CONNECTICUT
New England, Massachusetts its largest state especially, is home base for American Progressivist economic development, but that doesn’t mean every state mirrors Massachusetts. Southern New England follows the Massachusetts model more closely than its three northern neighbors. While Connecticut and Rhode Island cultivated the maverick image (Hutchinson and Williams setting the mark), the more culturally diverse and cantankerous north has bushwacked its own less Progressive path. Connecticut, also, is not blind imitator of Massachusetts. While Dukakis and King blazed their hybrid 1975-1986 Progressivist/Mainstream ED state-level approach Connecticut was off tending other pastures. Connecticut didn’t fabricate its Contemporary Era approach until the mid-to-late 1990’s.
The Connecticut Jurisdictional Economic Base
Connecticut, less suited for agriculture than others, was quick to pioneer America’s 18th century industrial era. Massachusetts, textiles, the Lowell factory system staffed by rural “Lowell Mills Girls” (1814) garner much credit as the early industrial risk-takers, but the earliest were found in Connecticut. Starting in late 18th century, initially around Waterbury, metal-working companies produced a variety of brass products—an agglomeration that persisted well into the 20th century.
Rhode Island (Pawtucket) was home to America’s first cotton mill in 1793. Samuel Slater developed his “Stater Factor System” that garnered the initial cotton volumes generated by the 1796 Whitney cotton gin. Connecticut authorized “local lotteries” (18th and early 19th century “crowd-funding” by municipal residents and resident investors that provided seed and venture capital for textile mill construction[i] and mills spread into Connecticut and across New England. “The city of Vernon became known for its cotton mills, Danbury for hat making, Manchester for silk mills, and [in 1850] Watertown for the first large-scale production of sewing machines”[ii].
The apparel and brass agglomerations spun off Charles Goodyear’s rubber “vulcanization” innovation, after 1839 which fostered new products: boots, shoes, rainwear—and in later years migrated to Great Lakes states to make tires. By 1870 half of Connecticut’s labor force worked in factories for a nicely diversified industrial economic base. Ethnic immigration populated the state and provided cheap labor for subsequent growth.
In the early 1800’s Connecticut developed America’s earliest insurance sector. Starting with marine insurance, the sector moved onto fire, than life, accident, casualty and finally life over the century. The first insurance company, the Hartford Fire Insurance Company, incorporated in 1810. Aetna Life Insurance in 1853. Canals and railroads connected its cities financed by local investors and insurance companies by 1838.Mystic River shipbuilding and ship repair (important since its earliest colonial days) became a mainstay of the state economy—inspiring related sail, steam, diesel and gas engine-making sectors.
Agglomerations created new agglomerations as they proceeded through logistical evolutionary change and the industry/sector profit life cycle. In 1900 Groton’s Electric Boat Company was founded; its successor firm built the nation’s first nuclear submarine in 1954. Connecticut became the HQ for the U.S. Navy’s submarine service. In 1925 local firms merged to create the Pratt & Whitney (aircraft engines) Company—which in 1929 merged with Boeing. In the same year, Stratford’s manufacturer of “flying boats” Sikorsky merged with out-of-state Chance Vought, Hamilton, and Standard Steel Propeller to form what is today known as United Technologies Corporation. Chance Vought relocated to Hartford in 1930 (only to be relocated by the Defense Department’s industrial centralization program—and the Dallas Chamber’s attraction program– to Dallas after WWII).
Finally, Connecticut’s last important agglomeration, the pharmaceuticals industry, started when German immigrant Charles Pfizer founded a chemical firm in 1849 and opened up labs and factories in Connecticut. As Pfizer grew so did Connecticut’s pharmaceutical industry, attracting other firms like Bayer, and Bristol, Myers, Squibb. By the 1970’s the New Haven area had evolved into a significant bio-technology “agglomeration”. That agglomeration, organized and led by a private and politically-connected trade association (Connecticut United for Research Excellence—CURE) formed in 1990 and drove Connecticut’s future ED cluster-based approach, becoming its first accredited cluster (see below).
Connecticut in the Transition Era
New England, Maine aside, was slow to respond to the 1950’s IRB “shadow war” with the South. Judicial precedent and gift and loan traditions imposed a much stricter gulf between public and private, and public dollars and private use of those dollars took some complicated and time-consuming workarounds. State IRBs were indirect, and often little more than a guarantee of sorts (reserve fund) by a quasi-public entity Boston’s urban renewal and accompanying tax abatement assistance added a decade to Boston’s commercial-CBD renewal focus—and a decade and half for the John Hancock project. Constructing a public parking lot underneath the Boston Common was every bit as difficult as driving around the Common today. Connecticut, of course, was home to New Haven, Ed Logue, Yale, and among the most aggressive of jurisdictions from the mid-1950’s onward.
