Economy, Jobs Top Election Issues

By Bill DeRosa

What should candidates for the state legislature and statewide offices be focusing on this election season? If it’s votes they

care about, then the answer is clear: the economy and jobs.

When asked in a recent Quinnipiac University poll what policymakers’ top priority should be, 36% of voters said jobs and the economy. (Taxes were next at 14%.)

Business leaders expressed a similar sentiment in the CBIA/BlumShapiro 2014 Survey of Connecticut Businesses, with 35% reporting that the state’s economy is their single greatest concern.

Existing Strengths Not Enough

This widespread concern about Connecticut’s economy is not misplaced. Ours has been one of the slowest-growing economies in the nation since 2008, shrinking by 2.6% from 2008 to 2012, according to a Bloomberg “Best (and Worst)” comparison of state GDP growth. That performance made Connecticut one of only 10 states showing negative growth during that period.

In 2013, the state managed to reverse the negative trend, with GDP growth of 0.9% for the year and 2.8% in the fourth quarter.

That’s good news, says Pete Gioia, CBIA vice president and economist, though he cautions that we still have a long way to go to get back to pre-recession GDP levels.

“Given the state’s weak growth in recent years, it’s encouraging that Connecticut outperformed the rest of New England in the fourth quarter of last year,” says Gioia, “but we need to continue on that trajectory for our recovery to catch up with the rest of country.”

In getting there, it helps that Connecticut has significant competitive strengths, including one of the most highly productive workforces in the world, a vibrant network of innovative companies, ready access to capital, the highest level of R&D per capita in the country, and an enviable quality of life.

Those strengths alone, however, have not been enough to keep Connecticut competitive with other states in attracting private-sector investment and maintaining business confidence: key catalysts for economic growth.

Connecticut’s most troubling competitive disadvantages include high business costs, a deteriorating transportation infrastructure, and serious ongoing fiscal problems.

CT20x17 Aims to Change the Equation

Earlier this year, CBIA and dozens of other business, professional, and community groups launched CT20x17, a multiyear campaign designed to build on Connecticut’s strengths, turn around its competitive disadvantage, and move the state into the top 20 states in all major national business climate and economic competitiveness rankings by 2017.

These rankings: which include CNBC’s America’s Top States for Business, Forbes’ Best States for Business, Chief Executive magazine’s Best & Worst States for Business, and the Small Business and Entrepreneurship Council’s Small Business Policy Index: are barometers for how Connecticut is performing compared with our competitor states. They serve as benchmarks for the CT20x17 campaign.

Although the media outlets and think tanks that rank the states employ somewhat different metrics to come up with their results, Connecticut has typically not done well.

CNBC’s highly publicized America’s Top States for Business, for example, ranked Connecticut 46th this year, a drop of one place from last year and 15 places since 2007. The state’s poor rating this year stems in part from having the fourth-highest cost of doing business, third-highest cost of living, and the nation’s second-worst economy.

In CNBC’s heavily weighted economy category: based on economic growth, job creation, the state’s fiscal health, and other factors: Connecticut fell precipitously, from 39th in 2013 to 49th in 2014. The state also fell four places: from 43rd to 47th: in the cost-of-doing-business category, which hinges on factors such as state and local tax burdens, energy costs, and wages, and is also heavily weighted by CNBC.

The categories in which Connecticut improved since last year: infrastructure and transportation (49th place to 42nd), workforce (37th to 32nd), quality of life (17th to 14th), and business friendliness* (26th to 24th) were not weighted heavily enough to keep the state from slipping overall.

Rankings Fallout

Why are business climate rankings important? Although they are intended to reflect economic and public policy realities, they can also become a self-fulfilling prophecy. By creating the perception that a state is a difficult place to do business, they diminish that state’s ability to attract private-sector investment.

“Whether or not the national rankings are entirely accurate,” says CBIA President and CEO John Rathgeber, “the perception of Connecticut as a tough place to do business discourages new investment and makes it challenging to keep companies here.”

