Hartford Business Journal

16 Hartford Business Journal • July 13, 2020 • www.HartfordBusiness.com By Matt Pilon mpilon@hartfordbusiness.com A fter months of relative isolation and various other sacrifices made by state residents and companies, Connecti- cut can, at least for now, declare a cautious victory against COVID-19. Infection rates, hospitalizations and deaths continue to dwindle as the daily reality of social distancing, mask wearing and other precautions remain the norm. But the pandemic has battered the state and national economies, and the recovery almost certainly won't be the V-shaped bounce-back some economists and government officials predicted back in March. Just as Connecticut has taken pains to slow the trajectory of COVID-19, some are now wondering whether the state can similarly reverse its pre- pandemic economic direction. "If we recover from the pandemic, we are where we were in 2005 or 2006," said UConn economist Fred Carstensen. "We have a very unhealthy economy and this has been something that's happened over the past decade." Carstensen, director of the Con- necticut Center for Economic Analysis, has frequently opined about Connecti- cut's economic malaise coming out of the last recession, years before anyone ever heard the term COVID-19. Key hindrances, which have also been echoed by other local econo- mists, include stagnant population and GDP growth; deteriorating tax revenues in spite of tax increases; low- wage jobs replacing higher-income ones; a lack of technology infrastruc- ture; misaligned corporate incentives; high levels of debt and other obliga- tions; and a failure to attract as much federal funding as other states. Those challenges would be difficult to deal with in normal times, but now the assessment takes on new weight as Connecticut begins to claw its way out of a large and unexpected corona- virus-induced economic hole. When state lawmakers convene in January to start crafting a state budget that begins July 1, 2021, they are estimated to be facing a two-year deficit in ex- cess of $4 billion, driven by falling tax receipts, according to budget analysts. Even with an unprecedented $2.5 billion balance in its rainy day fund, Connecticut's situation remains dire, as there's a deficit of up to $1 billion to close the fiscal year that just ended last month. "We're probably looking at deficits regularly running at 10% to 12% [of the annual state budget], which means that we have to have very, very dramatic cuts in a whole array of state activities," Carstensen said. It will almost certainly lead to a debate among lawmakers over rais- ing taxes as well. Carstensen's remarks came during a June 30 virtual panel discussion CT could benefit from global supply chain reshuffling By Matt Pilon mpilon@hartfordbusiness.com I t's tough under normal condi- tions for a state government and its economic development apparatus to pursue a coordinated strategy, but COVID-19's uncertain- ties make it especially difficult. However, Connecticut — which has strengths in health care, bio- tech and defense — could benefit from the reshuffling of global supply chains now underway as companies broaden their trad- ing partners amid fears of future disruption, including a potential second wave of coronavirus. "Corporations around the coun- try are realizing they need alterna- tive sources to their pre-pandemic supply chains," said Fred McKinney, professor of entrepreneurship and strategy at Quinnipiac University. Such changes are already hap- pening for some local companies, such as Tolland-based Gerber and Manchester-based Lydall, which have shifted some of their focus to the production of masks and other personal protective equipment, which were in dire shortage at the onset of COVID-19. "It's not going to happen easily and it's not going to happen auto- matically. It's not easy, for instance, to have a supplier to Sikorsky helicopters switch and become a supplier to Ford, but these types of transitions have happened and can happen and this is probably about the best opportunity we've had in years for companies to think about that change," McKinney said. UConn economist Fred Carstensen agreed that the state could be a more dominant supplier in the years to come. One disadvan- tage for Connecticut is that the cost to build new facilities here is much higher than it is in some other states, including in the south. The answer to that problem, Carstensen posits, is the state should allow companies building new facili- ties to make use of stranded corpo- rate tax credits — whether gener- ated by themselves or acquired from another company — as incentives. Connecticut enticed Pratt & Whitney to build a new headquar- ters in East Hartford with that very strategy, and Carstensen argues it should be a standard policy for any company. He estimates there are $1.5 billion in state credits that cor- porations cannot currently apply to their tax liabilities due to annual caps set by the legislature. "Companies have to [build the facility] before they can collect the credit," he said. "If you made those stranded tax credits available … then we become competitive for that whole supply chain development." Carstensen offered several other policy ideas to help spur Connecti- cut's economy out of the current crisis, including: • Making tax incentives for data center developers automatic, rather than case-by-case, to spur development of high-tech businesses and jobs here. • Redeveloping Sikorsky Memo- rial Airport in Bridgeport as a regional hub. • Beefing up tax-collection en- forcement and auditing man- power at the Department of Rev- enue Services to ensure the state is collecting owed revenues. Economic Outlook With CT's economy still ailing from Great Recession, pandemic digs a deeper hole for state to scale PHOTO | NATHAN OLDHAM, UCONN SCHOOL OF BUSINESS UConn economist Fred Carstensen said Connecticut's economy has lagged for a decade and the coronavirus pandemic will only exacerbate the state's challenges.

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