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Thirty years ago, so many companies flocked to Connecticut that Stamford, a waterfront enclave of about 100,000 residents, became the third-largest center of corporate headquarters in the U.S., behind only New York City and Chicago.
Now businesses are lining up to get out, threatening a state already contending with crippling budget deficits, a nearly bankrupt capital city and an economy that never fully recovered from last decade’s recession. This summer, Aetna Inc., based in Hartford since 1853, said it would relocate its headquarters to New York, while Alexion Pharmaceuticals Inc. announced plans to decamp for Boston, where former Connecticut behemoth, General Electric Co., moved in 2016.
“We don’t need more taxes, we need more taxpayers,” said Joe Brennan, president of the Connecticut Business and Industry Association, the state’s biggest business lobby.
The specter of corporate relocations are a key reason why Connecticut still doesn’t have a budget four months into its fiscal year. Facing a two-year deficit of $3.5 billion, Democrats are hesitant to raise taxes, as Governor Dannel Malloy did in 2011 and 2015, out of concern it will only hasten the exodus. As a result, the state’s fiscal problems are likely to ripple downhill, with Malloy poised to cut almost $1 billion from local aid if a budget isn’t enacted.
The cuts could hurt Connecticut’s long-term economic attractiveness if there’s “significant disruption” to municipal services, property-tax rates, or the quality of schools, S&P Global Ratings said on Oct 13. That’s when the company revised its outlook on the state’s A+ credit rating to negative – a first step toward a potential downgrade – citing the slow-growing economy, reduced ability to raise taxes and mounting debts.
More than 30 percent of Connecticut’s budget goes to debt service, pension payments and retiree health-care, all of which will linger for decades, Brennan said.
“It just makes it more difficult for businesses to have confidence in Connecticut,” he said.
Yet, reviving Connecticut’s economy isn’t as simple as cutting taxes and rolling back regulations, economists said. Though it enjoys a highly educated population – with the fourth-highest share of residents with bachelor’s degrees – it lacks a thriving metropolitan center.
Hartford, the capital and a center of the insurance industry, is on the brink of bankruptcy. Bridgeport, the most populous city, is still only about as big as Syracuse, New York.
“No one is leaving Connecticut for Boston or New York City because of taxes,” said Patrick Flaherty, an economist at the state’s Department of Labor. “We are quite frankly a suburban state. It’s not what people want at the moment.”
That moment was the 1970s, when companies fled cities to escape crime, racial conflict and bad schools. Connecticut, then without an income tax, was the sort-of Texas of its time. But these days, businesses are returning as cities became safer and young, educated workers flock there.
GE cited Boston’s “diverse and technologically fluent-talent” as the main reason for leaving its suburban campus in Fairfield, while Alexion said Boston offered an “ecosystem where biotech is front and center.” Aetna’s CEO Mark Bertolini told the New York Times that it was hard to recruit people working in the “knowledge economy” to Hartford.
Connecticut may become more desirable when millennials reach their 40s, Flaherty said.
But the state can hardly afford to wait. While Connecticut has the highest per-capita income in the U.S., thanks in part to hedge-fund managers and wealthy New York commuters, its population is shrinking and the high-paying manufacturing and financial sectors are shedding jobs. Since state employment peaked in March 2008, 28,200 manufacturing jobs and 12,400 in finance have disappeared. UBS Group AG abandoned the world’s largest trading floor in Stamford after the financial crisis, and the Royal Bank of Scotland downsized its office there.
Connecticut has a higher dependence on manufacturing than its northeast neighbors, said Emily Mandel, an associate economist at Moody’s Analytics. The state’s top employers include United Technologies Corp.’s Pratt & Whitney, Lockheed Martin Corp.’s Sikorsky Aircraft and General Dynamics Corp.’s electric boat unit, which make aircraft engines, helicopters and submarines, respectively.
As a wave of manufacturing employees retires, companies can’t find skilled workers to replace them, Mandel said. “Connecticut’s population is fairly old,” she said.
And with more money going to public employee pensions, which were shortchanged by previous administrations, there’s less to invest in worker training, transportation infrastructure and universities that would make Connecticut more attractive to businesses, Brennan said.
Connecticut could improve the business climate by putting stronger caps on spending and borrowing, allowing the legislature to approve public employee contracts, and revamping the way the state pays for and delivers services, he said. Shedding an image as a boring place to live will be harder.
“Bright young people want to be in more dynamic urban centers,” Brennan said. “It’s not just perception, it’s the reality right now.”