Profitability up, but Businesses Bearish on Investment
Over two-thirds of Connecticut businesses showed a profit last year, a 10-year high, yet fewer than half plan to continue making investments in the state, according to a new survey released today.
Published by CBIA and the accounting, tax, and consulting firm BlumShapiro, the 2016 Survey of Connecticut Businesses examines near-term outlook, export activities, workforce trends, technology investments, and legislative priorities.
Fifteen percent recorded a net loss, the same as last year and down from a 10-year high of 20% in 2011, while 17% broke even.
However, while profitability levels finally returned to pre-recession levels, only 47% of all surveyed companies said they will continue to make job-creating investments in Connecticut.
Businesses overwhelmingly expressed concerns with the volatile and unstable climate in state government.
Obstacles: Costs, Taxes, Legislature
The high cost of complying with government regulations and mandates was identified as the main obstacle to growth, cited by 79% of surveyed businesses.
Taxes were a close second (74%), followed by uncertainty or unpredictability surrounding legislative decision-making (71%), and the state’s high cost of living (69%).
“This survey shows that fiscal stability and predictability are keys to restoring business confidence in the state, which will lead to much-needed job-creating investments,” said CBIA president and CEO Joe Brennan.
More than a quarter (26%) say their company is considering shifting production or operations to another state within the next five years, and 31% are looking to set up new facilities outside the state.
What’s behind those responses?
Lower operating costs and taxes in other states, Connecticut’s heavy regulatory burden, the need to follow high net worth individuals who have left the state, and what one respondent termed the “hostile attitude of state government to business.”
The greatest barriers to growth are costly government regulations, taxes, and unpredictable legislative decision-making.
Fewer than one in 10 (8%) believe elected officials “really care about helping my business.”
Those sentiments were echoed by many of the speakers and 350 business leaders attending The Connecticut Economy conference in Hartford, where the survey was released today.
"The high level of fiscal uncertainty, including Connecticut's growing debt obligations, is hurting long-term investment in the state," said University of Hartford economist Susan Coleman.
"Major structural reforms are needed to get the state on a sustainable fiscal path."
Quinnipiac University economist Chris Ball noted that wealth and major companies were leaving the state, highlighting the critical need for a more business friendly environment.
Norm Forest, the CEO of Ellington-based manufacturer Dymotek Corporation, and a panelist at today's conference, was asked 'Why Connecticut?'
"We're committed to the state," Forest answered. "We've been here a long time, we like living in Connecticut, but we have to fix some things to move forward."
The 2008-2010 recession wiped out primarily high-wage jobs around the country, with Connecticut losing nearly 15,000 jobs in financial services alone.
The state has yet to recover 100% of the jobs lost in the recession, and job creation by young companies has failed to return to pre-recession levels.
Much of the state's post-recession employment gains are lower-wage jobs in industries like food services, hospitality, and healthcare, reflective of a national trend.
The concern is that Connecticut—traditionally a high-income, high-tax state—could become only the latter if these trends continue.
Connecticut businesses see most of their hiring in 2016 centered on entry-level jobs (34% view this as the area of greatest demand for new hires).
Population trends—negligible growth, looming retirements, and high domestic out-migration—are also reshaping Connecticut’s workforce.
Surveyed businesses anticipate losing 2.6% of their workforce to retirement this year, and over the next five years expect to replace about 16% of their current workers.
What makes this especially challenging is that three of the top six U.S. cities losing the highest percentage of their population to other states are located in Connecticut.
Many of those leaving are young, educated people.
Tough Choice for Millennials
Most survey respondents believe Connecticut students who attend college outside the state are likely to remain out-of-state rather than returning home to work.
That's also a national trend—college graduates tend to live and work in the states where they went to school.
Connecticut has the added problem of students finishing school here but seeing greater opportunities for jobs, recreation, and affordable housing elsewhere.
Do you live with your parents or leave the state for better opportunities and a lower cost of living?
"Do you live with your parents or leave the state for better opportunities and a lower cost of living?"
Connecticut has long been one of the nation’s leaders in key categories that underpin a state’s economic competitiveness—the strength of its workforce, education system, base industries, and R&D.
Several trends, however, threaten to undercut these strengths. Chief among them is the state’s chronic fiscal instability, which shakes business confidence and inhibits job-creating investment.
"This year, more than ever, state elections matter," Brennan told the conference.
"And it's critical that we support General Assembly candidates who are committed to fixing the state's economy and proving the environment for businesses to keep and grow jobs here."
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