Economic Forecast: Short-Term Bright, Long-Term Concerns

Webster Bank economist Nick Perna shared an upbeat forecast–at least for the short-term–for the state’s economy at this week’s annual Economic Summit and Outlook in Hartford.
Connecticut’s post-recession recovery, he said is “not that far behind” the nation’s: 1.5% job growth statewide, compared with 2% across the U.S.
Noting that the state added 25,000 jobs in 2014, Perna anticipates gains between 25,000 to 30,000 jobs this year.
“I worry more about 2016,” he told a crowd of 500 business leaders.
Lessons from the Granite State
Referencing recent comments by Office of Policy and Management Secretary Ben Barnes, Perna described Connecticut as being in a “permanent fiscal crisis.”
The state faces a $1.3 billion budget deficit for 2015-2016, with a similar shortfall projected for the next fiscal year.
“It’s important to not underestimate the power of a balanced budget…in terms of what it does for business confidence and public perception,” Perna said, using New Hampshire’s rise and fall as a cautionary tale.
“For years I spoke at conferences like this and held New Hampshire up as an example, an economic leader in New England,” he said.
“Today, they have fewer jobs than when the recession started.”
Part of the problem, he acknowledged, is a combination of rising costs and an aging population. But a significant challenge for New Hampshire has been a mix of revenue shortfalls, spending surprises, and a budget thrown out of balance.
Booms cover busts
Perna pointed out that Connecticut’s income tax revenue system is much more sensitive to economic cycles and fluctuations.
That, in itself, is not a problem, he said, as long as we use that volatility to our advantage.
Taxing increasingly volatile income—such as bonuses and stock options—has created major budgeting challenges even as demands for state spending accelerate.
“When times are good and revenues are high, we spend,” said Perna.
Instead, he recommended, Connecticut should solidify its rainy day fund “to smooth out the economic impact when things are bad,” adding that how lawmakers resolve the state’s fiscal issues “will determine our future prospects.”
Those concerns were shared by panelists discussing ways to grow the state’s economy, including HMS Healthcare President and CEO Donna Galluzzo, Webster Bank Chairman and CEO James Smith, The Phoenix Companies Executive Vice President and CFO Bonnie Malley, and Day Pitney partner Charles Lenore [all pictured above].
‘Move Connecticut Up’
That panel listed fiscal reform, transportation, and government accountability as the critical legislative issues for the 2015 General Assembly, which convened the same day as the conference.
Smith noted that the state’s long-term liabilities now account for 20% of revenues–highest in the country–crowding out critical spending priorities.
“We must tackle the growing burden of unfunded liabilities if Connecticut is going to be able to compete strongly,” he said.
Galluzzo, who also chairs CBIA’s board of directors, said that the healthcare sector, particularly bioscience, was “one of the economy’s bright spots.”
However, she said the recent decision by Texas-based Tenet Healthcare to abandon its acquisition of financially troubled Waterbury Hospital because of regulatory requirements sent the “wrong message’ about the state’s business climate.
Her comments echoed a common theme among panelists, that the state must improve its standings in national business climate rankings if it expects to compete.
Day Pitney’s Lenore noted that state tax policies shape the ability of businesses to compete regionally, nationally, and globally.
He said tax reforms were among the legislative priorities proposed by the CT20x17 partnership, an alliance of more than 70 organizations working to improve Connecticut’s economic rankings.
MetroHartford Alliance President and CEO Oz Griebel called on business leaders to “actively engage” state lawmakers and the administration to drive the necessary reforms needed to change the business climate, a call supported by other speakers, including Smith.
“Business has a job to do,” the Webster Bank chairman said. “We all must be strong advocates for making Connecticut a better place for business and securing our long-term economic prospects.”