Business Survey Gives Candidates Food for Thought

Results provide clear recommendations for spurring economic growth and job creation in Connecticut

On Sept. 7, CBIA and accounting firm BlumShapiro released the results of the 2012 Survey of Connecticut Businesses, an annual study that takes the pulse of Connecticut’s business community, exploring the economic, fiscal, and regulatory climates for companies of all types and sizes. The survey, which drew responses from 580 businesses, comes at an opportune time, as candidates for the state legislature make the final push to win over voters in their districts.

“With unemployment in the state still above 8%, candidates for the General Assembly are running on platforms promising jobs and economic growth, just as they did in 2010,” says CBIA President and CEO John Rathgeber. Last month, CBIA asked state legislative candidates to list their top three priorities for Connecticut. Of the more than 80 candidates responding so far, virtually all placed job creation and improving the economy on their priority list.

“The question is, how many candidates really understand how to accomplish those goals? Among the people who know best are the job creators themselves, and that’s where our survey went for answers. The results provide policymakers with commonsense guidelines for strengthening our economy by making Connecticut a more attractive place to do business.”

Survey Says”_

The 2012 Survey of Connecticut Businesses points to several bright spots in the state’s business climate and economic recovery but also to persistent problems that will require the full attention of legislators in 2013 to put Connecticut back on the road to solid, sustainable growth.

Positive trends include strength in Connecticut’s manufacturing sector, with 55% of manufacturers surveyed reporting hiring or plans to hire full-time workers this year (compared with 43% of all respondents). Sixty-four percent of manufacturers saw a net profit in 2011 (five percentage points higher than businesses overall), and 73% are involved in exporting, compared with 29% of all respondents.

Manufacturers are also leading the way in innovation, with 56% reporting that they introduced a new product or service in the past year, compared to 50% of all businesses surveyed. The development of new products and services, which are often well-received by foreign markets and can command a premium price (helping offset high costs), is vital to Connecticut’s economy.

Skilled Workforce: From Asset to Liability?

Connecticut’s proximity to customers and major markets as well as its quality of life are consistently cited by survey respondents as major assets (51% and 50% respectively). The state’s skilled workforce, however, traditionally considered a strength, has slipped in the view of business leaders, with fewer than one-third (30%) identifying Connecticut’s workforce as a major asset.

A shortage of skilled workers gets most of the blame. Despite an unemployment rate above 8% at press time, nearly half (48%) of all businesses surveyed (and 58% of manufacturers) report having difficulty finding qualified workers.

Compounding the problem is the anticipated retirement of large numbers of baby boomers. One out of every four businesses surveyed expects at least 10% of their workforce to retire in the next five years; half of those anticipate losing over 20% of their workforce to retirement in that period. Forty-six percent say they are not very confident, not at all confident, or unsure of their ability to find qualified workers to meet their needs over the next three years.

Two promising initiatives have begun to address Connecticut’s talent shortage: the expansion of precision machining training at several of the state’s community colleges and the education reform bill signed into law earlier this year. Nevertheless, Rathgeber cautions that policymakers will need to make sure that the reforms stipulated in the new law are implemented in a way that makes real progress in improving student performance and closing the achievement gap.

“If we learn that the reform package is missing elements necessary to fully achieve those goals, then measures to put those elements in place should be put forward,” he says. “The key is the correct implementation of the framework that was passed.”

So far, implementation is progressing, but much work remains.

Toward a More Business-Friendly State

Perhaps the most troubling survey findings are those showing that business leaders continue to hold a dim view of the state’s business climate.

Only 15% of respondents have a somewhat or very positive view of Connecticut as a business-friendly state. Most (nearly 70%) have a somewhat or very negative opinion. Roughly one in three businesses say they are considering moving or expanding to another state within the next five years, and nearly one in three have been approached by other states (mostly within the last year) about relocating or expanding there.

Those results are consistent with various national indices, which put Connecticut near the bottom in several categories concerning business friendliness. CNBC’s 2012 Top States for Business index, for example, ranks Connecticut 33rd for its regulatory and legal environment, 46th for cost of doing business, and 44th overall.

What’s behind business leaders’ negative view of Connecticut as a place to do business? A major factor, says CBIA Vice President and Economist Pete Gioia, is the lack of progress by state government in reducing the size and cost of the bureaucracy, addressing its long-term unfunded liabilites*, improving transportation and energy infrastructure, and reducing Connecticut’s business costs: which in some categories, such as energy, are among the highest in the nation.

“Low confidence in state government is dampening business investment and risk-taking,” says Gioia. “Businesses still think government is often part of the problem, not the solution. Despite a lot of positive changes over the past couple of years, there is still the attitude among some companies that business life would be better somewhere other than Connecticut.”

Gioia believes that if we’re going to get entrepreneurs and business owners to invest in the kind of innovation and expansion that results in job creation, they’re going to have to feel better about operating in the state.

“This is a relationship, and businesses still feel like state government is at times taking advantage of them rather than being a good friend and partner.”

Fiscal Issues and Taxes

Among the most important aspects of any state’s business climate are its fiscal situation and its tax environment. In Connecticut, both are central to business leaders’ lack of confidence in state government. Thus far, the state has been unable to solve its short-term and long-term fiscal problems, raising concerns about the potential for additional tax increases for many businesses.

A significant percentage of survey respondents (14%) regard tax increases as their most pressing concern for 2012. Concern about tax increases is topped only by worries over national economic uncertainties (25%) and Connecticut’s economy (24%) in 2012.

Last year, when asked about the multi-billion-dollar tax increase passed by the 2011 legislature, 68% of businesses anticipated a negative impact on their decision to add new workers, and 76% foresaw a direct impact on their competitiveness. The reality has turned out to be even worse: 79% of businesses surveyed this year say the tax hike has had a negative impact on their firms.