Connecticut was one of five states (Alaska, Hawaii, New Jersey—and Rhode Island) that limited IRBs to the state-level[iii] Connecticut also funded small company-specific IRBs through an “umbrella bond” (only a dozen states used this in the 1980’s) in which the states issues a single tax-exempt bond, the proceeds of which fund specific company loans. During these years Connecticut issued more than one-third of umbrella bonds issued nationally[iv].
Eisinger credits Connecticut for establishment of the first state-level venture capital fund in 1972 (Product Development Corporation). An initiative of its governor Thomas Meskill, a Republican, the state provided uncollateralized financial assistance to develop a new product in an existing firm in exchange for a royalty—but no equity relationship. Targeted to the defense industry, the hope was to diversify the firm away from pure reliance on defense contracts. Delayed by three years of legal suits that challenged the state’s constitutional right to provide public funds to a private business, the subsequent state Supreme Court decision justified private job creation as legitimate public purpose. When Dukakis copied this program in 1984-6, he limited it “mature industries”. Meskill also established the state lottery and established the state’s Dept. of Environmental Protection[v].
Ella Grasso (Democrat) and her successor Lieutenant Governor William O’Neil (who inherited the office after her death (ovarian cancer) in 1981) carved their own response, quite different from Massachusetts during the late 1970’s and Eighties (1975-1991). O’Neil’s Connecticut economy, unlike Dukakis first administration, was robust and job growth an budget surpluses (despite no income tax) created a stark contrast to Prop 2 ½ and the painful transition from the first to second Massachusetts technology wave. The Massachusetts 1980 Miracle, however, corresponded to Connecticut’s boom.
Massachusetts was reluctant to adopt a Reagan-era EDZ. Dukakis’s target areas were the closest it came in this period. Connecticut, on the other hand was among the very first of states to formally approve and set up its EDZ program (October, 1982). Connecticut zones required a census tract with 25% of its population on welfare or below the poverty line or an unemployment rate exceeding 200% of the state average[vi]. The state abandoned the federal reliance on deregulation and instead relied chiefly on tax abatements and credits—which most states also did. Manufacturing deindustrialization, quite evident, was countered by wholesale infusion of New York Fortune 500 companies. Between 1969 and 1973 forty-six major firms, including twenty Fortune 500 moved HQ from New York to Connecticut. Between 1974 and 1987, lured by an aggressive Grasso-O’Neil Dept. of ED promotion and recruitment program, twenty-one additional companies moved in. This marked Stamford’s period of greatest growth making it the state’s fifth largest city—home to the likes of Pitney-Bowes, Xerox, General Telephone, Olin, and others)[vii].
Economic development was not, despite the clear success of its attraction program, a signature initiative of the Grass-O’Neil administration. Her claim to fame rests upon her handling of a major snowfall and O’Neil focused on secondary education and a $5.5mm highway, bridge and dam infrastructure/repair program. The state also benefited from 1988 federal legislation that permitted Indian tribes to open casinos. Two Connecticut tribes opened casinos in depressed areas (Foxwood, 1992 and Mohegan Sun). The former proved to be a huge bonanza to the state in following years. In 1989, however, the good times stopped rolling, and the worst recession since the 1920’s made its first appearance in Connecticut nearly six quarters previous to the national economy. New England was hardest hit and it led in Connecticut to the loss of 158,000 jobs—one in ten (40% in manufacturing). Job losses were not replaced until 2000. Also, Connecticut contracts for defense spending dropped from over $6 billion in 1989n to $2 billion in 1994. Thirty-five banks were eliminated or consolidated[viii]. The recession by the 1991 gubernatorial election left in its wake a $1.7 billion dollar state budgetary deficit.
Recession and Connecticut’s Pioneering Cluster Strategy
The recession hit Connecticut politics hard. The legislature created the Connecticut Economic Conference Board (CECB-composed of key agency/executive/legislative heads and seven economists) in 1991 to recommend ways for Connecticut to revitalize its sagging economy. Its report to the legislature was devastating and disheartening. It followed on a three candidate gubernatorial election which sent Lowell Weicker, a Republican, turned independent into office. He created the Connecticut Economic Research Center (CERC), a nonprofit partnership, chaired by Shawmut’s Bank chief economist, with the electric/telecommunications companies to promote the state and attract business. The legislature passed the 1992 Manufacturing Recovery Act to provide incentives such as tax incentives, training and education grants, manufacturing tax credits, and deductions for R&D and manufacturing-relevant investment.