Tony Rescigno agrees. Rescigno is president of the Greater New Haven Chamber of Commerce, a CT20x17 partner organization.

“National rankings are critical,” he says. “Outsiders view them as accurate, so if they are not positive, it impacts businesses’ decisions to relocate or expand their operations here.”

More than one in five respondents to the 2014 Survey of Connecticut Businesses indicated that their company is considering moving or shifting significant production to another state within the next five years, and 29% are considering expanding somewhere else over that same period.

Being ranked near the bottom as a place to do business is unacceptable, says Kim Sirois Pita, founder of marketing consultants Kim Pita Peaces in Rocky Hill and a member of the CT20x17 steering committee. She believes that residents and policymakers can no longer afford to accept the state’s declining status as a business location, a decline she finds frustrating and disheartening.

“I love this state and believe in this state, but we keep seeing these negative rankings and the negative perceptions they create, and it feels like a losing battle.”

‘It’s About Life’

Pita points out that a competitive business climate doesn’t just help businesses thrive; it’s essential for a robust economy, job growth, and sustaining a high quality of life: factors that impact every community, every neighborhood, and every family in Connecticut.

“I don’t think there’s anything more important than this, because it affects everything,” she says. “If we don’t have businesses that want to stay or locate in Connecticut, what’s this going to leave us with? Without a thriving private sector, we won’t be able to sustain our quality of life. So this is not just about business; it’s about life.”

Which is why, Pita says, CT20x17 has been able to attract a diverse group of partner organizations, including the Connecticut Hospital Association, led by President and CEO Jennifer Jackson.

“Connecticut hospitals are focused on the future: providing excellent care that everyone can afford and access,” she says. “[Our] hospitals employ more than 55,000 people and generate an additional 55,000 jobs in our communities. They serve as a magnet for other business and commerce. That’s why we’re proud to be part of CT20x17.”

Jackson would like to see the cost of doing business in the state reduced by eliminating the hospital tax (instituted in 2011 to help close a multibillion-dollar budget deficit) in order to make healthcare more affordable. Because of the tax, she says, businesses and individuals in Connecticut are paying more than they need to.

“We are part of CT20x17 to foster a vibrant economy that will enable us to continue to provide world-class, affordable care to Connecticut residents well into the future”

Donna Galluzzo, president and CEO of HMS Healthcare Management Solutions Inc. in Wallingford, praises the campaign for its potential to promote collaboration among entities that may have philosophical or political differences.

By focusing the debate on a common goal, she says, “bringing together leaders from government, business, and the community to drive state policies that can move Connecticut into the top 20 states for business, CT20x17 gives us the opportunity to work together to build a brighter future that is fueled by more jobs and economic prosperity.”

Fiscal Issues: The Short and Long of It

Recognizing that state policymakers play a critical role in creating an environment that either allows businesses to flourish or hinders their success, Galluzzo points to one area she believes is most important for our government officials to address: fiscal policy.

“Connecticut lawmakers must be vigilant to create fiscal policy that leads to balanced state budgets and provides necessary services while keeping spending within taxpayers’ means,” she says. “Our policymakers must have the will to make our state’s tax structure competitive and reduce our long-term debts.”

The weeks ahead will likely see gubernatorial and legislative candidates fielding tough questions about Connecticut’s short- and long-term fiscal troubles, which have been a major drag on economic growth.

Although the state closed out Fiscal Year 2014 with an unofficial budget surplus of $121.3 million (due mostly to a $42.1 million increase in federal Medicaid reimbursements and rising income tax receipts), and this fiscal year’s budget technically is in balance, projections for the out years are not so rosy.

As of July 2014, the state legislature’s nonpartisan Office of Fiscal Analysis was projecting deficits of $1.28 billion,

$1.55 billion, and $1.87 billion for Fiscal Years 2016, 2017, and 2018 respectively.

