Hartford Business Journal

www.HartfordBusiness.com • January 22, 2018 • Hartford Business Journal 17 of those committees must report out a bill with the report's recommendations and the legislature must hold a vote. (There may be one hiccup: The Office of Fiscal Analysis says it's unclear whether that provision will be enforceable.) Big job Strengthening Connecticut's economy and fixing its tenuous finances may seem like an impossibly big task. The commis- sion intends to focus on what it views as major structural problems facing the state's budget and economy. Smith and Patricelli declined to reveal specific recommendations, but they did say they plan to pitch "bold" reforms that aim to make significant and long-lasting changes. They are discuss- ing policies to address an array of issues includ- ing: Sluggish GDP growth; the state budget's high ratio of fixed costs; structural deficits; a stressed trans - portation fund; a mountain of debt and unfunded pension and benefit liabilities; tax expenditures; tolls and gas taxes; public employee compensation; the revenue-raising authority of cities and towns and their reliance on state funding; regionalism; and state-agency consolidation. Adding to the challenge is the short time frame the commission has to com- plete its work — they met formally for the first time Dec. 15 and a final report is due to the legislature March 1. Patricelli and Smith say the quick turn- around is necessary because the state's situation is urgent and action is needed this year to impact almost inevitable deficits in the next two-year budget cycle. Some commission members also can't make a long-term time commitment. To help complete its work, Patricelli will tap funding from a nonprofit he created last year to pay for consultants and other services. The commission did not receive any money from the legislature. Connecticut Rising Inc., which is reg- istered to Patricelli, is currently raising outside money. Smith, who sits on the nonprofit's board along with another non- commission member, and Patricelli have kicked in money, and they expect 20 to 30 donations. They didn't disclose exactly how much they aimed to raise, but Smith said "it's not millions." The commission has hired McKinsey and several other firms to analyze corporate incentives and other subjects. They've also hired outside public relations help, a rare move for state-appointed commissions. Significant challenges The 14-member commission has tapped some panelists to lead on certain issues. For example, Christopher Swift, chairman and CEO of The Hartford, is the economic growth leader, while Bruce Alexander, Yale's vice president for New Haven and state affairs and campus development, is focused on city and transportation policy. Stanley Black & Decker's Loree is the competitiveness leader and a report he re- cently published raised eyebrows in terms of the challenges Connecticut faces. The report, for example, showed that the state's 0.3 percent average annual economic growth rate (as measured in GDP) since the 2008-09 recession is among the worst in the country, while many of Connecticut's tax rates (includ- ing corporate, sales, income and property) are higher than the U.S. average. At the same time, the state has lost population in each of the last six years and the average departing household earned $123,000 annually in income vs. the $93,000 earned annually by house- holds moving into the state. Paramount to stimulating economic growth, Patricelli and Smith both agree, is having a more robust transportation system and cities that are more attractive to employees. They seemed open to highway tolls and a higher gas tax to fund transportation investment. "It's clear from talking to growth experts that you're not going to get new companies or even existing companies growing as ro- bustly as they might if they don't view your central cities as attractive to their potential workforces," Patricelli said. Wary labor The commission's membership is bipartisan, but it doesn't include a labor representative, which hasn't been the case on many recent panels and commissions. Lori Pelletier, president of the Con- necticut AFL-CIO, is concerned what that may portend. "Obviously we're disappointed with who's on it and that we were not included, but we will keep an eye on it," Pelletier said. She said calls for privatization of govern- ment functions is "the same drumbeat all the time" and that too many people blame workers for the state's fiscal troubles. She also criticized Loree's report, which compares Connecticut to three states that rely more on sales tax and less on in- come tax. The report calls Florida, Texas and North Carolina "aspirational states." Pelletier refers to them as "anti-worker states." "If our aspiration is to be like states that pay their workers less so that they don't have the ability to