Budget impasse doesn’t help state’s appeal to business
Connecticut’s not exactly on a roll.
Aetna’s announcement on Thursday that it plans to shift 250 executive jobs from Hartford to New York City coincided with General Assembly’s admission that it could not come up with a new budget in time for the July 1 start of the fiscal year.
Aetna added injury to the insult of General Electric’s relocation of its flag last year from Fairfield to Boston, feeding the narrative that Connecticut, with a projected $5 billion state budget deficit over the next two years, isn’t business friendly.
Both New York and Massachusetts have more than gained back the job losses suffered during the 2008 recession, while Connecticut still lags.
Gov. Dannel P. Malloy stresses that out-migration of a few hundred jobs — GE still has a large presence in the state — has been offset by the relocation of large employers, such as NBC Sports’ 1,100 jobs in Stamford and the Jackson Labs genomic research facility in Farmington.
“They’ve announced that on a repeating basis, and they went through their own dance pretending that they might move to Boston when you knew and I knew and everybody knew that they were going to New York,” Malloy told reporters after Aetna made its new destination known, around the time that majority Democrats in the House admitted Thursday they could not agree on a budget in time for the new fiscal year.
Aetna’s 6,000 remaining jobs
“They’re moving 200 jobs that we know of and I’m focusing on the close to 6,000 jobs remaining in the state,” Malloy said. “I wish the leadership of the company well in their digs in New York. Every job lost is a loss and every job gained is a gain. We tend to, because we’re from Connecticut, beat ourselves up over losses. That’s the nature of who we are. We’re Yankees.”
Connecticut economists agree that the failure to create a new budget is a major negative at a time when government has to show that it has a long-term plan to foster growth.
“It’s a difficult thing to do, but they have to get it done,” said Peter Gioia, chief economist for the Connecticut Business & Industry Association. He called it “extremely disappointing” that the budget proposal announced by House Democrats Thursday in preparation for a vote on July 18 depends on an increase in the sales tax that would amount to a billion dollars over the biennium.
“They have to do something that’s sustainable,” Gioia said in a interview. “That is the basis of the concerns for companies like GE and Aetna. They don’t see the competence in lawmakers to create a sustainable budget package that fits the reality of the revenue picture.”
He expects that Malloy’s executive order to fund bare-bones state services, will be a wake-up call.
“He’s going to introduce pain,” Gioia said. “They’re going to go through the summer with constituents screaming at them and as the summer drags on, they won’t be able to raise campaign money.”
With subpar growth and subpar job creation, gimmick revenue enhancements such as raising the 6.35 percent sales tax by 10 percent to 6.99 percent, ignore the state’s actual needs, Gioia said.
“Wealthy people are exiting the state; aging executives and owners are making decisions to stay or sell operations,” he said. “If they sell intellectual property, the jobs will go.”
‘We knew it was coming’
While there have been positive signs from Amazon, Electric Boat, Pratt & Whitney and Sikorsky, the negatives seem to be out-weighing them, Gioia said.
“We’re saying you have to get your act together. Businesses don’t wait for government to do their planning,” he said.
State government should be looking at money-saving plans, Gioia said, including correction reforms to lower inmate populations and shifting social-service programs to private providers — “That’s a hell of a lot better alternative than raising the sales tax.”
“We knew it was coming,” Speaker of the House Joe Aresimowicz, D-Berlin, said of the Aetna move, stressing that the budget they unveiled Thursday afternoon is aimed at helping urban areas.
“The state of Connecticut really appreciates the ongoing investment that Aetna has made,” he said. “It goes to show that the lack of investment in our urban centers have a cost. They’re going to another place that young people want to be that attract talent.”
Fred Carstensen, professor of finance at the University of Connecticut and director of the Connecticut Center for Economic Analysis, said it took years for GE to decide to abandon Fairfield, where it moved from New York in the early 1970s.
“Companies have been moving out of those suburban parks,” he said. “Boeing moved its headquarters to Chicago because Seattle was physically too far away. A lot of companies have decided to move their headquarters to central areas, independent of the fiscal crisis.”
The fact is, Carstensen said, that neither UConn nor Yale have had reputations as engineering schools. The insurance industry has essentially become an information-technology field, in which Connecticut, which had the first commercial telephone system in the nation in New Haven, now lags.
Carstensen disagrees with Gioia over the importance of taxes. New Yorkers pay both city and state income taxes. Boston property taxes are five times those of Fairfield. But both out-of-state locations are closer to the human capital they want to attract than Hartford and Fairfield.
He describes the state budget stalemate in one word: “chaos.”
“You don’t have, from my perspective, strong leadership on how to deal with problems we’re facing in broad strategic sense,” Carstensen said. “Nothing is more troublesome for business than uncertainty.”
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