CECB’s chair convened a workshop with legislative leaders and corporate and business executives in late 1992. Discussion centered on the state’s business climate, and the status of the various key industry sectors, which were renamed as “clusters”. Subsequent 1993 legislation charged the CECB with developing a competitiveness index with the state Dept. of Ed and University of Connecticut; DRI/McGraw-Hill was hired to assess and identify the state’s key clusters, and demarcate initiatives.
Called the “Connecticut Competiveness Initiative” DRI worked through 1994 to think through Connecticut’s competitiveness issues, make recommendations for the Index, and identify the key clusters using location quotients. Its final report identified six clusters: advanced manufacturing, communication, information and education, financial services, business services, health and biomedicine, and tourism and entertainment. Cluster councils composed of mid-level industry leaders were formed to meet and prepare suggestions for further action. Several councils also set up committees to discuss business climate, infrastructure, and regulatory issues that mattered to the industry. The state Dept. of ED was not significantly involved with this cluster initiative[ix].
In addition the DRI reported launched several “themes” that overlapped the individual clusters, such as the importance of small business and job creation (David Birch), the increased need for export and global markets. Both manufacturing and financial services were viewed as trouble spots, and the variation among Connecticut regions was acknowledged. The positive impact of casino gambling revenues/lotteries on the state/local budgets, the growing New Haven-Bridgeport-Stamford-Danbury-Waterbury pharmaceutical sector cluster was noted, and the Hartford manufacturing decline and decline in its largest cities was also acknowledged. T
The DRI Report, “the Connecticut Connection” was hugely influential and served as the future strategy document for the next decade. The DRI approach was based on an intense private commitment to a public partnership with the State to foster and develop a cluster-based approach to Connecticut’s economic development. In the meantime, largely on its own, the CECB tourism cluster committee had, while DRI was writing its report, successfully advocated for a 1992 Tourism Act that created the Connecticut Tourism Council. The Act required that the Tourism Council serve as an advisor to the State Office of Tourism, which acquired monies for a Tourism Fund ($4mm) from surcharges on rental cars. The fund developed a major marketing campaign in 1993-4. In 1995 the cluster council retained SRI International to work with industry, the Council and State office on a tourism strategic plan. Tourism clearly demonstrated the effectiveness of clusters when driven by intense private-sector industry leaders.
By the time of DRI’s report (November 1994), Connecticut had elected a new governor. Weicker had been crushed for his leadership in the 1991 passage of the state’s first income tax (discussed below) and the budgetary austerity required to address the huge deficit (as had Dukakis a decade earlier). Republican John Rowland was elected and took office in January, 1995—servicing for two full terms, elected for a third, until 2005 when he was convicted and sent to prison for mail and tax fraud involving campaign contributions. Rowland was quite effective, especially in his first two terms. He eliminated the perennial state budget deficit, and reduced income, gas and inheritance taxes. He phased in tax credits for manufacturing investment—and made “technology” cluster development a signature project. He reorganized the state Dept. of ED, combining it with the Dept. of Housing to create a new Department of Economic and Community Development. Private sector leadership was recruited to serve as the Commissioner.
Within the Department, a “Industry/Cluster/International Division” was created. Using its own methodology the new Department redefined Connecticut’s clusters (into health, manufacturing, financial services, telecommunications and information, high technology, and tourism). In 1995 the legislature approved “An Act Concerning Cluster-Based Economic Development” that lodged operational responsibility for the cluster strategy in the new department. In 1996 Rowland legislature, business leaders, and a reinvigorated CECB began discussing a cooperative partnership in the implementation based on clusters and in 1997 issued a new ED strategy for the State (Connecticut Business Agenda). The focus was to “activate”, jump-start and push forward the various individual cluster sectors. Members and leaders from the private sector were recruited, committees formed—almost 100 CEOs were involved through aggressive gubernatorial and agency involvement.
