Hartford Business Journal

20 Hartford Business Journal • February 1, 2016 www.HartfordBusiness.com OPINION & COMMENTARY EDITORIAL Budget must be focus in short session M yriad issues will be brought up for debate during this year's legislative session but the only one that truly matters is the budget. While short legislative sessions in Connecticut are typically an off year for budget talks, the state's projected deficits for the current and future fiscal years make solving our fiscal uncertainty the top priority. While some lawmakers may think passing new economic development initiatives in the wake of General Electric's departure should be the focus, the business community is really harkening for a plan that balances the budget long term without further tax increases. Fiscal certainty would be the most powerful economic stimulus package for Con- necticut's economy. The state's nonpartisan Office of Fiscal Analysis put out a report last week project- ing a $72.2 million deficit for the current fiscal year, despite lawmakers cutting $350 million from the budget during a special session in December. OFA also projects a $507 million deficit in fiscal 2016-17; deficits are projected to be in the billions thereafter. Republicans and Democrats are currently trying to score political points by blaming each other for our fiscal woes. Such politicking will do nothing to solve our budget crisis. Now more than ever, we need a legislature that can work together and incorporate ideas from both sides of the aisle to deliver to taxpayers a balanced budget that includes plans to pay long-term debts like pension costs. And it must happen this year. Lawmakers can't afford to leave a sense of uncertainty hanging over Connecticut's economy for another 12 months. Investors are already on edge after Wall Street ratings agency Moody's last week issued a "credit negative" warning for Connecticut in the wake of GE's departure, citing the state's "budget deficits, low reserves, population loss," and slow economic recovery as cause for concern. And, of course, there is the threat of more companies deciding to flee the state if they continue to lose faith in government's ability to do its job. n Hartford must leverage corporate IQ A key trait of any top executive is the ability to attract top talent. Mayor Luke Bronin is off to a good start in that regard. Bronin recently named Bonnie Malley, an executive vice president and chief finan- cial officer of The Phoenix Cos., as his chief operating officer. Malley, who was a Hart- ford Business Journal Women in Business awardee in 2013, has been a key figure try- ing to turnaround Phoenix Cos., which has struggled since the Great Recession and recently agreed to sell itself to Nassau Reinsurance Group L.P. Her decision leave a job that paid her more than $1 million annually, to take a civil- servant role that will pay her much less, speaks volumes to the support and optimism Bronin has garnered from the business community, which is craving for competent leadership from city hall. Thea Montañez, the former head of local grant making and sponsorship programs for The Hartford Financial Services Group Inc., is another corporate leader Bronin has tapped; she serves as his chief of staff. Corporate support will be key to Hartford's revival. The more business leaders get involved in helping city hall grapple with the very difficult issues it faces — budget deficits, poverty, property taxes, education gap, etc. — the faster the Capital City will rebound. The corporate community has been financially supportive of the city for decades, but the intellectual capital it harnesses to solve complex problems is an even more valuable asset. Let's hope Bronin can leverage that to the fullest. n OTHER VOICES After GE, CT needs spark to end economic blackout By Joe Horvath I n the early 1970s, New York City and State implemented tax hikes. In response, Gen- eral Electric moved its corporate headquar- ters from Manhattan to Fairfield. At the time, Connecticut had no personal income tax, as opposed to today's top marginal rate of 6.7 per- cent. Because of the move, the company and its employees also enjoyed a signifi- cant tax reduction, particularly those who relocated to the Nutmeg State. Last month, his- tory repeated itself. GE didn't have to put much of its imagination to work when it decided to ship up to Boston. Despite being long derided as "Taxachusetts," the Bay State offers a better economy for business- es and individuals. "It's great [that General Electric] has selected Massachusetts for their headquarters but it's a cautionary tale of how regulatory and tax burdens can drive busi- nesses away," said