Hartford Business Journal

20 Hartford Business Journal • February 27, 2017 www.HartfordBusiness.com OPINION & COMMENTARY EDITORIAL Private-sector hypocrisy on display at state Capitol W hen government wants to intervene in the private sector by adding new regu- lations, businesses often interject that the free market ought to be left to its own devices. Indeed, tighter government controls over what companies can make or charge and how they can sell their goods and services are often considered anathema to business interests. But that's not always the case, particularly in Connecticut, where two long-running and controversial issues have turned that notion on its head. Specifically, we are talking about efforts by auto dealers to block Tesla from selling its electric vehicles directly to consumers in Connecticut and the repeated attempts by small liquor-store owners to block the elimination of government-backed price controls. In both cases, a certain faction of business owners continues to lobby for a system in which government fiat restricts competition. We think it's hypocritical and time for legislators to reverse course on both issues. Tesla direct sales For the third year in a row, lawmakers are reviewing a proposal that would allow Tesla to sell its cars directly to Connecticut consumers, which is currently forbidden. Instead, car manufacturers must sell vehicles through traditional dealer franchises, which employ 14,000 people in the state, making them a formidable interest group. Connecticut auto-dealer execs, who oppose the measure, argue that they've invested millions of dollars in a franchise system and that Tesla shouldn't be allowed to play by a different set of rules. They also say the current system provides consumer protections. It's a weak argument, however, because the current "set of rules" have created a sys- tem that unfairly limits competition. Even members of the Federal Trade Commission have opined that states should ease prohibitions against direct consumer auto sales by manufacturers. Meantime, liberal states such as Massachusetts and New York have more free-market oriented systems than Connecticut. We understand car dealers' desires to protect the status quo, but Tesla's entrance into the market won't upend their businesses, at least not anytime soon. The attraction of electric cars is still limited with their higher costs and current low oil prices. If auto dealers were truly concerned about the interests of customers, they'd favor a system that allows consumers to choose how and where they buy their vehicles. Connecticut should start slow, allowing a few Tesla dealerships to open while work- ing into law proper safeguards that protect car buyers. Minimum pricing Meantime, for a fifth straight year, Gov. Dannel P. Malloy has pitched a plan to end the state's arbitrary minimum-pricing law, which smacks in the face of free-market capitalism. The law artificially sets liquor prices by prohibiting retailers from selling a bottle of alcohol below cost. The cost is equal to the wholesale bottle price plus ship- ping and delivery. Minimum pricing does little more than increase the cost of alcohol and protect small package stores by ensuring they can keep their prices competitive with larger retailers. We understand why small package stores are lobbying hard against the changes. They are fighting for their survival, and if large alcohol retailers can offer price dis- counts or charge whatever they like, it will be harder for mom-and-pop stores to com- pete. That may be true, but that's how the free-market economy works. In both cases, the debate ultimately comes down to whether or not state government should protect one class of businesses over another. We side with letting consumers dic- tate market forces such as pricing and sales strategies, rather than state government. n OTHER VOICES CT's poor fiscal health threatens quality of life By Jeff Klaus T here is a memorable scene during "Godfa- ther II," one of the all-time great movies, in which the Cuban dictator Batista on the eve of his overthrow gives his farewell address at a swanky dinner in Havana. Even before he announces his immi- nent resignation, the crowd — sensing that revolution is at hand — uneasily starts to migrate toward the exits to head out and get on their boats or private planes to escape the impend- ing coup. Over the next few scenes, the pace of the exodus speeds up as chaos consumes the island. While the current scene in Connecticut isn't that of 1952 Havana, there are some unfortunate similarities. Specifically, suc- cessful business people are slowly moving toward the exits. And so are their businesses. This trend cannot be denied as it has been happening for many years. As a commercial banker in our state, I see it firsthand every day. Dozens of our most successful busi- ness owners have already or are think- ing about re-estab- lishing their