How did the second-largest tax hike in Connecticut's history affect job creators’ perception of the state's economy?
Based on the 2015 Survey of Connecticut Businesses, the tax package included in the budget approved by the General Assembly in June cast a shadow across the state's economic outlook.
Released last week at The Connecticut Economy conference in Hartford by CBIA and the accounting, tax, and consulting firm BlumShapiro, the survey found that the state’s economy was the single biggest challenge for 43% of respondents in 2015, a significant increase over last year’s survey (34%).
When asked about their greatest concern regarding the 2015 legislative session, 48% cited tax increases, while 26% said lawmakers were out of touch with business issues.
“Though this report gets at some of the state’s weaknesses—in addition to its many strengths—our purpose is to highlight for policymakers both the hopes and deep concerns businesspeople have about doing business here,” said CBIA president and CEO Joe Brennan.
Connecticut's economy grew just 0.6% in 2014, well below the 1.6% average growth for all New England states. The national economy grew 2.2%.
Speaking at the conference, economist Don Klepper-Smith forecast Connecticut's economy to grow between 1.5% and 2% this year and just 1% in 2016, "well below the annual 2.5% average.
"Job one for state lawmakers going into 2016 must be restoring business confidence," said Klepper-Smith.
Comparing business climates
Seventy-seven percent of companies said Connecticut's business climate was worse than that of other Northeast states and 91% said it was worse than states outside the region.
When asked how state lawmakers could enhance business competitiveness, 53% of survey respondents said reducing taxes should be the legislature's top priority.
Others cited reducing state spending and the size of government (22%) or easing regulatory burdens (21%) as ways to enhance the state's business climate.
Five-and-a-half years after the end of the recession, Connecticut has regained about 86% of lost jobs. Based on recent trends, Klepper-Smith said he expected the state to return to full employment "sometime in 2016."
The state's unemployment rate is at 5.4%, higher than all New England states except Rhode Island. The national rate is 5.3%.
State Department of Labor assistant director Patrick Flaherty told the conference that while recent job growth numbers were positive, underemployment and flat wage growth were "discouraging."
Flaherty said there are signs the labor market is growing stronger, although employers continue to see a shortage of skilled workers to fill open positions.
"What am I most worried about in the next few years?" he said. "The finance and insurance sector, which has recovered less than 50% of jobs lost in recession."
The survey found that, through 2016, workforce demand will be concentrated on mid-level employees, with 38% of companies saying that was their biggest need, followed by entry-level employees (27%), line workers (26%), and managers (6%).
When asked how the state could address the shortage of skilled workers, common responses included greater investment in technical education, better infrastructure and housing, and tax incentives for employee training.
The survey did reveal cautious optimism, with 32% of respondents saying their companies were growing, and 50% reporting they were “holding steady.”
Fewer than two-thirds of all businesses surveyed (63%) recorded a net profit last year. Just under a quarter (22%) broke even, and 15% recorded a loss.
Given Connecticut’s position as a high-cost state, innovation is critical to growth and profitability. Half of businesses surveyed this year added new products or services in the past year, and slightly more (52%) expect to in the coming year.
While this is an uptick from last year’s 47%, it represents a decline from five years ago, when 59% of companies planned to introduce a new product or service.
The survey was emailed to approximately 5,500 businesses in June and July, with a 10.6% response rate and a margin of error of +/- 4.1%.