How Did Connecticut’s Economy Fall Behind?
Posted to: Business, Economic Development, Workforce Development, The Economy, Energy, Federal Budget, State Budget
General Electric’s decision to move its headquarters to Boston may have just been the most visible sign that Connecticut failed to lay the groundwork for a 21st century economy, but a University of Connecticut professor says there were plenty of other missed opportunities over the past two decades.
“You make sequential mistakes and you fail to pay attention and this is what happens,” Fred Carstensen, professor of Finance and Economics at the University of Connecticut, said Tuesday.
A recent Boston Globe article pointed out that Massachusetts leapfrogged Connecticut “with the best wages, fastest growth, and a mix of industries better suited to success in the 21st century.”
Over the last four months, Connecticut has lost 14,900 jobs and the unemployment rate is 5.1 percent. In Massachusetts the unemployment rate is 3.3 percent and even though it lost 5,500 jobs in October it’s still added 61,300 jobs since last December.
So why is Massachusetts outpacing Connecticut?
Carstensen said Connecticut failed to diversify its economy the same way New York and Massachusetts did.
“We didn’t develop any strong new sectors,” Carstensen said.
He said the state paid no attention to Information Technology infrastructure and got a very late start on bioscience. He said Massachusetts started investing in bioscience in 2007, but Connecticut didn’t start until 2011 when it invested about $291 million in Jackson Laboratory.
Historically, Connecticut has been “strong in advanced manufacturing, but has done little to expand the sector,” Carstensen said.
More recently, it failed to expand on its leadership in the area of fuel cells when it didn’t select FuelCell Energy, South Windsor’s Doosan Fuel Cell, or California’s Bloom Energy for two state-run power procurements.
If FuelCell Energy, which recently announced it was laying off 96 workers at its Danbury facility, had won the bid it would have brought in an estimated $500 million in revenue for the company. Carstensen points out that some of that revenue would have then come back to the state through other taxes or investments the company would make.
Democratic Gov. Dannel P. Malloy said it’s difficult to compare urban centers like Boston to some of the smaller urban areas in Connecticut like Hartford and New Haven or Stamford and Norwalk.
“Massachusetts or other places don’t have their success or their failures overnight. These are all investments,” Malloy said.
He said at the moment Connecticut is in “a building mode” and is hopefully laying the groundwork for future economic success.
Malloy pointed out that Connecticut still ranks high when it comes to quality of life.
“We came out listed one or two in quality of life in a rating last week which got no coverage,” Malloy said.
Those ratings were reported by 24/7 Wall Street and Connecticut ranked number two. Massachusetts ranked number one.
“Do I wish we’d had a Big Dig in Connecticut 20 years ago, you betcha I do,” Malloy said. “That’s why I’m trying to create the closest thing I can in transportation.”
But Carstensen fears it still won’t be enough.
He said the Malloy administration seems intent on leaving federal dollars in Washington by cutting the state budget equally when not all lines items are equal.
Cutting dollars that could leverage $100 million in federal funds is not wise, Carstensen said.
Carstensen also dismissed a popular Malloy administration phrase about a “new economic reality.” It was a message Malloy delivered last February to lawmakers when he proposed cutting hundreds of millions of dollars from the state budget. Carstensen said if that was true then why aren’t Massachusetts and New York facing a “new reality?” The real output of those two states is up 6 to 9 percent from the previous peak.
In Connecticut, there’s been “zero benchmarking of comparative performance, no attention to ‘best practice,’ and no regular briefings” for the governor or the legislature, Carstensen said. Simply put, there’s no one giving any state officials briefings about where it should be spending money in order to get a better return on investment.
At the same time, some of the decisions being made to leave money in Washington are related the spending cap, which Attorney General George Jepsen said has “no legal effect.”
Since most of the federal funding Connecticut receives falls under the cap, Carstensen said there’s been no effort to extract what he estimates is north of $1 billion annually.
By including federal funds under the cap it creates a strong incentive to avoid them, and “avoiding those federal dollars has diminished and continues to diminish the state’s economy,” Carstensen said.
The Spending Cap Commission concluded its work this week and submitted its recommendations to the legislature, which may use it in drafting legislation to implement a working spending cap.
Meanwhile, Connecticut has been investing in businesses.
According to information provided by the Malloy administration, the state has invested $222 million in 1,454 companies, which are expected to create 5,593 jobs and retain 16,006. The larger companies under the First Five program are expected to retain 13,500 jobs and to create anywhere from 2,600 to 5,264 jobs.