Thomas Erb, president of Massachusetts-based Electric Time Co. Inc. "In Massachusetts, Proposition 2.5, and fiscally conservative democratic and repub- lican politicians, have improved the tax cli- mate of our state so that we no longer have the highest tax burden in the country," said Erb. "Connecticut, on the other hand, has gone from having a low tax burden to one of the highest in the country." In the 2015 edi- tion of the Rich States, Poor States: ALEC-Laffer State Economic Competi- tiveness Index, the ALEC Center for State Fiscal Reform ranked Connecticut's economic outlook 47th out of 50 states. Massachusetts and Rhode Island, mean- while, boast lower personal and cor- porate income tax rates. In 2013 and 2014, the four states closest to Connecti- cut either cut taxes or raised them less than Connecticut. "Last year, Connecticut raised taxes by $1.3 billion, and eliminated or delayed another $500 million in tax cuts," said Suzanne Bates, policy director of the Yankee Institute. "It wasn't just this year's increase that concerned GE; the big- ger concern is that state lawmakers will keep raising taxes … It is unsustainable, and leads to a lack of predictability for businesses as well as the residents of Connecticut." Adding to the unpredictability, Gov. Mal- loy seems to be tone deaf. Responding to GE's move, and possibly still suffering a State of the Union fugue, he told Connecticut reporters "We win some, we lose some. Luckily, we've won more than we lost, but this hurts." In this case, however, Connecticut has lost hundreds of jobs. Since 1992, the state has lost more than $12 billion in gross-adjusted income to domestic outmigration, with the trend becom- ing even stronger since 2010, according to online research site How Money Walks. More than 140,000 residents left the state from 2004 to 2013. A recent Yankee Institute study stated that between 2011 and 2013, Connecticut lost $60 a second to outmigration. Malloy hasn't been suffering his discon- nect alone, however. Shortly after the GE news broke, a state panel suggested tolls and higher gas and sales taxes to pay for trans- portation costs. This past summer, the Gen- eral Assembly passed a massive tax increase, only to amend it within a week. "The state of Connecticut has schizo- phrenic tax policy," said Andrew Markowski, Connecticut state director of the National Federation of Independent Business. "If a corporation the size of General Electric can- not afford to do business in Connecticut, how can a small, family owned business be expected to operate in this state?" Markowski is right to worry about Con- necticut's small businesses. Companies like Borgeson Universal, founded in Connecticut over 100 years ago, are moving away in pur- suit of friendlier business climates. The upcoming legislative session is an opportunity to come up with real solutions. First, examine the estate tax. Rhode Island recently raised its exemption limit, as did New York. The state's decision to enact an estate tax cap may limit some residents' burden, but the bene- fits are hardly broad- based, plus there are reports of new pro- bate fees being lev- ied on estates. Next, the 20 per- cent surcharge on corporate taxes incentivizes large businesses like GE to leave. Forcing a corporation to cal - culate its tax liability and then arbitrarily add 20 percent has no logical underpin- ning beyond being an inventive way to squeeze businesses. Last, explore basic, broad-based income- tax reform. To stop the migratory bleed- ing, make Connecticut an attractive place to live and do business. Bring the personal, sales and corporate rates down, closer to better-perform- ing states like Massachusetts and Rhode Island. While Connecticut should aspire to become one of the nation's economic leaders, at this point, regional parity might be a good first step. n Joe Horvath is a legislative analyst for the ALEC Center for State Fiscal Reform and currently resides in Virginia. He is a grad- uate of Sacred Heart University in Fair- field, and a native of Shelton. HARTFORDBUSINESS.COM POLL Will the legislature raise new revenues to balance the budget? ● Yes ● No To vote, go online to HartfordBusiness.com. Last week's poll results: Is Gov. Malloy's $100B transportation plan worth possible tax increases and tolls? 28.6% Yes 71.4% No Joe Horvath ▶ ▶ ' The state of Connecticut has schizophrenic tax policy. If a corporation the size of General Electric cannot afford to do business in Connecticut, how can a small, family owned business be expected to operate in this state?' Andrew Markowski, state director, Connecticut Chapter, NFIB

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