retire, then that's not the Connecticut people remembered," she said. Patricelli and Smith said it was ultimately up to legislators and Malloy to appoint commission members. They insist they want labor to be part of the discussion. "I think it's important that this not be characterized as a bunch of business people getting together and saying 'hey you know, we've got the answers,' " Smith said. "We need to collaborate with labor. We can help them to understand the depth of the problem and they can help us to understand some solutions." Patricelli said the commission should be seen as a good thing for public workers. "We have to find a way to fund liabili- ties," he said. "This is a positive thing for labor. They've received a bunch of promis- es that are hollow and people aren't going to invest in Connecticut while we have close to $100 billion in debt and unfunded liabilities." Appointed Members of the Commission on Fiscal Stability and Economic Growth Jim Smith (co-chair), Chairman and former CEO, Webster Bank Bob Patricelli (co-chair): Former chair and CEO, Women's Health USA Pat Widlitz (vice chair): Former state representative and co-chair of the legislature's Finance, Revenue and Bonding Committee Bruce Alexander: Vice president of state affairs and campus development, Yale University Cindi Bigelow: President and CEO, Bigelow Tea Greg Butler: Executive vice president and general counsel, Eversource Energy Roxanne Coady: President and owner, R. J. Julia Booksellers; Chair, Read To Grow Inc. David Jimenez: Principal, Jackson Lewis P.C. Jim Loree: President and CEO, Stanley Black & Decker Paul Mounds Jr.: VP for communications and policy, Connecticut Health Foundation Christopher Swift: Chairman and CEO, The Hartford Eneas Freyre: New York Life Frank Alvarado: Small Business Administration Chris Swift, chairman and CEO of The Hartford, talks with Connecticut Business & Industry Association CEO Joe Brennan during a recent CBIA economic forecast event. HBJ PHOTO | MATT PILON Jim Loree, CEO, Stanley Black & Decker U.S. economy is doing great. Here's what could derail it Lydia DePillis CNN Money T he U.S. economy has been quiet for months now. Maybe, too quiet. Although most economists forecast smooth sailing for 2018, many are saying another downturn looms on the horizon. The only question is the cause — and whether it will feel like we've hit some mild headwinds, or we've run full- steam into a glacier. "Keeping the economy on a sustainable path may become more challenging," said New York Federal Reserve Bank President William Dudley in a recent speech. "There are some significant storm clouds over the longer term." What's lurking in those clouds? Dud- ley and others have identified two main threats: Rising consumer debt, and pos- sible missteps by the Federal Reserve. First, let's take a look at the debt threat. Ten years ago, a boom in lending fueled by fraudulent mortgage practices helped bring about the Great Recession. Consum- ers then rapidly shed their debts, either through foreclosures or bankruptcies, and very tight credit made it more difficult to borrow following the recession. But student loans, mortgages, auto loans, credit card balances and other forms of debt have been on the rise again since early 2013, and grew to nearly $13 tril- lion in total this past quarter — about 2 percent more than their previous high in the third quarter of 2008. Debt payments as a percentage of household disposable income have also started to increase, as has the delinquency rate for consumer loans — even though post-financial crisis regulations strengthened underwriting standards. "The vulnerability I'm focused on when it comes to 2019, 2020 is household bal- ance sheets," said Steven Friedman, senior economist at BNP Paribas Asset Manage- ment. "You're seeing a bottoming out of the improvement." Families tend to take on more debt if they see their personal financial circum- stances getting better, and expect that to continue in the future. With unemploy- ment near record lows, wages have shown strong growth over the past two years. That brings us to the second looming threat: The possibility that the economy might improve too much. In a recent re- search note, economists at Goldman Sachs developed a model that uses a combination of indicators to forecast recession risk across developed economies. By their calculations, the risk of a reces- sion starts to escalate in two to three years due to a shortage of workers, which may push up wages to the point where prices for goods and services start to spin out of control. The Federal Reserve could then respond by hiking interest rates suddenly, which could make those household debts more expensive, leading some people to default. An abrupt rate hike could also destabilize the already-overvalued stock market.

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