Battle lines drawn - Westfair Communications

During a February preview of Democrats”™ jobs initiative for Connecticut, state Senate President Donald Williams cited first and foremost suspending a $250 “business entity” tax on companies.

“It is going to take more than that,” was the resounding message from those attending the subsequent Connecticut Business Day at the state capitol building in Hartford, with the proceedings recorded and archived by Connecticut Network.

Organized by the Connecticut Business & Industry Association and supported by chambers of commerce throughout the state, business owners in Fairfield County took the opportunity to upbraid legislators ”“ many of them reminding lawmakers of the consequences of the laws they pass.

“I now have the opportunity to decide as the business climate is getting better ”“ and it is getting better for our part of consulting ”“ should my hiring be here in Connecticut?” asked Kathleen Lundquist, CEO of Darien-based APT Inc., which advises large corporations on human resources issues and programs. “Or should it be in Georgia, or Illinois, or Washington state, or Virginia ”“ other places where I have offices and I can grow? And what kinds of incentives and advantages would be here in Connecticut?”

“Boy that”™s a pretty cold question out of nowhere, but it”™s a basic question and it”™s a great question,” state Sen. Gary LeBeau of East Hartford said and chuckled. He is the chairman of the commerce committee, considered among the most pro-business in the Democrat-dominated legislature. “We have certain advantages in Connecticut that are in a sense universal. A great place to be, a great place to live, great schools, the beaches, a great place to live between New York and Boston ”¦ We have high costs, and that”™s certainly part of the issue.”

As much as any, the exchange summed up the day”™s proceedings ”“ business owners holding the sword of Damocles over the heads of Democrats by threatening to move jobs elsewhere, or go out of business altogether, with the discourse degenerating at times into the occasional dis.

Throughout the day, however, business owners also brainstormed ideas with their elected representatives, though returning repeatedly to what they claim is an anti-business bias in Hartford ”“ one perhaps not borne out entirely by the facts, given decisions in recent years or months by companies such as Royal Bank of Scotland, Blue Sky Studios and Starwood Hotels & Resorts Worldwide Inc. to site major operations in Fairfield County.

After drawing laughs from CBIA member attendees in beseeching them not to send her packing off to retirement in Brookfield before her term expires next year, Gov. M. Jodi Rell said both sides of the political aisle must work together ”“ than in the next breath mocking the Democratic leadership.

“The very same day that I gave (a) speech to the General Assembly, a state of the state address, there were (Democrats) standing out there saying, ”˜We will do our best to create jobs, and oh, by the way here is the first bill that (we are) proposing,”™” Rell said. “(The bill) couldn”™t be more anti-business, and does anybody say anything? Did anybody pick up on that message and say, ”˜Have you lost your mind? You want to create jobs and you are putting out a bill that says this?”™”

No easy fix
Rell gave way to state Comptroller Nancy Wyman, who said the latest data shows the state has lost 21,000 jobs since last July, when many businesses began to report seeing the light at the end of the tunnel for the recession.

“We are seeing some increases in our corporation tax, which is a good thing for us,” Wyman said. “It still is not translating though into hiring ”¦ What we are seeing is there is an increase in (hours) for those people that have been cut back to ”¦ four days a week ”“ we are seeing groups now hiring them for a little bit longer, putting them back on for five days a week. Businesses are doing more with less, and what we”™re seeing is much more ”¦ investing in technology rather than into people, which we can understand, but of course that does not help the job recovery.”

Wyman said in addition to lower payroll taxes and sales taxes, the state budget is hamstrung by one-time crutches such as the state “rainy day” fund and federal stimulus funding, money that will not be available for future budgets.

“Unless you all can figure out something different, there are three ways of possibly doing this,” Wyman said. “One is spending cuts, two is borrowing and (three) is what we call ”˜structural revenue”™ increases. Isn”™t that better than tax increases?”

Wyman proposed changing the funding mechanism for the rainy day fund so that surplus money can be sequestered monthly for use paying off debt or meeting future retirement earmarks, rather than risking it ending up in the general fund where legislators can corral it for other programs. And she wants to change the law so that state Treasurer Denise Nappier can choose whether to service the debt or retirement plans, noting it does not make sense to force debt payments when the money could earn high interest by going into the pension plan.

She wasn”™t done with the gallows humor.

“I have to tell you, I am about the only person in the world who can write a check and have no money in the bank,” Wyman said. “The attorney general isn”™t even going to come after me because it”™s his paycheck ”“ I think I”™m OK.”

Deficit mounting
In the meantime, CBIA and the Business Council of Fairfield County say the budget problems are carrying over into business confidence in Connecticut, with companies wary of being asked to pay higher taxes to cover the shortfalls.

“When the next governor is elected and takes over, according to the Office of Fiscal Analysis: $3.8 billion projected deficit in fiscal year 2012,” said Peter Gioia, vice president and economist for CBIA. “That”™s on a base (budget) at that time (which) will probably be about $19.5 billion. That is every bit as bad as 1992 when we had a $1 billion problem on $6 billion in budget revenue.”

Chris Bruhl, CEO of the Business Council of Fairfield County, also drew a comparison with the problems facing then-Gov. Lowell Weicker, an independent from Greenwich who pushed through an income tax to help the state raise revenue.