Gaps in the FY 2014 and 2015 budgets were closed, in part, using borrowing and one-time revenue sources. Without those temporary solutions, erasing red ink in the near term will be challenging.

The state’s long-term obligations are equally worrisome. According to the fourth annual State Debt Study released last January by State Budget Solutions, a think tank that analyzes state finances, Connecticut has the third-highest per capita debt in the country.

That debt, says the report, comprises four major components: unfunded public pension liabilities, unfunded liabilities for state employee post-retirement health and other benefits, outstanding debt (primarily bonded indebtedness), and federal Unemployment Trust Fund loans.

On a per capita basis, here’s how Connecticut measures up against other states in each of those areas:

• Highest outstanding debt
• Third-highest unfunded state employee pension liabilities
• Fourth-highest debt from Unemployment Trust Fund loans
• Fifth-highest unfunded liabilities for state employee post-retirement health and other benefits

It’s important to note that the state’s fiscal problems did not develop overnight. State spending has more than tripled over the last 25 years (a period that has seen only modest job and population growth), and long-term debt has skyrocketed over the same time span.

The state has taken steps recently to improve its long- and short-term fiscal position. For example, according to a report released by the governor’s office in January, had the state not taken action to reduce state employee post-retirement costs and increase contributions to the pension fund, the state’s long-term obligations would have reached a high of $76.2 billion by June 30, 2011. Instead, stated the report, by 2013 long-term debt had been reduced by 15% to $64.6 billion.

Various state agencies are also streamlining their operations and making more efficient use of taxpayer dollars. Results include:

• A savings of $1.84 million per year at the Department of Energy and Environmental Protection through reduced state energy bills
• A savings of $18 million at the Department of Administrative Services through renegotiated contracts for goods and services
• As of May 29, 2014, the recovery of $415,000 in unemployment insurance (UI) overpayments and more than 50 arrests of individuals charged with illegally collecting over $2 million in UI benefits through an antifraud partnership between the Department of Labor and the Office of the Chief State’s Attorney.

In addition, the creation of a commission appointed by the state legislature that will begin reviewing the state’s tax structure later this year (see Page 7) presents a real opportunity to improve Connecticut’s economic competitiveness.

The Anticompetitive Effect of Fiscal Instability

Positive developments notwithstanding, the state’s long-term debt remains massive, and policymakers will likely continue to face budget shortfalls in the near term. That kind of fiscal instability is economically anticompetitive for two reasons.

First, it carries with it the constant threat of tax increases: a key deterrent to business investment and job creation. Businesses require consistency and predictability in the tax system to make long-range decisions about where and when to expand or locate. Without that predictability, employers, regardless of size, are hesitant to make investments that lead to economic growth and job creation.

Second, the constant need to pay down debt and close budget gaps prevents the state from spending in areas where funding is needed to spur economic growth.

“Like other pieces of legislation, the budget needs to be a catalyst for economic growth,” says CBIA’s Pete Gioia. “It can’t do that effectively without, for example, improving the transportation infrastructure and education programs targeted to real job needs, such as in manufacturing. So our fiscal situation is really worse than what we hear, because it’s preventing us from making the types of investments that will grow jobs, improve the economy, and make Connecticut a magnet for outside business investment and relocation.”

Talent and Infrastructure

Eddy Rodriguez, president of manufacturer Penmar Industries in Stratford, is keenly aware of the importance of state investments in education and training.

“Just about every business owner I talk with complains that they can’t find the talent they need,” says Rodriguez, adding that there are plenty of people looking for work, but that they don’t have the requisite skills.

Rodriguez believes that if businesses can’t be convinced that Connecticut has a “ready now” pipeline of talented employees, they’re not going to stay here, and those in other states are certainly not going to move here.

The solution, he argues, is education: retraining programs and apprenticeships: and reducing the cost of living and doing business so that manufacturing can become “the star it once was” and attract talented workers.