residen- cy, not just in Florida where the weather and tax climate are more favorable, but also in neighboring Massachusetts and New York — direct competitors. IRS data show that the state has seen a net loss of $6.3 billion in taxable income between 2011 and 2015. Of that amount, $4.3 billion was from households earning more than $200,000. And according to the Yankee Institute, census estimates since 2013 show that Connecticut has shrunk by 19,551 people (3,596,003 in 2013 to 3,576,452). This is a worrisome pattern. Each time one of our largest taxpayers picks up and leaves, Ben Barnes, the state's budget director, has to take out his eraser and re-do the budget. For the most part, our wealthiest residents don't own ranches, or factories, or oil wells in Con- necticut. They own laptops. And so do their employees. The fact is that we have a highly mobile financial sector and when people start to sense confiscatory tax policy coming, they can pick up and leave with relative ease. At the recent Connecticut Business and Industry Association annual meeting, Gov. Mal- loy pointed out that just 1 percent of our state's residents pay 35 percent of our state income tax, a fact that begs the question: Just what do the proponents of higher taxes on the wealthy think is a "fair" level of state tax progressivity? 45 per- cent? 55 percent? 90 percent? Whatever number you pick I can assure you that the wealthiest among us are not waiting around for the answer. And we have to begin to be honest with our- selves. The story we've been told over the past few years is that businesses like General Electric leave our state because our fiscal situation is just too "un-predictable." I disagree. It's actually the opposite. GE left in part because our state's fis- cal situation is entirely too predictable in that we have shown absolutely no collective will what- soever to fix our well-known problem: What to do about the $54.9 billion of unfunded liabilities. If a fiscal crisis hits, it will be our most vul- nerable citizens who will be injured the most. Because before it happens, the wealthy will have gone. And it's not just the 1 percent who are leaving. There are also an estimated one out of five state retirees who have also chosen to reside outside of Connecticut. The politicians say that some of us in the busi- ness community are being too negative and we don't focus on all the positives that the state has to offer. Well, I've lived here all my life. I love this state and yes, I plan to stay and fight rather than move. But for all of the wonderful assets that we enjoy — geography, intellectual capital, a proud tradition of manufacturing, a strong financial- service sector, and accessible and livable small cities — the threat of fiscal insolvency dwarfs all of them. Our fiscal situation threatens to devalue every single asset that I mentioned. I hesitate to offer a rather bleak predic- tion but it needs to be said: If we don't col- lectively get our arms around this soon, we will see a continuing deterioration in our bond rating, slowly at first and then faster. Our interest costs will rise with the economy and the risk premium for Connecticut debt will grow. This will result in a vicious cycle of increased debt ser- vice obligations, which will put even more strain on our budget. And as the writing on the wall becomes clearer, this will lead to an accelerated exodus of the affluent, punching a final fatal hole in the state budget. But while the picture is bleak, it's not hope- less. So how can we start to reverse course? 1. Enact a hard spending cap. All state spending needs to be under the cap with the only exception being debt service; 2. Fulfill the promise to switch the state books to Generally Accepted Accounting Princi- ples (GAAP), otherwise we continue to pre- tend that the situation is not as bad as it is; 3. Switch from defined-benefits to defined- contribution retirement plans for current state workers, like much of the private sec- tor; 4. Index state government healthcare benefits to private-sector levels; 5. And finally, underlying all of these crucial chang- es is the importance of establishing the right legislative process for enactment. We must require that the legislature vote express- ly on all elements of the state employee collective bargaining contracts. n Jeff Klaus is the regional president in Con- necticut at Webster Bank. HARTFORDBUSINESS.COM POLL Should Tesla be allowed to sell its cars directly to CT consumers? ● Yes ● No To vote, go online to HartfordBusiness.com. Last week's poll results: Should CT raise the sales tax to help municipalities raise more money? 15.9% Yes 84.1% No Jeff Klaus ▶ ▶ The politicians say … we don't focus on all the positives that the state has to offer. … But for all of the wonderful assets that we enjoy … the threat of fiscal insolvency dwarfs all of them.

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