Connecticut Budget Deficits Affecting Companies’ Long-Term Decisions

HARTFORD — As they emerge from the worst recession in decades, businesses in northwestern Connecticut say the projected state budget deficit is having an impact on their long-term business decisions. Virtually all businesses are concerned about Connecticut’s fiscal problems, and almost three-quarters are “extremely concerned.” In a post-recession economy, many believe the manufacturing and technology sectors will be critical to their region’s success.

Those are among the key findings of the 2010 Survey of Northwest Connecticut Businesses. The survey, conducted by the Connecticut Business & Industry Association in collaboration with the Northwest Connecticut Chamber of Commerce, examines the region’s business climate and economic factors that shape companies’ ability to compete and grow in Litchfield County.

“While the survey may show some improvement in economic conditions, our biggest challenge will be to keep our state leaders focused on the key issue: fiscal responsibility, resulting in a major reduction in our uncontrolled state spending,” says Peter B. Kent, CEO and chairman, Bicron Electronics Co. in Canaan, and chairman of the CBIA Board of Directors.

Litchfield County businesses share many of the same top business challenges as their counterparts throughout the state, including diminishing profitability/customer base, business taxes, a weak state economy, state mandates and regulations, and health care costs.

“My real concern,” says Mark E. Macomber, “is oriented toward Hartford and Washington, where irresponsible, unsustainable spending is exacerbated by a never-ending supply of costly new regulations. Together, these two factors create huge barriers to growth for small businesses.” Mr Macomber is president and CEO of Litchfield Bancorp.

While the cost of doing business in a high-cost state remains a top business concern, perceptions regarding which variables drive up business expenses have changed. Two years ago, energy and health care costs were tied for the top spot among companies’ biggest cost concerns, each getting 31 percent of the vote.

Today health care is the number one concern, with 71 percent calling it a significant burden. The price of electricity, oil, and gas is second, and labor costs and local property taxes were identified as the third most burdensome cost to doing business.

“The near-term prospects for a sustained recovery of the national, state, and regional economies are concerning,” says John A. O’Toole, project manager, economic and community relations, CL&P—Yankee Gas Services. “Collectively we have to redouble our efforts to gain operational efficiencies and identify opportunities for growth. Candidates looking to earn votes in November should have specific answers to the issues raised in this survey.”

Other key findings include:

*Over two-thirds of businesses (68 percent) surveyed give the national business climate a below-average rating and an even greater number (80 percent) say Connecticut’s business climate is below average.

*More than half of northwestern Connecticut businesses (55 percent) anticipate reducing employee benefits in 2010 in response to current economic conditions. A significant number expect to reduce employee benefit compensation (41 percent) and/or the size of their workforce (39 percent).

*Health care continues to be the most significant cost burden to operating a business in northwestern Connecticut. The vast majority (92 percent) believe tort reform can help to reduce malpractice costs, while 90 percent believe a greater focus on wellness and disease/injury prevention are the most effective strategies for controlling health care costs.

*Maintaining and growing the region’s manufacturing sector is seen as the top economic priority for northwestern Connecticut, followed closely by regional collaboration to attract business investment.

*Most businesses believe economic recovery in northwestern Connecticut will begin in earnest around 2012.

“The results of this year’s survey suggest a heightened interest in regional collaboration, greater emphasis on the area’s manufacturing sector, modest expectations for economic recovery in the near term, and significant concerns about taxes, health care costs and the state’s budget deficit,” says Peter M. Gioia, vice president and economist, CBIA. “All of these are factors influenced by legislators in Hartford; these are issues voters should consider when casting their ballot for elected officials in November.”

“These past two years have been an interesting and challenging time for businesses, both large and small, in the northwest corner,” said Joseph J. Greco, regional president, Union Savings Bank. “Despite many economic hurdles, it is encouraging to hear a good percentage of business owners feel there is a light at the end of the tunnel and that, by working together, we can reach it and keep northwestern Connecticut a prosperous region in which to work and live.”

CBIA received 346 completed surveys from companies in the northwestern Connecticut region. To view the entire survey, visit www5.cbia.com/newsroom/wp-content/uploads/2010/07/NorthwestCT_10.pdf.