Economist Gioia: ‘Historic’ state budget will boost business confidence
A vice president and economist with the Connecticut Business and Industry Association, Peter Gioia has spent the past 18 years with the state’s chief business lobby, managing its research department and tracking Connecticut’s economy through a quarterly survey.
Before his tenure with CBIA, Gioia was a senior consultant with the accounting firm KPMG, a researcher for The Futures Group — a Glastonbury-based demographics consulting firm — and a budget analyst for the Connecticut legislature’s nonpartisan Office of Fiscal Analysis.
Gioia, who lives in Rocky Hill, serves on the governing boards of the New England Economic Project and the MetroHartford Economic Growth Council.
He spoke with The Mirror this week about the recently approved, bipartisan state budget, the long struggle to adopt it and its impact on Connecticut’s business community.
We had a budget debate that went from early February through the end of October, nine months in total and one that lasted four months into the new fiscal year.
On the other hand it did reach some of the big goals legislators and Gov. Dannel P. Malloy set, including not raising income or sales tax rates and establishing new caps on state spending and borrowing.
Did this budget strengthen or weaken business confidence in government’s ability to manage its finances?
Dramatically strengthened, and I think as it becomes better known, it becomes dramatically more still. … It was certainly not perfect. There are certainly still going to be fiscal challenges going forward.
But we wanted a budget that was bipartisan. This is the first bipartisan budget I can remember. I mean, I’ve been working at this since 1980. I can’t remember a bipartisan budget.
That’s the first thing. It’s historic and it will help us in the future.
Second, we wanted there to be some long-term reforms, and there are — both on the state side and on the municipal side. We wanted a state spending cap. We waited 25 years for that.
[Editor’s Note: Connecticut voters ratified a constitutional spending cap requirement in 1992. But the legislature did not implement that until last month, instead relying upon a statutory cap that underwent several interpretations that made it more lenient over time.]
And we wanted a budget without those tax increases you talked about — income, sales, corporate and big broad-based tax increases.
Let’s talk about the spending cap. It’s been implemented, making it harder to change. Legally it’s written in pen, not pencil. But it does put off placing some of the rising pension contribution costs under the cap until 2027?
With that, new restraints on borrowing, and even new trigger mechanisms that force us to save more when the budget is flush with cash.
And that’s been a huge problem. … In the last 25 years, when we’ve had real or imagined surpluses, we’ve squandered most of it. And this is saying you can’t squander it. There’s a lot of things that we and some other groups have been asking for — forever — that got into this budget.
So despite the fact that we’re going to have some problems going down the road, this is one step toward fiscal accountability. But we’ve got a long way to go.
Does the average small business owner or corporate executive care about the state spending cap?
We hear from businesses all of the time, particularly our board members and our board emeriti. They know about the spending cap. “How can we approve a budget without a spending cap?” We hear that constantly from these folks. So they do get that.
We’ve heard from companies, major companies, that are watching how they are doing fiscally in Connecticut. If it looks like they’re getting their fiscal act together, our presence is safe in this state. And if they don’t get their fiscal act together, we’re out of here.
Do you think this budget could be a first step toward drawing new companies into Connecticut?
I don’t know on that. What I do know is it is more than a first step in terms of slowing any exodus, and that includes high-wealth individuals.
We know some of the high-wealth individuals, they’ve got white hair and they’re going to go south. That’s demographics and that’s a challenge, more in this state than in some others. … I think this budget helps delay some of that process going forward.
Remember, we had a nasty April surprise this year.
[An analysis after last April’s tax-filing deadline showed state income tax receipts had fallen $450 million below anticipated levels for the 2016-17 fiscal year and nearly $240 million below receipts from the prior fiscal year.]
The fundamental issues underlying that have not dramatically changed in this budget. They may have been affected somewhat.
Even with this budget there’s still a lot of high [business] costs in Connecticut. They didn’t cut taxes.
There’s still going to be some people leaning toward going to Florida saying “maybe I will go and save some money.”
There’s still a lot of challenges.
