CBIA Board of Directors Adopts Resolution on State Budget Proposal

Urges bipartisan cooperation in closing deficits

At their March meeting, CBIA’s Board of Directors adopted the following resolution regarding the governor’s 2016–2017 state budget proposal now before the legislature:

The CBIA Board of Directors believes that Connecticut has enormous economic potential—potential that can be reached if our state’s policymakers address the fiscal challenges that are weighing down Connecticut’s ability to thrive.

Connecticut can, and will, spur the necessary growth in our economy if we enact the reforms needed to break the continuous cycle of operating deficits, rising debt, and unfunded liabilities that threatens to undermine our future stability.

The Board recognizes the difficult challenge facing Governor Dannel Malloy and the Connecticut General Assembly in crafting a balanced biennial budget that adheres to the state’s constitutional spending cap, but believes that the Governor’s proposed budget and tax plan will strike a serious blow to business confidence and the state’s economic recovery.

The Board asserts that Connecticut can be a top destination for investment and job creation, but the state needs to encourage—not discourage—the investments that help create jobs; and that the proposed tax increases will threaten investments by the very companies that drive our economy.

Therefore, it is resolved that the CBIA Board of Directors urges the General Assembly to reject proposed reductions to key investment incentives as well as the proposal to make permanent the surcharge on the corporation business tax.

It is further resolved that Gov. Malloy and the General Assembly work together in a bipartisan manner to adopt a new two-year budget that:

  • Is balanced without tax increases or borrowing, while continuing to make state government more efficient and effective
  • Adheres to the state’s constitutional spending cap
  • Encourages increased capital investment through competitive tax policies
  • Implements proven spending reforms and best practices as recommended by the Connecticut Institute for the 21st Century and by CBIA

A strong economy helps Connecticut thrive, and there’s room to grow. The Board believes Connecticut can make meaningful and measurable progress to be a better place to work, live, and raise a family. ■

Resolution adopted March 10, 2015.

If You Talk, They Will Listen

A veteran of the state legislature talks about what works and what doesn’t when it comes to communicating with lawmakers

Brian Flaherty, CBIA’s senior vice president of public policy, was an eight-term member of the state House of Representatives.

At a recent statewide economic conference in Hartford, CBIA President and CEO Joe Brennan told 500 business leaders, “We have to be relentless in our advocacy” if Connecticut is to become a top state for business.

For many businesspeople who may be unfamiliar with the ins and outs of state-level policymaking, becoming an advocate for business and economic growth might sound like a lot of work and perhaps a bit intimidating.

But, says Brian Flaherty, that doesn’t have to be the case. And he should know. Hired in December as CBIA’s new senior vice president of public policy, Flaherty served in the Connecticut House of Representatives for eight terms, representing the towns of Watertown, Middlebury, and Woodbury.

Most recently, he was vice president for public policy and external affairs at Nestle Waters North America in Stamford.

CBIA News talked to Flaherty about the role businesspeople can play in educating and influencing lawmakers.

CBIA News: Many people are cynical about the ability of one person to impact legislative decisions. What do you say to those people?

Flaherty: One person can make a difference, and I’ve seen it happen.

I had a small employer in my district who had only five employees. At the time, there was a proposal in the legislature for a set of unemployment compensation reforms. On paper, I understood essentially what the proposal was trying to solve. But I didn’t fully get it until this man walked me through his books and showed me how the existing law impacted his business.

One bad experience with the unemployment comp system because of one employee suddenly shot his experience rating and unemployment comp taxes up almost exponentially. And he felt powerless. But I didn’t fully get it until I saw it. His company was small enough so that any little policy move could have a major impact on his business and his employees.

He became a valued advisor to me in evaluating the proposed legislation and whether it would work to solve the problem it needed to solve.

CBIA News: What what would you tell businesspeople who might feel a little intimidated by approaching their state legislators?

Flaherty: Legislators come from the same walks of life as the rest of us. They’re our neighbors, our kids’ coaches. They go to the same churches and shop at the same stores. I’ve served with truck drivers, house painters, farmers, insurance agents, and manufacturers. Most legislators are not career politicians, and they need you to get elected and stay elected.

Although they have desks at the Capitol, their offices are in the districts they represent. That makes them very accessible, very present throughout the year. By and large, they’re motivated to serve and hungry for information.

CBIA News: What’s the best way for a businessperson to get his or her feet wet?

Flaherty: The world often turns on personal experiences or stories about the unintended consequences of laws that are passed every year. So anytime you can humanize your business or an issue, do it.

Invite your legislators to your workplace. There’s no substitute for letting them walk a mile in your shoes. I’ve never learned more than when I had the opportunity to walk the shop floor at a company in my district. In my experience, it’s a small investment of time with a great return.

CBIA News: What kinds of constituent communications resonated with you?