In 1998 a “Partnership for Growth” Report formally launched the cluster initiative as Connecticut’s principal ED strategy. Rowland called it “the most important economic plan in 50 years”. The Dept. was again reorganized, private advisory committees incorporated and adopted three goals: support formation and reshaping of the initial cluster groups and creation of new clusters; establishing a Governor’s Economic Competitiveness and Technology Council; and address business climate, infrastructure and education issues. The thread that united these goals was “to build new types of relationships with the private sector”. The 1998 Cluster Bill followed that spring. It authorized $3mm for cluster activation, transferred $4 mm from the old Manufacturing Assistance Act, and $ 30mm in state bond issuances to Connecticut Innovations Inc. (CII) for constructing lab space, a 6% R&D tax credit for small businesses. The bill passed unanimously in the House and Senate. The Act injected new vitality into the various private cluster groups, with considerable involvement from the Dept.
The intensity and effectiveness of each cluster-grouping varied over time and motivated corporate leaders. A corporate leader pushed the advanced manufacturing cluster to address needs for overseas expansion and competition that led to development of an industry-driven precision machining curriculum for Connecticut community colleges. Recommendations were advanced to form sub-cluster clusters in manufacturing. On the other hand, the high technology cluster group fussed around, organized into sub-cluster groupings, but did not develop a motivated corporate leadership. The private EDO, Connecticut Technology Council, independent of the cluster group was the preferred entity. Arguably, the most successful cluster group was the Bioscience Cluster. The Aerospace Components Manufacturing Cluster included fifteen firms by the end of 1997—meeting in a regular “breakfast club”—advocated for manufacturing efficiency as its chief initiative to counter losing business to lower cost foreign firms.. A Japanese consultant was brought in to teach lean manufacturing. The industry perceived productivity increases resulted from the initiative. In 1999 the Aerospace Cluster was formally incorporated.
The Bioscience Cluster drew upon the organization and membership of CURE—the private bioscience advocacy group that had started the state’s cluster initiative back in 1990 (see above). Drafting an industry consultant to lead the activation effort, and thoroughly convinced Connecticut’s pharmaceutical cluster—and its relationship with the state’s universities—had potential to grow the group advocated for special attention. Rowland responded in late 1998 with special grants, leveraged with industry funds, to build more lab space and focus the 1998 Act’s Innovation Fund on bioscience. Industry leaders (Pfizer in the lead) strongly pressed for a public-private partnership, renamed CURE to the “Connecticut Bioscience Cluster” and, like the Massachusetts Technology Council a two decades earlier, effectively made the Connecticut bioscience cluster a private initiative with public support.
Activation of the Governor’s Council on Economic Competitiveness and Technology in December 1998 (an executive order) involved Rowland and a bank president as co-chairs. It professed to be the monitor of all other cluster groupings, the focal point of the 1998 Cluster Act initiatives. Composed of seventy-five business executives/CEOs, legislative leaders, university and civic/labor representatives, the Governor’s Council packed a lot of political oomph. It formed an executive committee and maintained an business-like agenda, agency staff support and feedback. The Governor attended each meeting and networked and cluster groups made regular reports on their activities. Embracing “loss carry forward” as its first initiative it successfully passed in January 1999 legislation that extended losses as deductible on income tax from five to twenty years—especially critical to the pharmaceutical industry developing and researching drugs over extended periods previous to their FDA approval/sales. The second major issue was the expansion and modernization of Connecticut’s principal airport, Bradley. That initiative also bore fruit as legislation and funding followed, as well as airport reorganization. In 1999, the Council also started an external marketing campaign, “You Belong In Connecticut” to attract and retain skilled workers.
Rowland, independent of the cluster initiative, also launched in 1999 a “Workforce Development Campaign to accommodate the new federal WIA initiative. He formed a Jobs Cabinet to coordinate public and state entities implementing the many job-workforce initiatives and named his chief counsel, Mary Ann Hanley as its chair. In the same month, Rowland also initiated the “Connecticut Inner City Business Strategy” initiative targeted at Connecticut’s larger cities and minorities—targeting high unemployment. A prominent CEO from each major city was tasked with leading an advisory committee to identify market-based initiatives for inner city business formation and growth. The initiative became one of Rowland’s signature project and he infused state monies into its various projects. A partnership with the Governor’s Council also provided impetus and private involvement. In 1999 the metal manufacturing cluster group was activated “as an outgrowth of the Inner City Business Strategy initiative. State grants and a newly formed Metal Manufacturing Education and Training Alliance (METAL) acquired WIA funds, state grants to provide company-specific training to eligible beneficiaries.
