High costs, legislative unpredictability, and growing demand for skilled workers are among the main factors hampering economic growth in Connecticut according to a new business survey released today.

The 2017 Survey of Connecticut Businesses, produced by CBIA and the accounting, tax, and consulting firm BlumShapiro, shows business growth was basically unchanged since last year.

Bill Lee, Tom Santa, Joseph Kask
Committed to Connecticut: The Lee Company's Bill Lee, Santa Energy's Tom Santa, and BlumShapiro's Joe Kask.

About half (49%) of companies are holding steady—compared with 51% last year—while 36% are growing (unchanged), and 16% are contracting, up from 13%.

The survey, which examines the business community's near-term outlook, workforce trends, technology investments, and legislative priorities, was released at the Connecticut Economy conference in Hartford.

The state's high cost of living was the top factor impacting business growth, cited by 78%, followed by the uncertainty and unpredictability of legislative decision-making (72%), high business taxes (69%), government mandates (68%), and inadequate skilled job applicants (55%).

None of those findings surprised the panel of business leaders who discussed the survey results at today's conference.

"We're seeing very moderate or modest growth in the state compared with what we're seeing in Massachusetts for instance," BlumShapiro CEO Joe Kask said. "In the last three years we've seen double-digit growth in Massachusetts."

'Let Us Compete'

Bill Lee, president and CEO of The Lee Company, believes state government red tape and overregulation are limiting business competitiveness and economic growth.

"If state government could do anything to help business growth it would be to stop meddling and get the hell out of the way," Lee said.

"When you look at some of the things the state does in terms of mandates and regulations, it drives everybody crazy.

"We need to tackle the overall burden government places on business to bring costs down and let us compete."

We need to tackle the overall burden government places on business to bring costs down and let us compete.
— The Lee Company's Bill Lee
Santa Energy president and CEO Tom Santa also has seen slow growth in his business, noting the impact of government regulations and the state's aging transportation infrastructure.

"Our business is severely impacted by regulatory and government influence in the marketplace," Santa said. "From our standpoint, competition in the energy space has been stifled.

"The major problem we have, especially in lower Fairfield County along the I-95 corridor, is transportation. It costs us easily $1 million a year in lost productivity."

Budget Stalemate

Kask noted the survey findings reflect the growing concern among business leaders with the state budget stalemate and the legislature's inability to resolve Connecticut's ongoing fiscal crisis.

"We should not balance the state budget with tax increases," Kask said. "That doesn't work, we've tried that in the past.

"There's opportunities to reduce the cost of state government. We should look to the work done by groups like the Connecticut Institute for the 21st Century, and begin implementing those reforms."

While the General Assembly narrowly approved a union concession agreement in July, many reforms were not included in the package.

Businesses were asked about their level of support for additional measures to reform the state employee retirement system.

Nine out of 10 (91%) support eliminating the use of overtime to calculate pension payouts; 88% say medical coverage for early retirees should be delayed until they reach a certain age; 88% believe new state employees should be switched to defined contribution plans; and 83% want the retirement age increased.

Embracing Innovation

How are companies navigating Connecticut's high-cost, highly regulated business environment?

It comes down to managing those factors they can control—often through innovation—said Lee, whose precision manufacturing company is based in Westbrook.

"We have several different lines of business and if you look across them, the ones that embrace technology the most are the ones that are growing the fastest," he said.

We should not balance the state budget with tax increases. That doesn't work, we've tried that in the past.
— BlumShapiro's Joe Kask
"Connecticut's high costs mean businesses must embrace technology, embrace innovation."

Santa sees both residential and business customers investing in energy efficiency programs and technology to help control costs.

"That's especially important in Connecticut has we have some of the highest energy costs in the country," he said.

Southern Suitors

The survey found that 32% of businesses have been approached by other states, with North Carolina, South Carolina, and Florida the most aggressive suitors.

While just 8% of survey respondents say they plan to relocate outside Connecticut, 20% of companies are considering moving significant production to other states within the next five years.

BlumShapiro's Kask says the firm is seeing a number of its business clients expanding in other states.

"Is that due to the economic conditions in Connecticut or business opportunities?" Kask asked.

"I really don't know the answer. Probably a little bit of both."

Workforce Challenges

Sixty-nine percent of survey respondents say up to 15% of their workforce will retire in the next two to five years.

Finding and retaining replacements, particularly younger workers, poses a significant challenge.

"We're down in the colleges at a much earlier stage, we have leadership training programs, a very robust internship program—most of those folks we're offering jobs to while they still have a year or two left at school," said BlumShapiro's Kask.

Connecticut's cities are in trouble and we have to do something about that.
— Santa Energy's Tom Santa
"We need those young people to stay in Connecticut."

Santa called for the state to ease costly licensing restrictions to help businesses train and retain skilled workers, adding that the state's urban centers are key for drawing young workers.

"Connecticut's biggest challenge with attracting and keeping young workers is its cities," he said.

"Connecticut's cities are in trouble and we have to do something about that."

Why Connecticut?

All three CEOs remain committed to Connecticut.

Santa said Connecticut must take better advantage of the state's "tremendous resources."

Kask said BlumShapiro remains "bullish on Connecticut."

"We have a great location between New York and Boston," he said.

"The quality of our workforce is outstanding, we're world-class in education, and our quality of life is good."

Lee says Connecticut "should be so much better and we can be so much better."

"We have huge horsepower in Connecticut and if we harness that horsepower we can beat anybody," he said.