It was standing room only as David Hess, president of Pratt & Whitney, addressed the CBIA/MetroHartford Alliance Economic Summit & Outlook and called on state government to “transform itself in the face of new challenges.”
That’s precisely what Pratt and other businesses have done, said Hess, reinventing themselves in the face of economic pressures. He spoke to nearly 600 businesspeople who attended the conference.
Hess was introduced by Webster Bank’s executive vice president of commercial banking, Joe Savage, who said the sheer number of Connecticut employees on Pratt & Whitney’s payroll (currently 10,500), its innovative spirit, and its positive impact on nearly 600 suppliers throughout the state make the 86-year-old aircraft engine manufacturer “one of Connecticut’s gems.”
Hess began with an overview of Pratt & Whitney’s history and future in Connecticut, including the development of PurePower Geared Turbofan engines that have recently won places on aircraft being developed in Japan, Canada, and Russia. Among other efforts, he said, the development of these engines has reenergized the company’s international presence in a difficult economy and helped it “take back share.”
“There has been a huge shift in the global economy,” he said, “with profound implications for our state. Just as those of us in the business sector must always be sensitive to our competition, so must our state…The urgency of [Connecticut’s] financial crisis ought to be more than enough incentive to start transforming our state.”
In 1990, Hess pointed out, seven out of 10 Pratt & Whitney employees lived and worked in Connecticut; today, it’s closer to three out of 10. In fact, nearly half of the company’s workforce (46%) is based outside the U.S. He explained that globalization means companies have many options about where to locate.
“Business goes where it can be successful.”
A Shift in Attitude
Although high housing and energy costs are drawbacks to doing business in Connecticut, Hess argued that state leaders can help offset those disadvantages.
“An attitude change is the first step,” he said.
To attract business investment, according to Hess, government needs to move from a sometimes adversarial relationship with businesses to a more supportive one.
He called first and foremost for a stable tax structure, recalling how the state’s research and development tax credit helped influence Pratt & Whitney’s decision in the 1990s to move its entire military engine business from Florida to Connecticut. Within a few years, however, “the state changed the rules, and the credit could only be applied to 70% of our tax liability. That was a 30% hit on multimillion-dollar, long-term R&D programs.”
Similarly, the state’s sales tax exemption on many manufacturing activities is often up for discussion. So far, proposals to eliminate the exemption have failed, but if they were ever enacted, Hess cautioned, “it would make doing business in Connecticut untenable.”
What’s more, he said, “debating major taxes changes every year creates uncertainty. We have to have some predictability on the tax burden we face when we make decisions about where to locate R&D and manufacturing work. The stability and predictability of taxes is as important as the actual tax rates.”
He called for similar predictability, as well as streamlining, in environmental regulation; more affordable, accessible education and training; improvements to our electric transmission and delivery systems as well as a deregulated environment for wholesale electricity; and lower healthcare costs. Connecticut’s health insurance premiums, he pointed out, are among the highest in the country.
Developing a Track Record
Companies are attracted to locations that demonstrate a long-term commitment to economic growth and “stick by the promises they make” to businesses, said Hess. “I recommend that the leaders of our state consider benchmarking states like Virginia and South Carolina, [which] have a consistent track record of attracting businesses.”
Fostering business growth, he added, “will generate the wealth to solve some of the problems our new governor and the General Assembly face.”
Connecticut faces some tough issues, he acknowledged in his closing remarks, but added, “I sense a new attitude about tackling them—including the promise of enlightened leadership from Governor Malloy, who has already reached out to the business community in a big way.”
The governor’s participation in the CBIA/MetroHartford Alliance Economic Summit & Outlook, Hess pointed out, “says everything about his attitude toward business in the state of Connecticut.”
In a special media Q&A session following his address, Hess talked about the hundreds of engineering and hourly production jobs his company expects to add in Connecticut as a result of development work in on its PurePower Geared Turbofan; the effect that downward pressure on military spending could have on aerospace manufacturers; forecasts for corporate profit recovery over the next two years, and Pratt & Whitney’s recent restructuring, including the closing of its engine overhaul operation in Cheshire.
“That tough decision certainly generated a lot of heat, headlines, and legal fees,” he acknowledged, “but [it] also shed some light on the challenges we face.”
Lesia Winiarskyj is a writer-editor at CBIA. She may be reached at firstname.lastname@example.org.