After his 2005 conviction, Rowland’s Lieutenant Governor Jodi Rell served the remainder of his term and was elected and served as governor through 2011. She brokered a compromise that reimbursed property owners hurt by the eminent domain action that led to the famous Kelo v. New London Supreme Court decision. A fiscal and budgetary conservative, she prioritized criminal justice and prison construction/reform and death penalty. She signed in 2005 Connecticut’s same sex civil union legislation. Rell did not share Rowland’s enthusiasm with technology and cluster bent to the state ED strategy. She continued the Governor’s Council until elected in 2007 when it faded away.
The various cluster-related programs, groups and organization (such as CURE, Connecticut Innovations, university-driven tech/cluster innovation/startups, manufacturing, and tourism) however continued and, on their own—our onionization at work–developed initiatives and implemented existing programs which continue to the present. Rell coped with Great Recession, not a small achievement in that as a “finance-caused” recession a major element of the state’s economy was near collapse. At that point, when the financial tides went out, one could see who was not wearing a swimsuit and Connecticut had to work with weakened corporations to retrain their facilities and jobs. A major element of her post 2007 ED approach was using incentives to retain key corporations.
In 2008 she returned to a media effort, “You Belong in Connecticut” started by her predecessor. The campaign won numerous ED-related awards and was regarded as the time as effective and impactful. Despite being a fiscal conservative, declining state revenues and increases in state expenditures, alongside neglected and underfunded pensions and state debt obligations, created what seemed to be a permanent annual state budget deficit with the $1-2 billion dollar range.
Dannel Malloy
Former Governor Rowland’s cluster initiatives (and their EDOs) persisted through this turmoil. While Rell and Malloy no longer aggressively advanced the strategy, both cooperated with cluster initiatives whenever possible (ribbon cuttings and press releases). The initiatives advanced by Connecticut Innovations and the prominent Connecticut universities, the private cluster organizations such as CURE developed their own agendas, plans, proposals and worked with the legislature, state EDOs, media and the Governor to secure passage. These EDOs sustained the cluster approach and launched consistently a series of innovation and programmatic initiatives that maintained Connecticut’s leadership as a cluster leader.
A relative newcomer (mayor of Stamford from 1995 thru 2005) to state politics, Democrat Malloy was never an electoral standout. His elections were competitive, vote margins tight with his strongholds being Connecticut’s three largest cities. In office he was not especially popular and by 2016 his approval was in the mid-twenties—getting worse in 2017 when he announced he would not run for office when his term expired (2019). Malloy consistently through his administrations pursued a small business, startup, innovation, university as economic developer strategy tilted toward technology and friendly to the state’s previously developed cluster initiatives. These new firms would be the foundation for Connecticut’s future “New Economy”.
Malloy inherited a Rell UConn $170mm physical and programmatic expansion of its bioscience industry cluster centered on UConn’s Health Center campus in Farmington. That investment attracted one of the world’s most renowned bioscience institutions, the Jackson Laboratory for Genomic Medicine formerly based in Bar Harbor, Maine. The Jackson Institute received approximately $291mm in state incentives to build its Farmington facility—a second building was soon planned. Attraction, recruitment and incentives had joined together with cluster-building.
2011 UConn $170 million
promote Bradley airport ED
jump-start long dormant Bridgepoint Steel Point project
rail and bus transportation
Upon entry into office Malloy and Connecticut Innovations (which was merged with the state developmental authority—becoming an autonomous quasi-public EDO in the process). He and Connecticut Innovations secured approval to a $250mm ($50mm annually for five years)—matched by CI $25mm annually additional funding to advance existing programs for Connecticut entrepreneurs and to recruit “early stage, high potential companies from other states”[x]. DCED cooperated by devising a special relocation package.
The comprehensive program included seed capital, mezzanine financing, an aggressive $7 million national/international recruitment campaign, accelerator development and technology transfer, $4 million to assist in SBIR applications and industry partnerships, and a $4 million “pre-seed” program to foster new Connecticut technology startups. In 2014-5 UConn, other CT universities, and Yale joined together to create the (2016) PITCH program designed to overcome the traditional university silo, promote collaboration to retain technologies in the state, shorten the time required to develop marketable technologies, and share intellectual property—funded from annual allocation of the 2011 initiative. Lurking in the background and benefiting from all this is CURE and its member industry firms[xi].