Some state officials said the lengthy duration of this budget fight — the appearance that the Capitol couldn’t get its act together — came with a cost. Did companies hold off on adding jobs and making investments? Is that a fair criticism?
I don’t know for sure, but I assume that happened. But despite that, we did not just come to a budget conclusion. We came to a bipartisan agreement of the legislature. That is dramatically different than if one party’s budget or the other party’s budget passed, or the governor’s budget passed. This is dramatically different. That’s why this is so historic.
And what I’m hoping and what we will push for and what we need to do going forward is to maintain that cooperative effort, which won’t be easy. That is a crucial factor when we run into bumps in the budget or other issues in economic development or business.
We have been asking these guys to do this forever.
Some legislators said the sweeps of the energy conservation funds, and particularly of Connecticut Green Bank program, sent a very bad message to business, because we use a surcharge the state imposes on utility bills as seed money to leverage private investments. If we pull that money away, does it damage business confidence?
There are people who are concerned that that happened. Like I said, the budget’s not perfect, and in a perfect world you would not have done that. I think even the most optimistic people thought there was going to be some stuff that was painful and ugly.
Analysts say this budget averts potential deficits totaling $3.5 billion across this fiscal year and next combined. But it is not sustainable. This plan would run $4.6 billion in deficit if we continued with it into the 2020 and 2021 fiscal years. How does the business community deal with that forecast?
There’s going to be serious and heavy lifting for the next governor and the next legislature. This budget is a start, and in some ways it is a stopgap.
But I’m confident if we can continue a situation where the parties are willing to talk and discuss and compromise, and if the new governor and legislature embrace that, we will in the long term be a lot better off than we are now. I’m very hopeful and optimistic. Maybe it’s because we all got hit by lightning when they passed that budget.
But that’s a sea change, and we have got to nurture, promote, push and drive that sea change. … If businesses get some more hope in the future, if there’s a slowing of people that exit here, if there’s growth in jobs and payroll — which there has been recently — you’re going to start seeing some revenue engines gearing up.
It isn’t going to happen overnight, but my guess is two years from now we’re going to be in a lot better shape than we are today. Not enough to close something like a $4.6 billion problem, if that’s a real number, but to put a dent in part of it and to make it not as big of a problem, is doable.
So we haven’t turned a corner, but we’ve begun to row in the right direction?
Could you discuss the significance of this new budget’s offering additional state aid and laying out a path for the city of Hartford to avoid bankruptcy, provided it receives the cooperation of its bondholders, bond insurers and labor unions?
I think that is important. The legislature and the governor didn’t get Hartford into its hole. Hartford did that to itself. So ultimately … it has to be Hartford climbing out of its hole. But they have thrown them a ladder so they can climb out of the hole not using their fingernails.
They’ve got to look really, really hard at their own fiscal situation. And psychologically it’s very important that Connecticut not have its capital city going into bankruptcy. That kind of stuff plays across the country. It plays on the front page of the Wall Street Journal and the New York Times.
You mentioned the budget changes politically sensitive policies at the municipal level — binding arbitration, prevailing wage requirements — that have been untouchable for so long.
One of the things that happens when you have folks come together in a compromise fashion is things that were totally off the table before go on the table.
You can’t get there until you have both sides sitting at the table. … Those reforms were a big thing.
Lastly, could you discuss some of the big budgetary and economic challenges you see facing Connecticut?
The next big challenge, and it ties into the budget, is the workforce.
We have got to fill all of the very good-paying jobs with great benefits in manufacturing and the trades and some of the financial services that are going begging right now.
There’s probably 25,000 jobs we can fill. We’ve got to come up with a comprehensive plan that fills them, but also sets us on track to fill any future openings and to provide some excess.
That’s got to be economic development priority Number 1. You achieve that, and all of a sudden you put 25,000 or 30,000 more taxpayers — who earn enough so they are taxpayers — into the marketplace. That’s the kind of stuff we’ve got to do. It helps our economy and it helps our budget.”
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