Tell lawmakers why Connecticut must be a top 20 state for business

By Bill DeRosa

This scenario offers the business community a prime opportunity to move the CT20x17 campaign toward its goal of making Connecticut a top 20 state for business in national business climate rankings by 2017.

"The environment is right," says CBIA President and CEO John Rathgeber. "Post-election, lawmakers have to be concerned about what's going on in Connecticut. In many cases, even those incumbents who won didn't win by as much as they may have thought they would. Whether they're Republicans or Democrats, no one should feel very comfortable that the status quo is acceptable, especially when it comes to the budget and the economy."

'Every Legislator from Every Community'

L-R: John Rathgeber, CBIA's president and CEO; Bob Sobolewski, president and CEO of ebm-papst Inc. in Farmington; and Joe Brennan, CBIA executive vice president, show their support for the CT20x17 campaign.

The foundation has been built for advancing CT20x17, says Rathgeber, referring to the work that the campaign's partners, steering committee, and issue-oriented working groups have put in to raise public awareness of the campaign and develop policy recommendations ahead of the 2015 General Assembly session.

"Now, the critical step is channeling the enthusiasm and support that's been generated into effective advocacy around the most important public policy issues."

The objective, he says, is that every piece of legislation raised in the General Assembly in 2015 be considered in light of whether or not it improves our business climate and furthers or detracts from the goal of making Connecticut a top 20 state for business.

The key to getting lawmakers to think in those terms is ensuring that they have meaningful interaction with businesspeople before and throughout the 2015 session.

"We need every legislator from every community to hear from business leaders and employees about the importance of improving our business climate and being ranked among the top 20 states: and why that means so much to his or her constituents," says Rathgeber.

Given the relative accessibility of state legislators versus, for example, members of Congress (who spend much of their time in Washington), that task shouldn't be too difficult, he says, noting that state lawmakers live, work, and raise their families right here in our communities.

"There are many opportunities to make the point that unless we achieve this aspirational goal, we're not going to be able to sustain the quality of life we want or create the opportunities we want for our children and grandchildren. Seize the opportunity when it's there."

A Proven Strategy

Collective efforts by businesspeople to communicate with state lawmakers about critical policy issues have resulted in many positive legislative outcomes over the years.

One of the most notable was a campaign spearheaded by CBIA to reform workers' compensation in Connecticut, culminating with the passage of landmark legislation in 1991 and 1993 that stabilized what had become one of the nation's costliest workers' comp systems.

"It was a simple message: Reform workers' comp; it's costing Connecticut jobs," recalls Rathgeber. "Wherever legislators went, they ran into businesspeople who could tell them a story about how the state's workers' comp system made it more difficult for them to expand their workforce. Consequently, lawmakers realized that they had to do something. The only way we're going to

progress toward making Connecticut a top 20 state for business is if state lawmakers feel that their constituents are committed, supportive, and paying attention to what legislators are doing to try to accomplish this goal."

Jim Torgerson, president and CEO of UIL Holdings Corp. and CBIA board chair, agrees.

"The next legislative session will be one of the most important in the state's history," he told more than 500 business leaders at CBIA's Annual Meeting in October.

"Making Connecticut a top 20 state for business by 2017 is an ambitious goal. We need the commitment and broad participation from the business community to make it a reality. Stay informed, stay engaged, and hold elected officials accountable for their promises."

A Good Start

During the 2014 election season, CBIA got a head start bringing state legislative candidates and businesspeople together to discuss the need for moving Connecticut up in business climate rankings. In September and October, CBIA arranged for 79 candidate tours of member businesses and is planning more with newly elected lawmakers.

Don Droppo, Jr., president and CEO of Curtis Packaging Corp. in Sandy Hook, was one member who hosted candidate tours, saying that CT20x17 was well-received by all three candidates who came to his facility, two of whom won their election bids.

"I explained that it's getting tougher each year to do business in Connecticut," says Droppo. "Our tax structure is not competitive and our business costs: energy and insurance, for example: continue to rise. All the candidates appeared to be familiar with CT20x17 and supported it, promising that they would align themselves with it. They all understood the frail condition of our state and that something needs to change quickly to move us forward."

Disappointing News from Forbes

Connecticut's frail economic condition has led to the state's deteriorating position in many national business climate rankings, a trend that became the impetus for CT20x17.

