Hartford Business Journal

24 Hartford Business Journal • May 25, 2015 www.HartfordBusiness.com OPINION & COMMENTARY EDITORIAL Malloy's symbolic electric vehicle gesture S ometimes symbolic gestures have real-world impact. Connecticut motorists have been driving gasoline-powered cars for more than 100 years now, so breaking that habit is going to take efforts both large and small. To this end, we applaud Gov. Dannel P. Malloy for allocating $1 million from the 2012 NStar-Northeast Utilities merger settlement to offer up to $3,000 in incentives for businesses and residents to buy and lease electric and fuel cell cars. Doing the math, Malloy's program will support the purchase of hundreds of alterna- tive cars. In a state of 3.6 million residents, the program isn't going to move the needle much in helping to lower carbon emissions by putting more fuel-efficient vehicles on the road. That isn't the point, though. Connecticut's economy — and frankly, the world — can no longer be tied so closely to the rise and fall of the price for a barrel of oil. The cost of everything from food to airplane tickets is influenced by petroleum pricing, and when oil prices are high, eco- nomic growth and financial independence suffers. Malloy's program won't come close to getting every gasoline-powered car off the road — neither will the $7,500 federal incentive — which is the goal of groups like the Sierra Club. We at the Hartford Business Journal prefer a more pragmatic approach, where cars, trucks, and airplanes are powered by a healthy variety of fuels. Even elec- tric and fuel cell cars rely on some kind of fuel — the natural gas and uranium that powers the region's electricity plants — so having a diversity of vehicles on the road keeps the state's economy from relying too much on one commodity. Malloy's incentive program is important because the more motorists see electric and fuel cell vehicles on the road, the greater chance they will consider buying one in the future. The best way to change people's habits is to change the way they think. Watered-down casino bill smart move State lawmakers apparently aren't willing to take a gamble on adding three new casinos in Connecticut after all. We applaud them for maintaining cautious discipline in the face of frantic casino executives who have claimed, and commissioned studies to try to back it up, that adding three new gambling venues across the state is the only way for them to fend off new competition in Massachusetts and New York. Instead, the state Senate last week passed a bill that creates a two-step process for approving one new Connecticut casino by 2016. That's a smarter approach because the economics for a major gaming expansion simply don't make sense. We understand that the 2017 opening of the $800 million MGM casino in Springfield, Mass., will erode some of Foxwoods' and Mohegan Sun's respective market shares. One report commissioned by the casinos said they could lose as much as 9,300 jobs and $254 million in revenues between 2017 and 2019. We're not sure if the impact will be that steep, but it's hard to fathom how adding three new casinos in an increasingly competitive market will buoy the financial health of Foxwoods or Mohegan Sun, which have experienced steady revenue declines for almost a decade. The addition of the new casinos also raised all sorts of legal concerns from Attorney General George Jepsen, who said they could jeopardize the state's tribal compacts, which allow Connecticut to collect 25 percent of gross slot revenues from Mohegan Sun and Foxwoods. The state Senate's approach, to draw out the approval process for another year and only recommend one new casino, is logical. There is no reason to flood the market with new competition at a time of so much uncertainty in the gaming industry. It would be a knee-jerk reaction that could result in unintended consequences. n RULE OF LAW Assessing the Connecticut Republic By John Horak P lato's Republic is a magnum opus of political thought. It was written 2,400 years ago at a time of political disar- ray in Athens, and includes Plato's blueprints for the institutions and systems he believed necessary for the creation and function of a "just" state or political entity. Given the disarray afflicting Connecticut ($70 billion in accumulated liabilities, a hostile business climate, and the like), it is just and fair to assess the performance of our institutions and systems in search of both the cause and the solution. In Plato's view a just state includes two necessary ele- ments. First, respon- sibility for the tasks necessary for the state to function must be divided among dif- ferent groups, with each comprised of people best suited for the tasks. Second, each group must respect its boundaries and not usurp the authority of the others so the sys- tem stays balanced and stable. To use Plato's words: "to do one's own business and not to be a busybody is justice." The groups envi- sioned by Plato