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Business Friendly: What Does It Mean For Connecticut?

Kenneth R. Gosselin

February 27, 2011

In the mid-1970s, Gov. Ella T. Grasso resisted a strong push by her economic development chief Edward J. Stockton to get on the phone once a week with business executives, just to touch base.

Grasso, more comfortable with political and labor leaders than the business community, balked at first. But slowly, over the next six to eight months, she warmed to the idea. It later led to breakfasts, lunches and dinners with business executives at the governor's residence.

"They were so thrilled to hear from the governor of Connecticut," said Stockton, who is still working as an development consultant at age 80. "Making personal contact with CEOs is critical because people are people. … You've got to establish a relationship and let you know that you appreciate them and what you can do for them."

Since that era, Connecticut has showered corporations with hundreds of millions of dollars in tax forgiveness, low-interest loans and outright grants. By that measure, it would be difficult to argue that the state isn't business friendly.

But now the question arises with more urgency. What does it mean to be business friendly?

In the wake of a mass layoff announcement by pharmaceutical giant Pfizer Inc. — which has received more than $60 million in incentives from the state since the late 1990s and still decided to move hundreds of highly-paid research jobs to Cambridge, Mass. — the answer will be crucial.

There is plenty of disagreement about what constitutes business friendly, but there's no dispute about its importance for every state, as governors across the nation play it up. That's especially true in a state that ranks at or near the bottom in job creation over the last two decades.

Gov. Dannel P. Malloy has talked about it constantly, and his budget reflects the priorities of business.

Interviews with economists, economic development officials, business executives and political leaders paint a complex portrait of what it means to be business friendly. Initiatives range from cash incentives — which some argue are the least important — to calls and visits from the governor.

Cash incentives, including tax breaks, typically get the big, splashy announcements, often paired with corporate promises of job growth. While incentives can be used to effectively lure companies to the state — such as UBS, then Swiss Bank in the early 1990s — critics question the merit of lavishing millions on companies already in the state that would have created the jobs anyway.

"Incentives are already part of it," Senate President Pro Tem Donald Williams said, "and you could argue that hasn't won the ballgame for Connecticut.

Too much largesse can sap resources better invested in more important ways, critics say, including fostering a close relationship between universities and the technology community. It also can take the emphasis off improving education, building vibrant communities where skilled workers want to live and ramping up construction of transportation systems to speed up travel.

State Rep. Lawrence Cafero, the House Republican leader, said the state government must streamline and centralize licensing and permitting. Even more critical is the message that the state sends, even when it says it's business friendly.

"If you go back under the Gold Dome and pass or even just propose legislation that isn't business friendly, they just shake their head and say you didn't mean what you said," Cafero said, naming specifically the controversial paid sick leave proposal.

The problem of sticking with what has worked in the past is ingrained in the culture, said Jack Hughes, chairman of Glastonbury software company TopCoder Inc. Connecticut must recognize that it can no longer be the Land of Steady Habits to succeed, he said.

"It has to do with a culture that supports the notion that things change and that they are going to change," Hughes said. "Connecticut has some work to do. It's going to require rethinking a lot of things."

CEO-To-CEO

Since taking office in early January, Malloy has been visiting employers around the state, including Electric Boat, Travelers, Aetna, CIGNA and several manufacturers including United Technologies Corp. — and he has been struck by some of the reaction that he is getting.

"Almost every time I speak to someone in the business community, they say, 'We're talking to you, the governor? Wow.'" Malloy said.

Malloy's message to business executives has been direct: The state needs to get its fiscal house in order, answer questions quickly from business and streamline the process for obtaining licenses and permits.

"We have to constantly be doing all we can to help create another job," he said.

A report last month by the Connecticut Technology Council foreshadowed some of the those reactions. Drawn from interviews with dozens of chief executives at fast-growing technology firms, the report revealed little connection with former Gov. M. Jodi Rell.

But that, according to the report, was what business owners wanted the most. One anonymous quote summed up the frustration by the CEOs: "I've had more meetings with Gov. Schwarzenegger [of California] than Gov. Rell."

CEOs expect to deal with executives at the same level at other companies, and that goes for the state of Connecticut, said Matthew Nemerson, the council's president.

"The culture is, 'at our level we deal with CEOs,'" Nemerson said. "In state government, that's the governor. So that's the game."

Nemerson said it's crucial for the governor to build relationships with business executives before a company faces a crisis or an expansion — so the CEO is comfortable picking up the telephone and calling the governor.

Although it is too soon to tell, Malloy appears to be making moves in that direction, even as he faces a tough road to rein in the state's budget deficit.