“This is the kind of subject that, no matter how you address it, how creative you are, how insightful, innovative and dedicated, you can only use the word ugly,” he said. “Although the official numbers we are talking about are on the order of the deficit faced by the Weicker administration when he came into office, we are really looking at something that could be one-and-a-half and possibly double the problem. And as a framing reference, we don”™t have an income tax waiting on the shelf to be adopted ”¦ So the magnitude of the problem to be solved is really, really huge.”

Thinking differently
Conspicuously absent from the rhetoric is the fact that Connecticut was generating impressive surpluses at the height of the last economic cycle ”“ albeit with the help of a temporary hike in corporate income taxes ”“ and with the state having already cut deeply and the probability of a return to economic prosperity, state revenues should in time rebound to a state of surplus. The question becomes whether those surpluses can cover the debts currently piling up, and looming as unfunded pensions and health care benefits come due.

“We have a massive unfunded liability here, particularly dealing with state employee retirement and state employee retirement health care,” Gioia said. “That”™s $30 billion out of that $50-plus billion problem that we”™ve got there. Might be time to look at that, particularly going forward. There are other communities, even in Connecticut, that have done things differently.”

Gioia cited the example of Bridgeport, in which Mayor Bill Finch renegotiated with unions so that new hires pay 50 percent of their health care, and they don”™t get a defined-benefit pension.

“We are going to have a large number of retirees for a very long time ”“ far larger and longer than ever in our history as a percentage of our population, or as a percentage of our operating budget,” Bruhl said. “Because we have had bargaining agreements in the past that have related to the economics of the time, we now need to look to developing and data that look to the future economy. What is the next 30 years going to look like in a state like Connecticut? (We must) move toward policies that are going to allow us to sustain ourselves in that time.

“We are talking about restructuring with a capital ”˜R”™ with an exclamation point at the end,” he added. “This is not going to be an election about who we want to have a beer with. This is an election about who is the smartest, toughest, most experienced, most able ”¦ Best ideas, everybody engaged ”“ who”™s going to aggressively and most effectively fill that executive function ”¦ We need to point fingers at all of us who permitted this to happen, and to resolve we are not going to get it happen again.”

LeBeau said the Democratic leadership wants to move in the same direction, even if it has differing ideas of the route toward fiscal balance and its impact on citizens and businesses.

“I think it”™s something that many more legislators are becoming aware of,” LeBeau said. “It”™s unfortunate that it takes an economic downturn to recognize the importance of business in the state of Connecticut. I think we too long have taken it for granted, revenues coming into the state and kind of a growing revenue base.

“I”™m a liberal Democrat,” he said. “I want to help poor people. I want to keep the safety net going. But we can”™t do that unless we have business providing revenues so that we can help people and so we can do those kinds of things to make this a fair and equitable state at the same time, and I think there”™s (more of ) a recognition of that today than there has been in the past.”

LeBeau said he is particularly interested in promoting angel investing in small businesses, and loan funds proposed by both parties to free up lending to small companies.

Real dollars
New London County Rep. Diana Urban described her efforts to institute a policy of results-based accountability for agency programs.

“I think in many instances regulations happen because somebody gets a bee in their bonnet, and then we have a regulation and nobody knows why it”™s there and it”™s certainly not achieving what we want it to achieve,” Urban said. “If we”™re looking at this from the (results-based accountability) perspective, we would be looking at the result that each and every regulation is trying to achieve in the state of Connecticut … These are things that as policymakers we need to know, and unless we are looking at our agencies and our government from a results accountability perspective, we are basically just like what I like to call ”˜cerebral ganglia”™ ”“Â we are just flopping around to get things done with no real purpose in mind. Without naming the purpose, without naming the result you are trying to achieve, then how do you ever know whether that program is getting you to that result? ”¦ We are actually doing this on the appropriations committee. There is a lot of pushback, but we are sustaining this.”

Joe Pasqualucci, owner of the Stamford-based molding company Foreign Plastics, said the legislature needs to think in real-dollar terms ”“ and mocked any suggestion that erasing the $250 business entity tax will solve the problem.

“We have a (global corporation) customer in Connecticut, brings 30 percent of our business,” he said. “They are pulling 30 percent, all of that work, out of my operation which we”™ve been manufacturing for them for 16 years and relocating it to Puerto Rico because of a tax incentive ”¦ I have a multimillion-dollar loan hanging over my head for this business and there”™s a chance that the entire thing will go under. Try losing 30 percent of your business in one swatch.”

He suggested a law in which if one Connecticut company buys $100 of a product or service from another instate company, the state allow the first company to reduce the tax liability on any profits it makes by that amount.

Wyman also wants the tax system overhauled, but offered no ready advice for how to do so.

“I don”™t think it”™s working and I don”™t want another study,” Wyman said. “There”™s gotta be a better way of taxing people. Right now I think we”™re nickel-and-diming people, we”™re not looking at the whole picture ”¦ The ($250) you pay for business taxes ”¦ You want people to start up a business? It doesn”™t sound like a lot of money, but it”™s there. Look at that. There”™s gotta be a better way of doing something.”