues to struggle.”
He also points out that the legislature’s nonpartisan Office of Fiscal Analysis is projecting a deficit of $832 in Fiscal Year 2018: an ominous forecast.
For those reasons, Brennan is adamant that while the revisions to the budget are a good start, the state needs to go much further to put itself on solid fiscal ground and restore confidence in businesses that they can expand and grow jobs here.
“Policymakers now must aggressively follow up on the special session with structural reforms that result in a more efficient delivery of services, reduce long-term costs, and stabilize our economy to benefit everyone who lives in Connecticut.”
A Tale of Hard Work and Good Timing
Led by CBIA’s government affairs team, CBIA approached the 2015 legislative session with a plan to be more aggressive and speak with a stronger voice in presenting policymakers with the facts about Connecticut’s slow economic recovery, poor business climate rankings, and need for structural reforms in the way the state spends tax dollars.
At the same time, says Brennan, it was important to recognize Connecticut’s strengths: its world-class companies, highly educated workforce, and top-notch education institutions, to name a few.
“The challenge for us was to balance the need to be factual and credible and represent the concerns of our members with our belief in Connecticut’s enormous economic potential,” says Brennan.
“CBIA has no interest in making the state look bad, but we have to be honest with policymakers and the public in identifying Connecticut’s very real economic challenges.”
CBIA’s campaign to make Connecticut’s economic competitiveness the main focus of the 2015 legislative session, culminating with the passage of the revised state budget, began in early 2015 with intensive public awareness advertising.
It included eight weeks of statewide radio spots in March, May, and June; ads in 17 Connecticut newspapers published in May; 230,000 direct mail pieces sent to voters on May 25 in 35 key House and Senate districts; and 10 weeks of digital advertising on high-traffic websites, Twitter, and Facebook.
CBIA leaders also reached out to the media, meeting with the editorial boards of major daily newspapers in January and February, appearing in over 200 radio and television news/talk show broadcasts from January through June 25, and providing statements in 680 print and online news articles over the same period.
In early June, CBIA’s efforts got an unexpected assist from GE, Aetna, and other companies that reacted to the tax hikes in the original budget by publicly questioning the wisdom of continuing to operate in Connecticut.
“We were able to leverage the candor those companies exhibited to help convince policymakers that the budget that was passed at the end of the regular legislative session would send Connecticut down a dangerous path toward potentially massive job losses and further fiscal and economic trouble,” says Brennan.
In mid-June, Brennan publicly requested a meeting with Gov. Malloy and legislative leaders to underscore the gravity of the situation for Connecticut’s business community. A meeting took place with the governor on the morning of June 19.
Later that morning, Gov. Malloy announced his proposals for modifying the tax provisions in the budget.
The Bottom Line Is Job Growth
CBIA responded to that announcement with a press briefing on June 22, issuing a call for Democratic leadership in the state House and Senate to follow the governor’s lead in undoing some of the tax damage contained in their original budget.
The event took place outside the State Capitol and drew major media outlets from across the state. The briefing featured remarks by three speakers and a Q&A session with Brennan.
Paul Timpanelli, CEO of the Bridgeport Regional Business Council and a steering committee member of the Connecticut Institute for the 21st Century (CT21), told the press and others who had gathered that Connecticut is “at a critical point.”
“What we’ve [been doing] has to change,” he said. “We need structural change; we need changes in our approach to how we tax individuals and businesses in this state, and we need dramatic changes in the way we approach how we spend money in this state.”
The bottom line, he said, is that “the key to Connecticut’s economic future is job growth.”
Adrienne Cochrane, president and CEO of the Urban League of Greater Hartford, echoed that sentiment and expressed concern about the prospect of companies leaving the state.
Keeping jobs in Connecticut is imperative to the state’s nonprofit community, she said. “To lose the support of our corporate and business partners would strike a fatal blow to many nonprofit organizations.”
She explained that unrestricted donations from corporate partners enable the Urban League to fund critical staff and programs and “pay many costs that can’t be borne otherwise.”
The Urban League provides programs and services in the areas of adult education, youth development, workforce development and training, and economic enrichment.
“Business and corporate partnerships are an integral part of what we do,” she said. “We support the corporate and business community and hope that nothing happens that will strain our funding.”
Misconceptions About the Tax Burden
Andrew Phillips of accounting firm Ernst and Young spoke at the press briefing to set the record straight about his firm’s Total State and Local Business Taxes study, which some have argued shows that Connecticut’s tax burden is among the lightest in the nation.
Phillips, who authored the 2014 study, acknowledged that its results showing the ratio of business taxes to gross state product have been interpreted as indicating below-average taxes in the state.
“However, this particular result is not a product of low taxes in Connecticut,” he said, “but rather is due to the state’s high level of productivity, which is 25% higher than the U.S. average on a per-employee basis.”
He said a more accurate measure of Connecticut’s actual corporate tax burden is per employee, rather than per dollar of economic activity. In the former measure, Connecticut ranks 27th in the U.S.
Phillips went on to say that, considering household and business taxes, “Connecticut’s overall state and local tax collections are 57% higher than the national average on a per capita basis, and 15% higher when measured per dollar of personal income.”
He also noted that Connecticut’s marginal tax rates: a factor with “a more significant effect on economic growth than the dollar amount of state and local business taxes or the average tax rate”: are 10% higher than the U.S. average.
And that has a big impact on new investments in such “highly mobile” manufacturing, headquarters businesses, and business services facilities, said Phillips.
In Connecticut, that’s meant subpar private-sector employment growth over the past decade: 1.2%, compared with the U.S. average of 6.5%.
A Better Place
During the special budget session, lawmakers also approved a new economic competitiveness commission to help develop policies promoting economic growth.
“Although there is always a certain amount of skepticism when it comes to creating new legislative commissions,” Brennan says, “we hope that having an additional voice speaking to the importance of keeping Connecticut competitive will drive better policy choices.
“We have said throughout this legislative session that the debate shouldn’t be about business taxes versus human services, that we can be a society that takes care of our citizens but also nurtures a healthy, growing economy.
“Connecticut companies of all sizes and types: and the people who work for them: want our state to be a better place to live, work, learn, and raise a family.”
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