Hartford Business Journal

20 Hartford Business Journal • decemBer 26, 2016 www.HartfordBusiness.com Improving business climate key to CT's economic future By Jeff Hubbard KeyBank's market president for Connecticut and western Massachusetts "C urrent interest rates are attrac- tive for borrowers." "It's a borrowers' market." "Now might be a good time to reinvest in my business." We hear phrases like these all the time from Connecticut's financial profes- sionals. And while these statements are true and the market appears favorable for borrowers, there are still several fac- tors limiting business invest- ment, expansion and overall growth in our state. A recent small business survey from the Connecticut Business and Industry Asso- ciation (CBIA) found the top three challenges for small businesses in the state were increasing profitability and growth, overly restrictive government regulations and policy decisions, and the rising costs of doing business in the state. According to that survey, business owners ranked high personal income, tax rates, and the increasing cost of doing business in Connecticut as the most problematic and least favorable aspects of owning a company in the state. If you combine that with the 92 percent of businesses that said they do not believe Connecticut's public policies facilitate the efforts of small business interests, there is a case to be made that despite favorable lending markets, it's still a challenging time for businesses to grow and invest in the state of Connecticut. In order to alleviate the concerns expressed by Connecticut's small busi- nesses, it is important for owners and company leadership to work with legis- lators to help them better appreciate the interests and apprehensions of the small business community. This dialogue will help facilitate the type of environment that business owners want to see in order to confidently invest in a long-term business plan in our state. Developing a short- or long-term plan that supports growth and profitability is often a challenge; it's important for busi- ness owners to focus on their company's unique strengths in order to establish them as industry leaders. Touting the benefits of your organization's products and services will help position you as a competitive business looking to expand its relationships with customers and employees. Company culture is also important. It's a modern phrase with big impacts on acquiring talent and retaining employ- ees. Showcasing the values important to your business and the people who work there can make a big difference in overall image, particularly in a booming age full of digital and social-media channels. Investing in talent will also increase long-term profitability. Our state is home to a skilled-workforce popula- tion, and growth and development initiatives designed to improve these skills and match workers with unfilled employment opportunities in industries like manufacturing, finance and health care, will only strengthen our state's economy. We also need to continue to support public policy initia- tives that improve transpor- tation infrastructure, lower energy costs and decrease the overall cost of living and working in the state. If the cost of doing business in the state goes down, employers can reinvest those savings in their businesses and their workers will benefit from a greater quality of life. Mil- lennials are a big part of this — instead of flocking to Boston or New York City, let's give them a reason to stay in Con- necticut and build their careers. Looking ahead to 2017 While we are addressing solutions to the challenges that we face, we must also capitalize on our strengths. That same CBIA survey found several positive attri- butes that exist in Connecticut for the small business community — the biggest one being location, location, location. Connecticut's proximity to custom- ers, vendors and major metropolitan areas make it an attractive place to locate a business. We have a skilled workforce that has access to some of the best academic institutions. Centrally located in a developed and urban region of the United States, our quality of life is often considered a selling point of liv- ing and working here. We must promote these unique, positive attributes of our state and use them in recruiting more business investment in Connecticut. This is a critical time for the business community to take a hard look at the future of business in our state. We need to work together with our state and fed- eral elected officials on business-friendly initiatives, leverage the favorable mar- ket conditions that exist and promote the unique quality-of-life characteristics that Connecticut possesses. Doing so will serve as a springboard to jump-start small business growth and create a strong future for our local economy. n 2017 BANKING OUTLOOK CT credit unions' prospects brighten despite rate, state fiscal pressures By Dean Marchessault CEO, American Eagle Financial Credit Union P rospects for many credit unions have improved and should con- tinue to do so in 2017, even if inter- est rates rise at modest levels during the year. The year 2015 ended with, and 2016 is tracking toward, positive member growth for Connecticut credit unions, after five-plus years of sideways move- ment. Through the second quarter of 2016, over two- thirds of the 107 credit unions in Connecticut have grown assets, a significant improve- ment from the past few years. Currently, three out of four credit unions have positive return on assets, a 50 percent improvement over 2013. At American Eagle Finan- cial, 2016 was a good year. We experienced double-digit net loan growth fueled by consumer home and auto pur- chases and refinancing. Auto sales financing for all credit unions has been a growing part of the industry since the large banks retrenched during the financial crisis. Credit unions across the country are front and center in auto financing, and with new auto sales at near record highs the last few years, business has been good and loan quality is strong. The election Credit unions have similar regula- tory and compliance burdens to banks of equal size. The recent election results may suggest some moderation in the implementation of so much new regu- lation, like for example the rules imple- mented with Dodd-Frank. Actual results will vary from campaign promises. Overturning large pieces of legislation or making wholesale changes at various regulatory agencies and authorities takes a lot of effort and cooperation. President-elect Trump clearly has num- bers on his side as he begins his adminis- tration, and he has telegraphed a message of less regulation in certain areas of finan- cial services, but also supports bringing back some practices that could impact larger institutions. The economic environment American Eagle is expecting two rate increases in the next year or so. The low- rate environment will prevail for some time though, as GDP and other indicators are not yet demonstrating robust growth. National employment numbers continue to be published and adjusted so much that market makers have priced in rate increas- es long before they are actually implement- ed. Historically low rates and the availabil- ity of credit are helping many Connecticut residents to lower their borrowing costs and consolidate loans. Standard and Poor's provided a nega- tive outlook for Connecticut, saying the state's budget and unfunded pension lia- bilities make the state's economic future look uncertain. There are no easy answers for this gap to be closed, and debt service is already a hefty portion of our annual budget. This will act as a headwind for any company contemplating Connecticut to domicile their business, with or without incentives, as the tax structure is still non-com- petitive even with some other New England states. Connecticut is lagging all other New England states in job recovery since the financial crisis and the state economy shows little signs of growth. This is put- ting pressure on the state's finances as tax receipts fail to deliver against spend- ing levels. While there is evidence of a few larger employers staying put, there is still clearly more outmigration of manu- facturing jobs to other states. Connecticut is almost 30,000 jobs away from pre-recession employment levels. Jobs impact consumers' ability to buy things and obtain credit, which is central to the business focus of local financial institu- tions like credit unions. Many smaller cred- it unions rely upon a handful of businesses and their employees and family members to provide a source of credit and thrift for their organizations, and fewer employees mean lower lending. Local population, consumer trends Census data has shown that Con- necticut residents are moving to New York and Massachusetts in large num- bers. While they are not low-cost places to live, the vibrancy of their key cities and the economic tailwinds make them attractive markets, especially for young- er workers. The population continues to have dissatisfaction with high taxes, the real estate market, and the climate. Fewer jobs equals fewer prospects/people, all this occurring while new forms of com- petition emerge. The Connecticut con- sumer is tentative at best, and consumer sentiment is somber. n Dean Marchessault Jeff Hubbard Banking & Finance

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