But reality Malloy and his administration could not escape was that Connecticut over the last decade has hemorrhaged jobs, people, and companies at rates that placed at the top (or bottom) of the bad news rankings. The pressure generated by firms leaving the state was chronic, embarrassing, and arguably worse from a progressive viewpoint, forced the state to play a sustained strategy of tax abatement, incentives and company-specific deal-making. GE became our proverbial poster child for that dilemma. GE had announced several years earlier that it was considering moving its 800 person HQ from Connecticut—indicating its dissatisfaction with a variety of tax and climate issues in particular.
The company than entered into a semi-public and prolonged state-shopping process. Connecticut officials, including the Governor, responded in ways that GE allegedly took as negative. The sense GE got was Connecticut leaders thought GE was bluffing and would not move if Connecticut increased its taxes. Massachusetts, in particular did not think GE was bluffing, however. That state’s Governor and the Mayor or Boston joined together to fashion a $200 million incentive package that closed the GE deal. In January 2016 GE announced it was moving its Fairfield HQ to Boston[xii]. Three weeks later the various 2016 New Economy initiatives commenced. A state budget crisis followed, hundreds of public sector jobs were destroyed (sometimes without notice) and a politician versus union struggle followed.
http://www.governing.com/blogs/politics/gov-connecticut-economy-hurting-governor-dan-malloy.html
GE had followed a litany of other key Connecticut businesses that had, or threatened to leave the state. Pfizer actually moved its research division to Cambridge Massachusetts early in Malloy’s administration. That move starkly contrasted with a previous Rell administration incentive package that allowed Electric Boat to purchase/occupy Pfizer’s abandoned old HQ complex—allowing Pfizer to stay in Connecticut and move into a new one. Electric Boat (the submarine-building firm), under pressure from BRAC (base closure program) to close its facility, was next. Connecticut’s federal delegation sprang into action, reversed the Pentagon process, and motivated the Defense Department to put $150 million in upgrades into the naval base. Groton’s powerhouse Electric Boat, with a $31mm + contract from the naval base, generated a Malloy/DCED 2014 incentive package that moved Electric Boat into the abandoned Pfizer research building. Playing an elaborate musical chair-state incentive building exchange process did little to enhance Malloy’s position with labor unions, the progressive media and his Democratic constituencies[xiii]. The situation worsened when Aetna and Stanley Black & Decker threatened in 2014 to move unless incentives were offered. In the midst of his 2nd term election, Malloy actually used DCED to take over $400,000 in October regional TV ads promoting Connecticut as the place to do business and generating a positive sense of her economy. One wonders how economic development could escape politicization in such an environment.
Malloy’s administration witnessed increasing state legislative involvement in policy-making—especially economic development as economic, job and population statistics were consistently negative, and growing worse over his two administrations. In 2015 the legislature created a permanent joint commission, the Commission of Economic Competitiveness, to examine tax policy and their effect on resident businesses and the state business climate. The Commission has since regularly conducted hearings, research, investigative tours, and its members have filed bills to address concerns.
The Economic Competitiveness Commission developed Senate Bill#1, and successfully included it in its final 2016 budget. Senate Bill #1 “reset in the boldest way yet the state focus on staking Connecticut’s path into the ‘New Economy’. Intrigued that Connecticut’s chief cluster innovation rivals (California, New York and Massachusetts) were, if anything, higher-taxed than Connecticut, Connecticut was determined to close the gap and inject their state into this charmed circle. That New Economy would be “seeded by scores of startups generated by a mentor network of serial entrepreneurs” funded by new financing from a new (2011) wholly-owned subsidiary of Connecticut Innovations, CTNext.
CTNext was initially created to administer Gov. Malloy’s Small Business Express and First Five loan and grant programs (2011), the cornerstones of his small business initiative to foster the New Economy. Also included were programs intended to commercialize research and technologies developed from the state’s universities. Funded by a $90 million appropriation, Connecticut universities would enjoy a pipeline for their projects and collaborations. The linkage of these initiatives with university-cluster based ED was the legislature’s new venture which, among other programs, copied the Washington D.C. “innovation places” (districts) initially promoted by the Brookings Institute. The idea was to physically diffuse startups and innovation away from universities into the larger cities of the state, to hospital areas, downtowns, and even into distressed neighborhoods through incubators.
