‘If We Can’t Get This Right, We’ll Lose a Generation’
Connecticut’s budget crisis dominated discussions about the outlook for the state’s economy at CBIA’s April 28 economic summit in Plantsville.
“We have to get people excited about investing here, living here, and being successful in Connecticut,” CBIA president and CEO Joe Brennan told more than 300 business leaders.
“We’re talking about the next generation in the state. If we can’t get this right now, I’m afraid we’re going to lose a generation.”
The continuing focus on tax hikes overshadows discussions about critical long-term investments like workforce development, education reforms, and infrastructure improvements, Brennan said.
“It sounds like a cliché, but we truly are all in this together,” he added. “Whoever you are, we really all have a vested interest in getting this budget right.”
With income tax revenues for 2017 falling well below projections, Connecticut now faces a two-year budget deficit of around $5 billion.
Closing the deficit will require engaging in fiscal discipline, said Don Klepper-Smith, Economist for DataCore Partners and advisor to Farmington Bank.
“The Connecticut economy has decelerated in the past six quarters,” he said. “We have to approach the spending side of the equation.”
CBIA economist Pete Gioia called for implementing reforms proposed by the Connecticut Institute for the 21st Century, including accelerating the conversion of long-term institutional care to home care, moving state-run social services to nonprofits, overhauling the state’s pension system, and continuing reforms in corrections.
“We’ve never called for anything draconian with the state employee unions. We just need a state government that we can afford, not just in the short-term, but in the long-term too,” Gioia said.
“Our pension benefits don’t fit compared to the other Northeast states—they’re out of whack. There need to be adjustments and benchmarks.”
The Connecticut General Assembly must approve “a hard and fast spending cap that’s tied to the consumer price index,” Klepper-Smith said.
Moody’s Analytics economist Sarah Crane said certainty and predictability were critical to businesses.
If firms don't know what's coming down the pike, they're not going to want to invest.
"If firms don't know what's coming down the pike, if they have to do a lot of guesswork about what band aids might be put on the fiscal situation, they're not going to want to invest," Crane said.
"The actual solution is not as important as giving businesses more certainty."
Simplification and controlling state spending, as well as a more favorable regulatory environment are solutions that breed confidence for businesses, consumers, and international firms, said Chris Ball, director of the Central European Institute at Quinnipiac University.
"International businesses are paying attention to the negative fiscal news in the state and are making decisions based on that," said Ball.
"We have to make Connecticut a much more appealing state by solving these challenges."
"We have enormous economic opportunity. Take a look at our manufacturing, bioscience, and financial service firms with our number one in the country productive workforce," Gioia noted.
"We're the envy of every state in country and every country in the world. We're an all-star hitter, but we are in a batting slump and that is due to self-inflicted wounds."
Recruiting, Retaining the Next Generation
Connecticut is losing population, including young professionals and recent college graduates, with net out-migration reaching almost 30,000 last year.
"The best people you want to retain are also the people with the most ability to leave," said Ball. "It is about reforming our systems."
"People don't want to leave. There's fantastic companies, people, and opportunities here. We just cannot afford to drive them away."
"You have a very highly-educated and skilled workforce in Connecticut, but without the opportunities that match those skills, they move to other states," said Crane.
"Affordability is certainly a concern. Young people starting their careers are not able to buy houses, despite the fact that housing prices are not growing, because they're still expensive. They prefer instead to move elsewhere."
People don't want to leave. There's fantastic companies, people, and opportunities here. We just cannot afford to drive them away.
The resurgence of advanced manufacturing the state has realized a significant skills gap.
"The multipliers in the manufacturing sector are profound. It is non-negotiable that we preserve this employment base," said Klepper-Smith.
"Look at what manufacturing means to Connecticut. We need to have in order, front and center: an economic development strategy that long term preserves those manufacturing jobs."
Unfortunately, tax increases prevent smaller, unincorporated manufacturers from making the necessary investments, from hiring workers to purchasing new technologies to remain competitive.
"Manufacturers are looking for assistance in job training so they can hire more effectively," Gioia said.
"They are looking for relief in some areas, like better transportation and regulatory relief."
The U.S. Outlook
Summit speakers also debated the Trump administration's impact on the state and U.S. economies.
"Six months ago, I would have said exactly what you said—it needs to be certain and predictable. And yet that's the last thing we have at the federal level," said Ball.
"There are both upsides and downsides as a result of Trump's presidency. The financial sector is poised to grow," said Crane.
"If the administration and Congress are able to repeal the regulations that have held back stronger growth, that will bode well for one of the largest industries in Connecticut."
Crane explained that, "higher defense spending will bode well for Connecticut's aerospace and shipbuilding industries, which would be great for very high-wage jobs."
"On the other hand, if this is paired with large discretionary cuts, Connecticut is not in a place where they can match or fill the hole left by cuts to services."
Ball warned that the U.S. has not in recent years taken a leadership as a top destination for international businesses to establish roots and expand.
"There are simple things the Trump administration could do in terms of reaching out to countries, build better relations, create bilateral trade deals, and also improve their ability to come to this country with visa waiver programs," he said.
"It really boils down to that one word: confidence. Investor confidence, business confidence, consumer confidence," Klepper-Smith added.
"The question is can we sustain that momentum? To get to the scenario of 2.5%-3% [U.S.] growth, you have to seek a continuation of that confidence."
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