Flaherty: A personal email or letter, but not a form letter. Better yet, a phone conversation. Even better, talking face to face over a cup of coffee.

Politics’ stock in trade is a handshake, a look in the eye, and a story well- and truthfully told. That’s where the personal connections are made, and they’re always more memorable. It’s not unlike building a business one customer at a time, except the marketplace at the Capitol is one of ideas.

CBIA News: What tactics generally don’t work?

Flaherty: Exaggeration. Not every situation is the end of the world. Not every good idea is the cure for the common cold. Credibility matters and is generally assumed, but if you overstate your case, it undermines your credibility—and your legislators’ ability to help.

On the other hand, if you’re honest and factual, your legislators can turn your experiences and stories into good policy. That’s how representative democracy is supposed to work. The process can and does work, and I believe in it. ■

CBIA has the tools and resources you need to engage your state legislators:

1. Get started by identifying your state senator and representative.

2. Contact CBIA’s Nicole Cline (860.244.1929; nicole.cline@cbia.com) for advice on connecting with your legislators.

3. Follow and interact with lawmakers on Twitter.

4. Sign up to receive CBIA’s digital Government Affairs Report.

5. Attend Connecticut Business Day on March 25 at the Legislative Office Building in Hartford. For details, contact CBIA’s Adam Ney at 860.244.1933 or adam.ney@cbia.com.

The Real Lego Story

LEGO Systems president discusses the firm’s brick-by-brick comeback

By Lesia Winiarskyj

Remember New Coke?

McPizza?

Volkswagen’s $60,000 Phaeton?

Every once in a while a major brand makes a major blunder: ignoring what its customers want.

No one knows that better than LEGO Systems President Soren Torp Laursen, who saw his company pushed to the brink of bankruptcy before the remarkable rebound that made it the world’s number-one toymaker last year.

“We had simply lost our way in wanting to be too much, too fast,” he said.

Laursen was the keynote speaker at the 2015 Economic Summit & Outlook in Hartford last month, which drew 500 business executives from around the state.

Hosted by CBIA and the MetroHartford Alliance, the event brought together business analysts, economists, and leaders representing various industries for a morning of discussions on Connecticut’s economic health, challenges, and progress toward becoming one of the top 20 states for business.

Back from the Brink

In a globally flat toy market, LEGO recorded 11% consumer sales growth in 2013, the most recent year for which figures are available. Over the past decade, the company’s revenue has grown 400%, and since 2002, employee growth in the Americas has surpassed 520%—all at a time when many businesses have suffered losses and layoffs. Today, LEGO products are sold in 130 countries.

“The last 10 years have been pretty awesome,” said Laursen.

Of course, it wasn’t always that way. Fifteen years ago, the maker of the iconic plastic brick was nearly bankrupt after venturing into markets as diverse as children’s clothing, watches, Hasbro-type action figures, and computers—“areas we knew absolutely nothing about,” said Laursen.

The company went from a period of no growth into a trajectory of decline between 2000 and 2007.

“Our company was not listening to its customers. We were so enthusiastic about those other areas that we neglected what we were good at.”

‘A Relentless Focus on Our Core’

The turning point wasn’t a change in leadership or personnel, said Laursen. “The team that fixed LEGO’s problems is the same team that screwed them up 15 years ago.” The turnaround came when the business decided to go back to what it’s good at, rebuilding its brand brick by brick.

“We placed a relentless focus on our core. We had product developers live with families to get insights that helped drive innovation—products that appeal to girls, storytelling, becoming a bigger player in the digital space.” (Its animated TV series Ninjago is a Cartoon Network staple, and The LEGO Movie was nominated for a 2015 Golden Globe award.)

Overseas Opportunities

LEGO is also focused on globalization.

“Seventy percent of our current business comes from the western part of the world, where only 30% of future growth is occurring,” said Laursen, noting that his company is looking to increase its presence in China, Latin America, and Africa.

Though they closed their Enfield manufacturing plant in 2000 and distribution center in 2006, LEGO’s corporate sales, marketing, and financial services operations are still anchored here.

“This is our hub,” said Laursen.

“Would we like lower taxes in Connecticut and a better infrastructure? Of course. But it’s not all as gloomy as that. Connecticut has an excellent strategic location. It has a well-educated workforce. We’ve brought on 100 new employees in Enfield each year over the last four years—into higher-paying jobs—and we expect to continue that trend well into the foreseeable future.” ■

Lesia Winiarskyj writes on economic and public policy issues for CBIA. Contact her at lesia.winiarskyj@cbia.com.

Keys to Avoiding Prosecutions for Environmental Violations

EPA, DEEP, U.S. attorneys to manufacturers: ‘We want you to succeed’

By Lesia Winiarskyj

How do we define success?

It’s a question every organization, and every department within it, must answer.

In the field of environmental enforcement—where success seems to be measured by the number of violations recorded, total dollars collected from fines and penalties, and the number of civil and criminal prosecutions—the deck appears to be stacked against businesses.