were part of a class sys- tem that is foreign to our modern sen- sibilities. However, the proposition that a state operates most fairly when tasks are divided among groups or organiza- tions best suited for them and which do not unduly intrude on the others has a modern analog in the "division of labor" among our three economic sectors (private, governmental, and nonprofit) and the institutions within each. In this context, the evidence suggests that Connecticut's disarray is a result of an imbalance in our three sector system — caused specifically by state govern- ment intruding excessively in tasks for which private and nonprofit sector organizations are better suited. Connecticut state government has become a busybody. While examples are plentiful, there is none better than the decision by state regula- tors earlier this year to put the kibosh on the plans of five nonprofit hospitals to sell their operating assets to for-profit Tenet Health- care (private sector) with the proceeds of the sales to be held in charitable foundations (nonprofit sector) to provide for community healthcare needs. To be very clear, the issue is not whether regulators should have approved these trans- actions (in an earlier column I explained why they should have); the question is whether the regulators should have had this much author- ity in the first place. The law is more nuanced than one may think. First, the hospitals are free-standing, nonprofit corporations. Under corporate law their boards of directors have final authority and power over the "activities, property, and affairs" of the hospitals, and this corporate law authority includes the ability to negotiate and complete deals of the type in question. Second, corporate law imposes high stan- dards of conduct on the governing boards when they deliberate — fiduciary duties of care and loyalty. Directors can be personally liable if they breach these duties. The duty of care requires due diligence and the duty of loyalty requires board members to act solely in the interests of the hospitals (i.e., no conflicts of interest). Moreover, the hospital board mem- bers are experienced and savvy business peo- ple, healthcare professionals, and community leaders who know what they are doing. Third, the statutes giving regulators the power to "approve, approve with modification or reject" hospital deals of this type was not on the books until 1997. Prior to that date the hospital boards would have had the final word on the deals under the corporate law principles discussed above (subject to other less potent regulatory requirements). In other words, the 1997 statute was, in essence, a "taking" or "usurpation" by the state (governmental sec- tor) of corporate rights and powers that histori- cally resided within the nonprofit sector. Fourth, the appropriated rights were not placed in the hands of the General Assembly to vote the deals up or down in public, or of the municipalities in which the hospitals are locat- ed, but in the hands of a group of executive branch employees. These employees are not fiduciaries with personal skin in the game, and, most importantly, have a covert conflict of interest in that when they exercise their judgment they are influenced as much by the interests who deliver at the ballot box as the interests of the hospitals and their com- munities. Nevertheless, they had the power essentially to veto the judgment of the fiducia- ry boards that the sales were in the best inter- est of the hospitals and their communities. As I stated above, these hospital deals are simply one example of how government intrusion (in the form of excessive regulation) into non-governmental sector organizations upsets the balance and stability that a three- sector system brings to the ship of state. This is not to say that regulation is unnecessary. It is surely a function of the governmental sec- tor to enforce the law, to root out wrongdoing, and the like; but when regulatory authority creeps in too far it distorts the decision-mak- ing processes within business and nonprofit organizations, which can end up putting more time and effort into pleasing the regulators than they do to the operations and activities for which they exist in the first place. On May 5 Waterbury Hospital (which is one of the five hospitals discussed above) announced that it was signing a letter of intent to sell itself to a for-profit hospital operator based in California. Let's hope that justice is done this time around. n John M. Horak has practiced law at Reid and Riege P.C. in Hartford since 1980. The views expressed are his own. HARTFORDBUSINESS.COM POLL Should state government incentivize electric or fuel cell car purchases? ● Yes ● No To vote, go online to HartfordBusiness.com. Last week's poll results: Should Congress reauthorize the Export-Import bank? 47.4% Yes 52.6% No John Horak ▶ ▶ Connecticut state government has become a busybody.

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