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Connecticut Must Fix Business Climate

Heath Fahle

July 10, 2010

Though the nation's economic woes continue to linger, Connecticut residents have been treated to seemingly good news over the course of the last several weeks on the jobs front. Major employers Electric Boat and Frito-Lay have both announced plans to expand in the Nutmeg State, while medical device maker EpiEP Inc. signaled its intention to move to Connecticut from Virginia and East Hartford-based Oakleaf Waste Management is adding 40 jobs as it expands and plans a move to Windsor .

As Connecticut workers face an unemployment rate of 8.9 percent, the news is certainly welcome. In total, the four companies plan to create or preserve more than 1,500 jobs.

But such happy developments must also be viewed with concern as these new jobs will cost Connecticut taxpayers $22 million. The state government will hand over $15 million, or $5 million in each of three years, to Electric Boat, $3 million to Frito-Lay, $1 million for EpiEP, Inc. and $3 million for Oakleaf Waste Management in addition to various other tax credits and offsets that will limit future revenue from these projects for years to come.

These tax subsidies paper over the problems with Connecticut's business environment.

Subsidized growth is an unsustainable economic development strategy. It is not only unaffordable but also infeasible to subsidize every employer, so the state ends up focusing its efforts in a "Too Big to Fail" approach that redistributes tax dollars paid by small companies to large businesses.

Instead, the state government should focus its energies on fixing the problems that impede growth in the first place. It isn't like the obstacles to growth are particularly new, unique or unknown. The state's electricity rates, for example, are the second highest in the nation behind only Hawaii, according to the U.S. Department of Energy's Energy Information Administration. State officials have attempted to address this dilemma by deregulating the state's energy, but in absence of the competition necessary to drive down costs, the effort has been a flop.

High housing costs make buying a home in Connecticut unaffordable for too many people and as a result unattractive to employers who might seek to settle here. According to the National Association of Homebuilders, of 225 Metropolitan Statistical Areas in the U.S., greater Hartford and greater New Haven ranked 82nd and 84th respectively in the first quarter of 2010 in terms of housing affordability. Norwich/New London was 127th and Bridgeport/Stamford ranked 202. These heavy costs impact young families in Connecticut in particular — eroding the state's future customer and entrepreneur base.

The state's taxation policies, permitting process and high insurance costs also take a toll on the state's economic environment.

It is a sad fact that from between 1990 and 2006, during the height of economic boom in the U.S., Connecticut's job growth increased less than 1 percent. During the recession, which began in 2007, job growth has declined nearly 6 percent.

Given this, it is good news that companies such as Electric Boat, Frito-Lay, EpiEP, Inc. and Oakleaf Waste Management are committed to Connecticut.

In terms of Connecticut's economic growth strategy, though, subsides must be a short term solution which buys time for the implementation of better public policy.

Policymakers must focus on reducing the cost of living and the cost of doing business in the state by increasing competition in the marketplace.

Reduced costs will stimulate the real, unsubsidized economic growth that Connecticut needs.

As long as our elected officials continue to fail in their efforts to create an improved economic environment, subsidies serve only as a facade.