Earlier this year, CNBC's America's Top States for Business index ranked Connecticut 46th, a drop of one place from 2013 and 15 places since 2007. The CNBC rankings and many others assign significant weight to states' fiscal condition and business costs: including tax environment: areas that have dragged down the Nutmeg State.

Last month, Forbes released its Best States for Business rankings for 2014, which put Connecticut at number 36, a better showing than in CNBC's study but a decline from last year, when Forbes had the state at 33rd.

The Forbes index analyzed 36 data points across six main categories:

  1. Business costs, which include taxes, energy, and labor (Connecticut ranked 47th, unchanged from last year)
  2. Labor supply, which factors in high school and college graduation rates, net migration, and projected population growth (20th, down from 17th in 2013)
  3. Regulatory environment, including labor regulations, healthcare mandates, licensing, and the tort system (37th, up from 39th)
  4. Economic climate, measuring growth in jobs, income, and gross state product, as well as average unemployment over the past five years (44th, down from 37th)
  5. Growth prospects, which reflect employment, income, and gross state product growth forecasts over the next five years, as well as capital investments and business stops and starts (28th, down from 26th)
  6. Quality of life, including poverty rates, crime data, cost of living, education, and health and wellness (3rd, down from 2nd)

Rankings such as these are important not only because they provide a snapshot of the various factors that make a state a good or bad place for business investment but also because they can play a role in driving: or driving away: that investment.

"National rankings create a perception, good or bad, about a state's viability as a place to start and grow a business and create jobs, daily impacting decisions companies make about investing, expanding, and relocating," says CBIA's executive vice president, Joe Brennan.

Brennan's point is supported by a 2014 study by Development Counsellors International, which surveyed randomly selected corporate executives responsible for finding future sites for their companies or operations. When asked to identify the leading sources of information influencing their perception of an area's business climate, nearly a quarter of the 356 respondents (24%) cited rankings and surveys. (Of those, Forbes' rankings get the most interest.)

"Connecticut's place in the latest Forbes index reinforces the sense of urgency that lawmakers should have about the state's business climate," says Brennan.

'Not a Static Competition'

Adding to that sense of urgency is the fact that states that place high in national rankings are luring investment away from other, lower-ranking states.

"In general, we see a shift in corporate relocations to states that traditionally rank high on these indexes, indicating that business-friendly initiatives by states are having an impact in attracting companies," says Donna Galluzzo, president and CEO of HMS Healthcare Management Solutions Inc. in Wallingford. "States like Texas, Utah, Idaho, Georgia, and North and South Carolina have been aggressive in demonstrating their responsiveness to business needs, and their success is reflected in the rankings and their improving economies."

In addition, states that have traditionally ranked poorly are making concerted efforts to improve. In April, for example, news came that New York passed legislation significantly reducing its taxes on manufacturers and other businesses in an aggressive effort to attract private sector investments and create more jobs. Measures included eliminating the state's 5.9% business income tax on qualified manufacturers and reducing the business tax rate for all other businesses from 7.1% to 6.5%. (Connecticut's corporate tax rate is 9%, which includes a 20% surcharge.)

To control state spending, New York also passed pension reform in 2012, with projected savings of $80 billion over 30 years. The law included reducing pension benefits for newly hired state and local public employees.

Connecticut has made some changes to pension benefits, but much more needs to be done.

In 2011, Rhode Island instituted far-reaching pension reform, which modified benefits for current retirees as well as existing and future employees and suspended cost-of-living increases until the state's pension system was 80% funded. (The architect of the plan, General Treasurer Gina Raimondo, was elected governor last month.)

Rhode Island also reduced its corporate tax rate from 9% to 7% earlier this year.

"So this is obviously not a static competition," says Rathgeber. "The fact that other states are trying to improve their competitiveness means that if Connecticut maintains the status quo, we'll go backwards."

Policymakers, he argues, must recognize that fact and respond to it, "understanding what our most competitive industry sectors are, what challenges those sectors face, and how their ability to be successful from a base of operations in Connecticut can be strengthened."

Advocating for CT20x17: A Simple Message

The cases of New York and Rhode Island illustrate the importance of reducing long-term debt and improving the tax structure in order to drive economic competitiveness.