“Our young people must want to pursue a career in manufacturing and feel good about their future,” says Rodriguez. “If Connecticut starts to be recognized as the place to be and as a state that is friendly and accommodating to businesses, the natural progression is that more businesses would come here. With more opportunities in manufacturing, graduates would feel confident they can pursue a career in manufacturing and be rewarded with a good-paying job. That’s certainly not the case today.”

Budget crises have also kept the state from making long-overdue investments in an aging transportation infrastructure, a problem felt most acutely in southwestern Connecticut.

For Tom Santa, president and CEO of Santa Energy Corporation in Bridgeport and chair of the Bridgeport Regional Business Council, Connecticut’s failure to adequately fund infrastructure improvements has had a negative impact on his business and economic growth in the state.

“Delivering goods and services to lower Fairfield County is an ever-increasing problem, the cost of which is inevitably passed on to the consumer,” says Santa. “You only need to look at the number of delivery and service vehicles sitting idle in traffic every day on I-95 to get a sense of the tremendous waste. With no clear solution in progress, this problem severely limits future economic growth.”

CT20x17 Priorities, Strategy

CT20x17 partner organizations are asking Connecticut’s elected officials to work together in a bipartisan manner to begin tackling the state’s biggest challenges, build on our strengths, choose positive solutions, change our economic focus, and set higher performance standards for state government.

The campaign centers on three major themes:

• More competitive costs to give our economy a better chance to grow so you can afford to live, work, and do business here.
• Improved, dependable transportation infrastructure to ensure that our people and products move easily throughout Connecticut and around the world.
• Maintain but improve our quality of life to make our state a place where people and businesses choose to live, work, and play.

To reach those goals, CT20x17 organizers have set up seven working groups made up of volunteers from the campaign’s partner organizations. Their task is to come up with specific policy recommendations by Sept. 15 in order to raise critical issues and ideas during the election season and suggest legislative proposals for the 2015 General Assembly session that begins in January.

CT20x17 working groups are structured around specific issue areas: business costs, the economy, regulatory environment, state spending and taxes, technology and innovation, transportation and infrastructure, and workforce development.

Making the Top 20 Is No Accident

“In general, we see a shift in business relocations to states that traditionally rank high in national business climate indexes, indicating that business-friendly initiatives by states are having an impact in attracting investment,” says Donna Galluzzo.

She notes that states like Texas, Utah, and Georgia have been aggressive in demonstrating their responsiveness to business needs, and their success is reflected in the national rankings and their improving economies.

Some states, in fact, have made marked gains in the rankings in only a year’s time. Nevada, for example, moved from 45th in CNBC’s 2013 rankings to 29th in 2014. Florida moved from 30 to 20, and Georgia moved from number 8 to number 1.

“States that made dramatic improvements in the latest CNBC rankings did so based on policymakers’ conscious decisions to improve their business climates,” says CBIA’s John Rathgeber. “That’s why voters must engage candidates at every level this fall and ask them about their plans for promoting economic growth and accelerating job creation in Connecticut.”

He suggests asking the candidates questions such as:

• How will you address projected budget deficits and the state’s long-term liabilities?
• How will you change Connecticut tax policies to make the state more economically competitive and encourage people to live here?
• What are your plans for continuing to lean the cost of state government and ease the regulatory burden on businesses?
• What will you do to protect the state’s Special Transportation Fund and ensure sufficient investments are made in our roads, bridges, airports, and seaports?
• What are your plans for attracting business investment, creating private-sector jobs, and growing the economy?

In raising those issues, it’s important to acknowledge that newly elected officials will have to make some tough decisions. It’s important to back them when they do.

It’s also critical to emphasize that making Connecticut a top state for business is much more than a business issue, says Rathgeber.

“Changing the state’s business climate will attract much-needed investment, kick-start our economy, and create more opportunities and a brighter future for everyone who calls our state home.”

* CNBC defines this category as “the freedom [that states’] regulatory frameworks provide, as well as the perceived friendliness of their legal and tort liability systems.”

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