If there's one single takeaway from General Electric's decision to relocate its headquarters, it's that Connecticut's policymakers cannot view it as an isolated case.

And how state lawmakers choose to respond to Connecticut losing the iconic company—both through public statements and legislative action—will determine the full extent of the fallout.

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CNBC's 2015 America's Top States for Business survey highlights Connecticut's competitive strengths and weaknesses.

“The conditions that led to this decision exist for many companies in Connecticut,” said CBIA president and CEO Joe Brennan.

“Businesses large and small are making investment decisions every day and they are paying close attention to what's happening in Hartford.

“How Connecticut policymakers react to GE's decision will impact the decisions other companies are now making about their investments here and elsewhere."

Brennan said businesses remain concerned about the state’s short and long-term fiscal issues, which generate widespread uncertainty and a lack of predictability, and the growing burden of costly workplace mandates.

Business Confidence

Since 2011, the General Assembly has approved the largest and second largest tax increases in the state's history, along with a slew of costly mandates directed at businesses.

That constant cycle of budget deficits followed by tax hikes, coupled with growing costs, continue to undermine business confidence, as illustrated in CBIA's 2015 Survey  of Connecticut Businesses, which found broad misgivings about state government fiscal responsibility and the state's competitiveness.

Brennan called last year's budget and its package of tax increases (largely directed at businesses), which some legislative leaders later acknowledged were a mistake, the catalyst that led GE and other companies to review their Connecticut operations.

“We need to redouble our efforts to make the business climate more attractive so we don’t see other companies making similar decisions [to GE's move],” he said.

“It’s time for an urgent and honest assessment of the state's business climate. We don’t want to see this scenario play out again.”

How policymakers react to GE's decision will impact the decisions other companies are now making about their investments here and elsewhere.
— CBIA president and CEO Joe Brennan

Competitive Advantages, Disadvantages

Connecticut improved 13 places to 33rd in last year’s CNBC America’s Top States for Business rankings based on the state's educated, productive workforce and an improving economy.

However, the CNBC study warned that "things are far from perfect in the state, which remains the fourth most expensive state in which to do business."

The state's high rankings for workforce (4th), quality of life (11th), education (11th), and technology and innovation (19th) helped offset--somewhat--poor results in other key areas, including business costs (47th), infrastructure (46th), and cost of living (49th).

All six New England states either improved or remained unchanged in the CNBC study, led by Massachusetts, which improved five positions to 20th overall.

From a competitive standpoint, Connecticut and Massachusetts match evenly in CNBC's rankings for workforce, quality of life, business costs, infrastructure, and cost of living.

statebusinesstaxclimate2016However, GE's future home has competitive advantages in business friendliness, access to capital, education, and technology and innovation.

Massachusetts' economic performance--2.3% GDP growth in 2014 compared with 1% in Connecticut—also means it's the New England leader for creating jobs.

Business Taxes

And, as The Wall Street Journal noted this week, Massachusetts has the lowest taxes in the region after New Hampshire and a business tax climate ranked 25th in the country (Connecticut is ranked 44th).

"Massachusetts has worked to shake its high-tax image by cutting its corporate rate to 8% from 9.5% and flat income tax to 5.15% from 5.3% in 2008," the Journal reported.

"In the same period, Connecticut has raised its corporate rate to 9% from 7.5% and its top income tax rate to 6.99% from 5%."

Massachusetts cut its corporate rate to 8% and flat income tax to 5.15% while Connecticut raised its corporate rate to 9% and its top income tax rate to 6.99%.
Brennan said fiscal stability and predictability were critical for rebuilding the business confidence necessary for investment, economic growth, and job creation in Connecticut, saying lawmakers must focus on structural reforms and keeping state government spending within taxpayer means.

“It was significant that the General Assembly came back into special session not once, but twice last year to repair some of the damage caused by the state budget that was approved in June,” Brennan said.

“Connecticut has made real progress, regaining all the private sector jobs lost in the last recession, and our economy is growing. But we're not out of the danger zone.

“Accelerating that growth and unlocking the state's enormous potential begins, as Governor Malloy has said, with making Connecticut the most competitive state in the region and that’s where the legislature must focus.”