Exclusive: CBIA’s DiPentima on what’s next for Connecticut’s economy

Next month marks the third anniversary of Chris DiPentima”™s taking on the role of president and CEO of the Connecticut Business and Industry Association (CBIA). DiPentima served as chairman of the CBIA board from 2018-19 and was division president of Leggett & Platt Aerospace, which includes Pegasus Manufacturing in Middletown, at the time he was chosen to replace Joe Brennan, who led the CBIA for 32 years prior to his retirement.

In this interview, DiPentima spoke with the Business Journals regarding Connecticut”™s business community and the challenges it faces for the remainder of 2023.

As we head into the second half of this year, where’s Connecticut’s business environment at this point in time? And where do you see it heading for the next six months?

Based on our meetings with members and going around the State of Connecticut, the business community is generally positive on the Connecticut economy ”“ this is specifically driven by the state getting its fiscal health in order, with the fiscal guardrails legislation that was passed in 2017 and then being extended for five years at the beginning of this session in February. When I go around and talk to businesses, they generally point to the state’s fiscal health and those guardrails for providing them with some predictability, stability and certainty as to Connecticut’s financial future, as well as giving them some confidence that Connecticut is a good place for them to be doing business.

There are some areas of concern that every business that I visit raises and highlights, specifically around the inability to find a workforce and fill their open positions. Also, in the last couple of budgets that had a fiscal surplus, there hasn’t been a focus on any business tax relief to make the state more affordable to do business in and more friendly to do business.

What”™s causing the shortage of workers? Is this because of the increased level of outbound migration from Connecticut to other parts of the country during the past few years?

It’s a combination of structural issues that existed pre-Covid and the fact that we had no population growth. I think it was 0.1%, from 2008 to 2018, and during that same period of time while there were no new people moving into the state, the workforce that we had in the state got older. So, we had a number of folks retiring out of the workforce pre-Covid, and that accelerated during Covid when retirement seemed to get accelerated.

As a result, we’ve got businesses trying to find more people, but there’s less people to work. That makes it very challenging for businesses to be able to fill open positions, and especially with businesses ”“ and many of our Connected businesses that are growing and expanding post-Covid, so there is much more demand than supply.

And that lack of population growth was a result of multiple years of budget deficits and tax hikes that really chased people and businesses out of Connecticut.

Gov. Ned Lamont enthusiastically called attention to the income tax cut in the recently passed budget. But as you just mentioned a minute ago, the budget doesn’t have business tax cuts. Why is that? Why is the focus more on putting money back into the pockets of just the average residents as opposed to providing tax cuts for their potential employers?

There’s a need to make the state more affordable for the individuals as well ”“ as I just said, that is one of the reasons why we didn’t see population growth. The governor knows we need to make the state more affordable in order to attract residents to Connecticut, which will then help address the workforce crisis, which will help businesses ”“ so, there’s a foundational issue there.

And that’s not just tax relief. That’s all the legislation that came out around housing, around more affordable quality childcare, affordable transportation.

But there is another reason. When you look at some of the policymakers and their bias towards individual tax relief versus business tax relief, they just see the individuals as the ones who get them elected. They need to realize businesses are made up of individuals as well ”“ not just the owners and leaders of the company, but all the employees who work in that company. If you’re not making it more affordable to do business with Connecticut, then businesses aren’t going to be able to make the investments that we want them to make in the form of wage increases, additional training or hiring, expanding their roots in Connecticut through equipment purchases and facility expansion ”“ and that’s what drives the economy. Business investments have a significant ripple effect not just inside of their four walls with their employee base, but within their local community and regionally.

What are the growth industries in Connecticut today?

Manufacturing continues to grow. Right now, manufacturing has over 4,000 job openings with logistics, warehousing, transportation. Everyone sees the warehousing construction going up around the state and that’s because Connecticut is ”“ believe it or not ”“ a low-cost state for logistics and warehousing when you compare it to the Boston or New York areas. And as a result of that growth, you’re seeing wage increases ”“ and not only warehouse workers, but truck drivers. That helps stimulate the economy.

Health care has the most job openings right now and I think will continue to grow in Connecticut for quite some time ”“ over 8,000 job openings in the health care industry sector.

Technology is a sector that’s been growing for the last seven years in Connecticut, and that’s everything from fintech, cybersecurity, insurance tech, along with general IT professional services. As we’ve all gone to more of a hybrid remote environment, there is more reliance on technology and IT professional services ”“ and the demand for IT professional services has really exploded post-pandemic.

In driving around Connecticut, it’s hard not to notice there are a lot of empty retail stores in many Main Street commercial districts. What is the state of retail in Connecticut?

On the retail side, we haven’t heard of a massive problem with vacancies. There have been generational changes post-pandemic where people are retiring and end up selling their business or getting out of business. And then another business comes in. So, you have that transition period. But generally, we’re hearing storefront retail is still well.

Obviously the online presence dominates, but there seems to be a desire when we talk to our members that customers want to go back to shopping and transactions in-person. And so, our retail members have been experiencing growth as a result of that ”“ and also, because most of them have an online presence as well.

Federal Reserve Chairman Jerome Powell is pledging there will be at least two more interest rate hikes in the second half of the year. How is that going to impact Connecticut’s economy?

The interest rate hikes continue to impact the Connecticut and the national economy. It obviously causes some uncertainty with businesses ”“ the higher cost of capital either erodes their bottom line, which gives them less money to be able to invest back in their businesses and their employees, or it causes them to increase prices to their customers, which usually causes a softening of demand.

In Connecticut, we’re fortunate to have some really good banks, both community banks some of the bigger banks, and they’re trying to figure out creative ways to navigate the interest rate hikes.

Hopefully, this is the end of the hikes and we”™ll start to back off. Otherwise, we’re going to see a softening of demand that we haven’t seen yet. When we talk to our businesses, their demand from their customers ”“ whether it’s locally, regionally, nationally or globally ”“ is still strong. But when I talk to other states, their businesses are starting have seen a softening of demand going back to the first quarter of this year. And as a result, their hiring has slowed down significantly. We were fortunate to see some nice job growth in the first quarter and second quarter that other states haven’t seen.

If we would have had this conversation a year from now, where do you see the state’s business environment at that time?

A year from now, we will hopefully wrap up a short session where we finally get some business tax relief that’s absolutely needed. If policymakers are not making business tax relief a priority, then, we’ve got serious concerns. This baffles me ”“ why wouldn’t it be a priority, especially after we’ve made significant progress on reducing the cost of living in Connecticut through housing, personal income tax relief and some of the things that passed this session?

And we had the association health plan bill, which got pretty close to passing this year but didn’t make it. We expect it to be looked at next year and pass, so businesses have an opportunity to start to lower their health care costs because that’s also a driver of their overall inflation.

A year from now, I hope there’s a lot more investments that will continue to increase business optimism.