The program was congruent with the legislature’s sense that GE had moved its HQ (in 2016) from Connecticut (see below) not because of Connecticut’s high taxes, but because of Connecticut’s lack of a diffused entrepreneurial culture that motivated millennials to accept jobs in urban areas[xiv]—shades of Richard Florida. Senate Co-Chair of the Economic Competitiveness Commission (chair of powerful Senate committees and principal proponent of Senate Bill #1) Fonfara argued “it’s not about our tax policy, or our thought that Connecticut wanted them (GE) here or not, [GE CEO] Jeff Immelt wants to be in an environment that feels like he wants his company to feel like”. Fonfara, who is also is Senate deputy president pro term, admitted his quest (Senate Bill#1) was prompted partly after being worn down by the constant wrangling inside and outside the Capitol over the state’s chronic budget deficits and declining tax revenues, and decided the only way the state would reverse course is by growing the economy.“[xv].
The ideological bent of Democrat progressivism in the legislature, the reality Democrats enjoyed a super majority in the legislature, combined with Malloy’s natural progressivist tendencies (LTBG, marijuana legalization, affordable housing, minimum wage, pro-union labor initiatives, anti-capital punishment, strict gun control after the Connecticut Sandy Hood shooting, pro-immigrant) created the image, incessant rhetoric (and much reality) that the state was moving to the left. With unfunded pensions, annual sizeable deficits, and constant legislative proposals to increase business and personal taxes, particularly on some important Connecticut clusters (hedge funds, insurance companies) the state’s business climate became an almost daily concern in Connecticut and national (NYC-based) media.
Wsj, 4/8-9/2017 EDITORIAL
Connecticut was a modern-day “low-tax haven” for Northeasterners. In 1991 it FINALLY enacted a flat income tax thanks to newly-elected Governor Weicker, initially set at 4.5%. In subsequent years the income tax was made “highly progressive” to redistribute wealth and tap its resident New York City-based income and profits/and corporate HQs. In 2009, Gov. (Rep) Jodi Rell raised individual top rate to 6.5%, which (Dem) Gov. Daniel Malloy in 2011 and then in 2016 lifted to 6.99%–Massachusetts top rate in 2016 was 5.1%. In 2012 the Tax Foundation ranked Connecticut’s state and local tax burden second highest in the nation, topped only by neighboring New York. Connecticut may well in 2016 have taken over the lead. New Hampshire has a zero-income tax.
While Connecticut may have, pre-1990, played the NY-NJ business climate game, becoming both residence of corporate elite and HQ/back office for metro NY’s pivotal (and affluent finance agglomeration, the installation of the income tax did not solve the underlying fiscal problem it tried to address. Instead, it seems to have provided additional new funds which permitted aggressive state (and local) public spending. In the twenty years that followed (until 2013) excluding Medicaid state spending increased tripled[xvi]. In the process, Connecticut accumulated a pike of per-capita debt sufficient to rank it the fourth highest in the nation. To compound the debt problem Connecticut, according to Barron, ranked at the bottom in unfunded pension liabilities with a ratio of unfunded liabilities to state GDP exceeding 17% (the best state, South Dakota, was only 1%). Free flowing public revenues worked their magic and mayors, and high ranking public officials, including one Governor, left office for jail[xvii].
The state, on the other hand, congratulated itself for placing third nationally for productivity growth, third in employing finance and insurance jobs, advanced degrees per capita, fifth in scientists and engineers per capital and seventh in venture capital deals and patents per worker—not to mention the very highest number one state per capital income in the nation[xviii]–held since 1970. As late as 1999 Connecticut’s per capital GSP was 34% higher than the U.S. average and highest in the nation. For most of the 21st century Connecticut was the post-state for a “blue” economic development agenda. But it also could be said it prospered off the success of NYC. From the turn of the century—the Contemporary Era–It faithfully pursued a cluster-based ED strategy, with the planned selection/targeted industries and occupations
In 2013, Forbes ranked it as 50th in annual economic growth. As early as 1999 the population in its 25-44 age cohort fell 21% from 1990—third in the nation. In 2000 median age was seventh highest in the nation. The state was already shedding its productive workforce.
Over 300,000 net residents left the state (10% of its 1990 population) between 1990-and 2015. Since 2010 seven of its eight counties have lost population—including the “hedge fund haven” Fairfax County which shrank for the first time in 2015. Bridgeport, its largest city had nearly 150,000 fewer residents than in 1910 (2012) and New Haven, the second largest, also had slightly fewer residents in 2012 than in 1910. Hartford, state capital and third largest, had 125,000 fewer residents than it had in 1920. Only Stamford, formerly the fourth largest –in 2014 the third–and
Waterbury, fifth largest, increased (5%. Income tax or not, areas closest to NYC prospered.
.