Those findings suggest that business tax relief: especially for pass-through entities that are hit hard by personal income tax hikes: should be a part of the 2013 legislative agenda to spur business investment and hiring.

Jay Sattler, CPA, MST, a partner at BlumShapiro, would like to see that tax relief come in the form of expanded tax-credit opportunities for S corporations, partnerships, and LLCs, which he says make up over 75% of the state’s businesses.

“There are a number of credits out there for businesses to take advantage of,” he says. “I think they have good intentions and are properly incentivized, but I also think there is a very strong mismatch between the credits that are out there and the actual number of businesses that can take advantage of them.”

Sattler notes that most of the state’s business-tax credits apply only to C corporations, a group comprising many larger, publicly traded companies.

“I think that the credits should apply to those companies, and I think they are taking advantage of them,” he says, “but I would like to see them expanded to S corporations, partnerships, and LLCs so that the vast majority of our manufacturing-base firms and other businesses in the state have an opportunity to take advantage of them as well.”

Alleviating business leaders’ concerns about taxes would go a long way to improving their view of the state as business friendly: and inspiring the confidence they need to make investments here. The legislators we elect in November can make that happen, says Rathgeber, but only if they make meaningful progress toward solving the state’s fiscal problems.

“Restoring business confidence in Connecticut can secure job growth and a bright economic future,” he says, “but that won’t happen unless our government officials address our state budget challenges and unfunded pension and retiree healthcare benefits aggressively and responsibly, without further tax increases.”

Rathgeber urges all CBIA members to get that message across to their candidates for the State Senate and House.

“It’s important that you and your employees know where the candidates stand on economic and fiscal issues and let them know how their positions would impact your ability to grow and maintain your business.”

Seven Things You Can Do

Employers and their employees throughout Connecticut can have a say in the direction of the 2013 state legislature. The challenge is determining which candidates running for election to the General Assembly are the best equipped to deal with the state’s top issues.

For example, which candidates understand how to grow our economy and create the kind of environment in which employers feel confident about increasing their investment in Connecticut and creating jobs? Which ones understand why putting the state back on firm fiscal ground by reducing the size and cost of state government and addressing Connecticut’s long-term unfunded liabilities is critical to improving our business climate and economy?

Here are seven steps you can take to identify General Assembly candidates committed to restoring Connecticut’s economic competitiveness and help them get elected.

1. Arm yourself with information. Step one is learning about the candidates’ positions: and records: on economic and fiscal issues. The best place to start is CBIA’s Election 2012 website, your one-stop portal for in-depth information about the people seeking a seat in Connecticut’s General Assembly. The site includes:

• The voting records of all 187 state legislators on key business bills over the last two years
• A tool for identifying candidates from your district and making comparisons
• A calendar with key campaign- and election-related dates, including debates taking place around the state
• Social media feeds from the candidates
• The latest news from the campaign trail

2. Share what you learn with your colleagues and employees and encourage them to get involved and support candidates who know what it takes to get Connecticut’s economy moving again.

3. Email the candidates in your district from cbia.com/election, explaining the challenges of running a successful business in Connecticut and what policies would make it easier for you to grow and hire more workers.

4. Attend political events. Find out where and when candidates are appearing by visiting CBIA’s Election 2012 website and candidates’ websites, Facebook pages, and Twitter pages. Attend the events and, when the format allows, challenge candidates to be specific about what they’ll do to:

• Foster economic growth and job creation in the state
• Reduce the cost of doing business in Connecticut
• Ease the regulatory burden on companies
• Reduce the size and cost of state government
• Reduce the state’s unfunded pension and retiree health insurance liabilities

5. Participate in CBIA’s annual Business Meets Politics Week: Oct. 15-19: and invite candidates to visit your company and see firsthand what you and your employees do. Educate the candidates about state issues that affect your business and its ability to create good jobs for Connecticut residents. To arrange a candidate visit, contact CBIA’s Liz Krueger at 860.244.1169 or elizabeth.krueger@cbia.com.

6. Register to vote and help your employees do so too. CBIA will conduct on-site voter registrations on request. (Contact Adam Ney at 860.244.1933 or adam.ney@cbia.com.) You can register in person at any Registrar of Voters office in Connecticut through Oct. 30. Those who turn 18, become U.S. citizens, or move to another town between Oct. 30 and election day (Nov. 6) have until Nov. 5 to register in person. To register by mail, download a mail-in voter registration form (in English or Spanish) or obtain one from your town clerk’s office or Registrar of Voters. Forms must be sent to your hometown Registrar of Voters, postmarked by Oct. 23.

7. Vote on Election Day! Don’t “stop at the top” by voting only for president and U.S. Senate and House candidates; be sure to vote for state senators and representatives as well. Polls are open from 6 am to 8 pm on Nov. 6. If you will be unable to vote in person on Election Day, you may vote via absentee ballot. You must first request an absentee ballot application form from your town clerk by mail or in person, or download the form (in English or Spanish). After receiving your completed application, the town clerk will give you a ballot. Your completed ballot must be received by the town clerk before the polls close on Election Day.

* In its Nov. 15, 2011, fiscal accountability report, the state Office of Policy and Management indicated that Connecticut’s long-term debt totaled $71.6 billion: $20,450 for every man, woman, and child in the state. Most of that red ink comes from the state’s huge unfunded liability for state employee pensions and retirement health and life insurance benefits. Gov. Malloy has begun to address unfunded liabilities through negotiations with state employees, but much more needs to be done.

Contributors: CBIA Vice President and Economist Pete Gioia (pete.gioia@cbia.com); CBIA writer and editor Lesia Winiarskyj (lesia.winiarskyj@cbia.com); and CBIA News editor Bill DeRosa (bill.derosa@cbia.com).