"Quite frankly, there is a 180-degree difference between this administration and the last," Nemerson said. "Before, it was that we were just hanging on."

Although the governor is a key player, some experts say the responsibility also must filter down to other state and municipal leaders, said Liddy Karter, executive director of the Connecticut Venture Group, which promotes investments in high-growth industries.

"If we put in place systems so that we can be consistently more outgoing and welcoming to businesses even in times of budget constraints," Karter said, "this is part of marketing one-on-one. We could go a long way to making a name for ourselves by touting our strengths."

The Pfizer Lesson

The layoff of 1,100 at Pfizer's Groton campus over the next 18 months clearly shows how complex the business of being business friendly has become.

The job cuts sting, but Pfizer had technically met — and actually exceeded — the requirements for job creation under the variety of incentive packages totaling well over $60 million doled out more than a decade ago.

Pfizer also was no longer the company it was when it first got the incentives, largely for the construction of a state-of-the-art research headquarters in New London.

After three mega-mergers, the pharmaceutical giant needed to downsize and shift its research focus to a narrower set of potential drugs. The move was made more pressing by the imminent end of the patent on its star-performing, cholesterol-lowering drug Lipitor.

Cambridge, the winner in Pfizer's latest restructuring, is in the center of teaching hospitals that collaborate with universities, and it is a hotbed of entrepreneurial drug-research companies. All three are needed for new drug research, Pfizer executives said.

Connecticut should have made a stronger play to keep those jobs in the state — and could have made a persuasive argument, said economist Fred V. Carstensen, director of the Connecticut Center for Economic Analysis at the University of Connecticut.

In West Haven, there is the underutilized former Bayer HealthCare facility, with its 550,000 square feet of laboratory space, now owned by Yale University. The university intends to expand its medical and scientific research operations, at once advancing its academic mission and fostering discoveries that might have commercial potential.

Back in 1999, when Pfizer was growing fast in the state, Connecticut had a shot a forming a then-unusual public-private partnership with the company. Pfizer wanted build a $35 million animal vaccine research center on Horsebarn Hill on the UConn campus in Storrs.

Pfizer withdrew amid vociferous opposition from local residents, students and faculty who wanted to preserve the bucolic vista. The drugmaker said its business was changing too rapidly to wait out a long court battle.

Pfizer continued adding jobs in the state, reaching a peak of 6,500 by 2004, but it will fall to 3,500 after the recently announced cuts.

In the past five years, there has been a consistent flow of loans and tax incentive programs to businesses to encourage job growth, with some outright grants. Two major state agencies — the state Department of Economic and Community Development and the Connecticut Development Authority handed out $176.5 million in loans and loan guarantee and another $92.4 million in various tax exemptions.

Companies, however, consider the financial incentives the least important part of how a state can render assistance, Carstensen said.

"The things that companies really care about are the ability to hire workers with the skill sets they need, and the ability to get help when they have a problem with a design or how to produce something," Carstensen said.

Brains And Trains

At TopCoder in Glastonbury, Hughes said he has resisted the lure of moving to Silicon Valley in California because he grew up in Connecticut. TopCoder employs 40 and organizes online competitions for computer programmers to solve challenges for governments or firms.

"Silicon Valley developed because of how the university system relates to businesses," Hughes said. "Connecticut really doesn't have that. Incentives are a part of it, but it's not so much what the tax regime is or a specific program. Many things need to come together culturally."

He added: "It's not something you can throw money at. It's all brought together by people talking together. It takes genuine leadership."

Hughes said college courses that focus on developing skills to solve problems and to be constantly responding to an evolving marketplace are lacking in Connecticut.

"As an employer, our needs are for a well-educated workforce, but not just in the basics of reading, writing and math," Hughes said. "How many of our colleges have entrepreneurial programs?"

Martin Seifert, president of East Granby-based laser maker Nufern, said the state's cities and towns need to redouble efforts to make communities a place that prospective workers — many of them young, some with children — will want to live.

"Young people don't say Connecticut is a neat place to live," Seifert said. "We need to be working proactively for our communities to be neat places to live."

That's a tough proposition in Connecticut, which tends to be bedroom communities of wealthy and upper-middle class people, making it difficult to attract young professionals who want urban vibrancy, Seifert said.

Also key is high-speed transportation. That not only allows workers to get from place to place quickly, but allows them to work on laptop computers while they are traveling, Seifert said.

"It can't be buses," Seifert said. "It has to be trains. The rail line from the coast to Springfield would be great to build off of."