Since 2011 (to 2016) 27,400 residents have moved to Florida, and 3,000 to zero income tax New Hampshire. Kansas tax cuts lured in 1,400 Connecticut residents since 2011. Ge’s HQ moved to Boston in 2016 and in response Gov. Malloy awarded two hedge funds (2016—Bridgewater and AQR Capital) $57mm to retain their HQ in Connecticut. Other recent tax abatement deals were made to Cigna, ESPN, NBC Sports, and Charter Communications. Employment growth since 2010 is half Massachusetts rate of growth, slower than Rhode Island, New Jersey, and Kansas. In 2017 the state’s potential budget deficit was $1.7B as tax revenues continue to fall. The state’s teacher pension is projected to grow by 33% over the next two years, and in response the legislature wants to impose a 19% tax on hedge funds carried interest. Apparently the state’s role model for business climate in the North Pole—which after all is supposedly enjoying a warming climate change.
To stem young resident departure, in 2017 the legislature (Dem) is in April 2017 proposing a tax credit, averaging $1,200 for grads of Connecticut colleges who live in the state—and also to those outside the state—who file a tax in Connecticut for two years after earning their degree. The legislature assumes only 10% of grads will apply and the annual cost is estimated at $6mm.
The state has consistently followed a “blue” cluster-based strategy—See Michael Porter and Kaia Miller
[i] Ironically, a century later, lotteries were used by Carolina mill towns to construct their first textile mills.
[ii] Michael Porter, “the State of Connecticut: Strategy for Economic Development” Harvard Business School 9-703-426, March 20, 2009, p. 3. Copy Permission is Required—see P.1
[iii] Peter Eisinger, the Rise of the Entrepreneurial State, op. cit., p.158.
[iv] Peter Eisinger, the Rise of the Entrepreneurial State, op. cit., p.165.
[v] Peter Eisinger, the Rise of the Entrepreneurial State, op. cit., pp.253-5.
[vi] Peter Eisinger, the Rise of the Entrepreneurial State, op. cit., p.189. Incentive includes sales/property tax/business loan interest abatement, tax credits for zone employees, and public infrastructure–see p. 192. The state evaluated the zone after two-one half years in operation (1985) and discovered that of the six mostly neighborhood-based) zones created, use of the incentives was remarkably low, with about 4300 jobs created nevertheless. Relocated business were retail and service sector and they accounted for 77% of jobs created (pp. 195-8).If so, in an area ground down by deindustrialization EDZ designation ,not incentives, proved more valuable to developing a service sector in distressed neighborhoods.
[vii] Michael Porter, “the State of Connecticut: Strategy for Economic Development” Harvard Business School 9-703-426, March 20, 2009, p. 6. Copy Permission is Required—see P.1
[viii] Michael Porter, “the State of Connecticut: Strategy for Economic Development” Harvard Business School 9-703-426, March 20, 2009, pp. 6-7. Copy Permission is Required—see P.1
[ix] Michael Porter, “the State of Connecticut: Strategy for Economic Development” Harvard Business School 9-703-426, March 20, 2009, pp. 7-8. Copy Permission is Required—see P.1; this section relies extensively Porter’s case study for the narrative and assessment.
[x] “Trends in Technology-Based Economic Development: Local, State, and Federal Action in 2012”, SSTI (State Science and Technology Institute) Westerville Ohio, p.3.
[xi] Gregory Seay, “Breaking silos: the big “C” in CT’s bioscience ambitions is collaboration”, Harford Business Journal, April 11, 2016.
[xii] Stephen Singer, General Electric Moving Headquarters to Boston, Hartford Courant, January 13, 2016.
[xiii] Russell Berman, “The Travails of Dannel Malloy”, the Atlantic May 19, 2016.
[xiv] Gregory Seay, “How CT aims to innovate its way into the New Economy”, Hartford Business Journal, May 30, 2016, pp. 1-4.
[xv] Gregory Seay, “How CT aims to innovate its way into the New Economy”, Hartford Business Journal, May 30, 2016, p. 3.
[xvi] Jim Powell, How did rich Connecticut morph intone of America’s Worst Performing Economies?, Forbes, Aug 1, 2013.
[xvii] See Thurston Powers, “Where has all the Money Gone? The Twenty-Fifth Anniversary of Connecticut’s Income Tax”, the Yankee Institute, August 22, 2016.
[xviii] 2015 Connecticut “still revolutionary” Economic Development Strategy, p.2.
Ron W. Coan 