Crisis over for now, Connecticut assesses economic damage

Scientist resumed their study of Long Island Sound, an agriculture official emailed farmers that his16-member staff was back in business, and it became a little easier to get Social Security benefits in Hartford as 7,000 federal employees returned to work Thursday in Connecticut.

But economists and others hedged on the extent of the damage done to the state’s fragile recovery just as shoppers and retailers make plans for the holiday shopping season, and investors are placing bets likely to influence the price of gasoline and heating oil this winter.

Consumer confidence was hardly robust before the federal shutdown, and Congress and President Obama hardly offered solid assurances that the nation won’t kick off the New Year with another round of fiscal brinksmanship.

“I think the concern is the window before they reopen this whole problem is so narrow,” said Edward Deak, an economist who manages forecasts of the state’s economy for the New England Economic Partnership. “And you have the holidays in the middle there.”

Many retailers already have placed their orders and set their inventories for the holiday season, Deak said. But consumers might not set their household shopping budget until the last minute, and if memories of furloughs, canceled federal contracts, or general recession phobias linger, holiday shoppers could hold back, he said.

The deal struck Wednesday night on Capitol Hill funds the federal government through Jan. 15 and lifts the debt ceiling to a point expected to carry the nation until Feb. 7.

“The timing on this couldn’t have been any worse,” said Donald Klepper-Smith, an economist with DataCore Partners in New Haven.

People used to view federal employment as very secure, as “something that was in the bag,” Klepper-Smith said. “Now we’re seeing it’s no panacea.”

Tim Phelan, president of the Connecticut Retail Merchants Association, offered a slightly brighter outlook. “If this went on any longer, I think it could have done a lot of damage,” he said. “But I still think there’s enough time” for consumers to relax.

Phelan concurred that many retailers already have set their holiday season inventories. But not all decisions have been made about seasonal help, he said, adding that retailers could look to economize here if their confidence is shaken.

“I don’t see a dramatic impact” on consumer or business confidence, said Peter Gioia, chief economist for the Connecticut Business & Industry Association. “But I do see a continued chipping away at them.”

Connecticut consumers might have another reason to manage their budgets more closely this winter if the just-averted budget crisis ends several months of dropping fuel prices.

The average retail price of regular gasoline in Connecticut hovered at just under $4 per gallon in late July, and has dropped steadily since, according to the AAA’s fuel gauge report. The average price Thursday was $3.70 per gallon.

And while no forecasts call for an immediate reversal, the recent federal budget crisis may have planted the seeds for rising fuel costs in the final months of 2013.

The U.S. Energy Information Administration, the chief forecasting wing of the Department of Energy, ran out of cash late last week, delaying new projections on the price of oil, natural gas and coal.

And Chris Herb, president of the state’s largest association of fuel distributors, said the next pricing trend at the pumps possibly is being determined right now — in the minds of investors.

Depending upon how badly Wall Street’s confidence in U.S. Treasury notes has been weakened by the last crisis, things could change quickly.

“I’m concerned about where investors are going to put their money and investors tend to look toward commodities to protect their investments,” Herb said, adding that if surging interest in oil drives up the price, Connecticut motorists will feel the effects.

That’s because in addition to a flat, 25-cents-per-gallon retail tax on gasoline, the state also levies a wholesale tax on fuels. And this tax, which rose by one-sixth in July, is based on a percentage of the wholesale price, making it particularly vulnerable to market swings.

“Obviously our tax structure exacerbates those times when prices are running up due to factors beyond our control here in Connecticut,” Herb said.

Southeastern Connecticut hurt

The tourism industry in Southeastern Connecticut with its large defense and military presence may have taken the brunt of the economic fallout from the shutdown. According to Edward Dombroskas, executive director of Mystic County, the 42-town Eastern Regional Tourism District, there is already anecdotal evidence that the impact was “pretty significant.”

Dombroskas said defense and military-related business meetings and related travel were canceled and that hurt many hotels – especially during the week. He cited one hotelier who reported an $800,000 loss.

Dombroskas noted that an impact will also be felt in tax receipts.

“What you see is sort of a cascading effect,” he said. “The first level was hotel occupancy. The second is food and beverage that wasn’t being consumed and then all the auxiliary enterprise.”

A representative of the Waterford Hotel Group, which owns about a half-dozen major hotels in the area, including Marriotts, said there had been a decline in business that they could attribute to the shutdown, but could not give a dollar figure. Other hotels, hotel groups and restaurants contacted by The Mirror either did not return calls or declined to talk about their business during the shutdown. The Mystic Aquarium spokesman Andy Wood said business has been up slightly for the month over last year.

Dombroskas said this tends to be a fairly busy time of the year in eastern Connecticut due to fall foliage travel – and he said weekends have been OK. “It didn’t affect the leisure traveler,” he said. “But the business traveler – midweek was the loss. Anything related to government or military.”

In New London, where the Coast Guard, U.S. Navy and defense contractors like Electric Boat are major employers, some small business owners closely followed the drama in Washington.

“We’re a little retail store on a side street in a small city, and you wouldn’t think something in Washington would impact us, but it does,” said Rich Martin, the 44-year-old owner of The Telegraph, a bookstore, record shop and performance space.

He worries Congress has kicked the problem of the federal budget and debt ceiling down the road with the short-term agreement it reached this week, and “we don’t know if they are going to pull the rug out from under us again.”

Ripples from the shutdown reached unexpected places.

Kathi Sanborn, 57, of Manchester never thought fights in Washington over a federal budget would interfere with her plans to save for retirement, but it cost her a job babysitting a 3-month-old for a couple. The baby’s father worked for a federal contractor and was furloughed two weeks after she started, so she also lost income.

“I was counting on the job, and I had never expected anything like this,” she said.

At some of the smaller federal agencies that reopened, managers began their own damage assessments.

“Part of what we’re even trying to do today is figure out what didn’t happen, what was missed, what to focus on to try to get things back on track,” said Mark Tedesco, director of the Long Island Sound Study, a six-person office within the Environmental Protection Agency.

His office oversees efforts to protect and restore Long Island Sound. Much of that involves distribution of grants and organizing collaborations, all of which was put on hold.

He said meetings were canceled that need to be rescheduled. Announcements of the Long Island Sound Futures Fund grants were delayed. At least one researcher waiting for funding was forced to wait longer because those who would have done the quality assurance assessment at EPA were furloughed.

“It’s frustrating to have that kind of interruption,” Tedesco said. “It only in the end creates more work. The previous work was wasted.”

Bryan Hurlburt, executive director of the Connecticut office of the Farm Service Agency, which is within the U.S. Department of Agriculture and processes claims and other assistance for farmers such as loans and insurance, said he, too, was trying to determine what needs went unmet.

“Farmers don’t go on hold for two weeks,” he said. “Their harvest goes on.”

If they needed to make a claim, no one would have been available to do the verification. If the farmer couldn’t wait, he might have had to forgo assistance. He pointed to the situation in South Dakota, where tens of thousands of livestock died in a blizzard during the shutdown, but USDA was unavailable to help.

“That’s the real impact of what didn’t happen over the last two weeks,” he said.

Gov. Dannel P. Malloy estimated this week that Connecticut has spent at least $900,000 in state funds to preserve programs normally covered with federal dollars.

Much of this was spent on early childhood education, though the governor also cited food assistance and support services for disabled veterans as top priorities. The compromise reached in Congress will enable Connecticut to recoup all of the state funding it spent on federal programs during the shutdown.

Staff writers Ana Radelat, Jan Ellen Spiegel and Keith M. Phaneuf contributed to this story.