Moreover, low taxes and low or no unfunded pension liabilities are among the attributes of states with strong economies and high rankings for business friendliness. Examples include Utah, Virginia, and Texas, which placed first, fourth, and sixth respectively in Forbes' 2014 index.

Connecticut, on the other hand, has one of the largest per capita tax burdens of any state and some of the highest unfunded pension liabilities: factors that inhibit economic activity.

Consequently, Rathgeber recommends that businesspeople and their employees emphasize those two issues when talking to their legislators about making Connecticut a top 20 state for business by 2017.

"I would suggest that we begin with making sure the budget and any tax changes adopted by this legislature move us forward in economic competitiveness rankings," he says. "A budget that is truly in balance and continues to reduce our long-term liabilities, along with changes to our tax code to encourage investments by businesses and entrepreneurs, would be a tremendous first step."

John Ciulla, executive vice president, commercial banking, at Webster Bank in Stamford, also sees fiscal issues such as the state's long-term obligations as critical to the success of CT20x17.

"State lawmakers must continue to work diligently on a realistic plan to address the state's unfunded liability position, one of the worst in the nation," says Ciulla. "The unfunded liability issue serves as an obstacle to creating a better business environment, as it limits our financial flexibility and optically discourages businesses from choosing Connecticut as their home."

Rathgeber acknowledges that policymakers must still address other business-critical issues, such as workforce development, infrastructure, and the regulatory burden. However, he says, the cornerstone of the business community's advocacy effort to make Connecticut a top state for business should be fiscal responsibility and a more competitive tax structure.

"If legislators are hearing, What are you doing in this budget to make sure it's going to stay in balance? What are you doing to reduce our long-term liabilities? What are you doing to reduce the key tax barriers to growing our economy? then it's a pretty simple message."

High Stakes

As CT20x17 has taken shape, the campaign has stressed that what's at stake goes far beyond making the state a better place to do business.

"If you have a social conscience, you should be concerned that this state maintains an economically competitive edge," says Rathgeber. "If you worry about the plight of kids from poor families, then you should be concerned not just about the quality of our schools but about the ability of Connecticut to attract and retain the investments that will create opportunities for those kids."

Droppo sees the campaign in a similar light.

"If we can collectively move up our national rankings, we will continue to attract and retain top talent and can proudly grow our economy to ensure a better future for generations to come."

Bob Sobloewski, president and CEO of manufacturer ebm-papst Inc. in Farmington, also believes the effect of a successful CT20x17 campaign will be far-reaching.

"Business prosperity is paramount to our economic growth," he says. "Our state's greatest asset is our people. By increasing job opportunities and growing salaries, Connecticut's talented workforce will stay rooted here and prosper. In fact, we will draw additional talent from other areas. And this would produce more stability in our tax base, increasing statewide improvements, such as our transportation infrastructure and educational institutions. Success will breed more success."

The alternative, Rathgeber argues, is a race to keep off the bottom, where disinvestment becomes the norm, wealth flees the state, and Connecticut experiences a slow decline that will accelerate over time.

"Capital investment is going to flow where there is the best return for that investment based on risk," he says. "There is nothing Connecticut can do to change that fundamental law of economics. Either we're going to be one of the best places for that return on the risk businesspeople are taking, or they're going to go elsewhere."

If that happens, he contends, it's not just jobs that will disappear but the entire infrastructure that supports healthy communities.

"We have examples of that in U.S. cities where there has been disinvestment," he says.

Rathgeber doesn't see that happening here, however.

"We're very optimistic about CT20x17 having an impact not only on the perception but the reality of doing business in Connecticut," he says.

"And we're optimistic that the state can have a bright future, because we have the kinds of companies that if given a competitive business climate can provide the quality jobs and good benefits that they always have but more importantly the opportunities for the next generation. We can win a race to the top; we can maintain our position as a leading innovator in the world economy."

* As of Nov. 14, the Malloy administration and the state's nonpartisan Office of Fiscal Analysis (OFA) were projecting state budget deficits ranging from $89.1 million to $99.5 million for this fiscal year. The latest OFA Fiscal Accountability Report estimates deficits of $1.3 billion, $1.4 billion, and $1.7 billion for Fiscal Years 2016, 2017, and 2018 respectively.

Bill DeRosa is editor of CBIA News. Contact him at bill.derosa@cbia.com.