But Connecticut manufacturers heard some good news at a recent meeting of CBIA’s Environmental Policies Council. The meeting, held at E. C. Goodwin Technical High School, included a panel of federal criminal enforcement agents as well as officials from the U.S. Environmental Protection Agency and Connecticut’s Department of Energy and Environmental Protection.

Their message to businesses was clear: We don’t expect perfection. What matters most is how seriously you take environmental compliance and how you respond to a mistake.

“A successful year,” said Assistant U.S. Attorney for the District of Connecticut Ray Miller, “would be one in which my office had no prosecutable cases. The closer we get to compliance, the better.”

Compliance Traps

U.S. Attorney for the District of Connecticut Deirdre Daly gives manufacturers an overview of environmental compliance issues her office handles.

Deirdre Daly, U.S. Attorney for the District of Connecticut, explained that a company’s internal environment is often what undermines its environmental compliance program.

“In some cases, middle managers and boots-on-the-ground workers know about violations,” she said, “but a hierarchical corporate structure, a culture of intimidation, and fear of retribution keep those folks from reporting up the chain.”

Other traps, said Daly, are seemingly positive environmental policies that backfire.

“Some companies have a policy of zero tolerance. But zero tolerance isn’t always the best practice. It can force issues underground, so a company’s leaders may not hear about environmental violations. The news never makes it to the top.“

Also problematic is the notion that everyone is responsible for environmental safety.

“When engineering is responsible, and EH&S is responsible, and everyone else is responsible, then no one is responsible.”

In addition to policies that fail, said Daly, common occurrences and practices that lead to environmental lapses include:

  • Workers operating in silos
  • Production managers doing double duty as EH&S managers
  • Inadequate auditing and training of personnel
  • A failure to “get the right personalities in EH&S who can handle the healthy tension between the environmental safety management and production ends of a business”
  • Leadership transitions

On this last point, Robert Girard, assistant director of enforcement for DEEP’s Bureau of Air Management, noted, “We all would admit that environmental regulations can be very complex. Violations often occur when and where there’s staff turnover—a break in continuity—people who may not be up to speed on environmental compliance or a company’s approach to it.”

‘Not Out to Criminalize Civil Action’

Ninety percent of cases initiated by the U.S. Environmental Protection Agency’s Criminal Enforcement Division result in convictions, said John Gauthier, special agent in charge at the EPA, who acknowledged the challenges businesses face when it comes to staying on top of numerous and changing statutes.

“There’s RCRA, CERCLA, CWA, SDWA, CAA, EPCRA, FIFRA, TSCA”—environmental laws that are often nuanced and difficult to interpret.

“We’re not out to criminalize civil actions,” said Gauthier. “We’re not after companies for failing to correctly interpret the law or for making mistakes.”

“That’s not where we’re going to shine a light,” Daly agreed.

In fact, Gauthier noted, most of the cases brought to his office are never pursued.

So, what makes an environmental violation a criminal case?

Miller explained. “Agents look at what is the company’s record, its history of violations. What catches our attention: Were employees trained? Supervised? Did supervisors participate in the violations, or did they work to address and correct them? Were violations properly and promptly reported? There are certain notification windows.”

Joseph Catalano operates a mill, cutting down cold rolled steel. Catalano, a senior at Goodwin Tech, met with local manufacturers on a tour of his school’s manufacturing center. The tour led to a job offer with a stamping and tooling company as soon as he graduates in June.

He added, “People make mistakes. How the company reacts is, quite frankly, of paramount importance to us. What we look at closely is the corporate response to a bad act.”

Peter Kenyon, senior regional criminal enforcement counsel for EPA Region I, reiterated that the federal government is not trying to criminalize innocent or negligent behavior.

“We want the standards to be quite clear. We don’t want people to wonder if they’re committing a violation. While ignorance of the law is no excuse—these are public health statutes—we know that there are thorny compliance issues.

“What turns a civil case into a criminal case is often the corporate response to it. Was there voluntary disclosure?”

This past August, the former head of a New London manufacturing company pleaded guilty to a criminal charge of knowingly allowing the dumping of chemical pollutants into a publicly owned treatment works for over seven years. Workers repeatedly warned him about illegal wastewater discharges after he took over as CEO in 2003. (The company had been discharging industrial wastewater without a required permit since at least 1986.) Employees had requested that the company install a pretreatment system, and a manager had emailed the CEO asking him to bring the company into compliance.

The CEO, who ignored employees’ warnings and requests, could face three years in prison and thousands of dollars in fines.

‘We’re Willing to Meet with You’

DEEP Commissioner Robert Klee meets with Connecticut manufacturers and instructors at a special meeting of CBIA’s Environmental Policies Council held at E. C. Goodwin Technical High School.

Cases like this one are, fortunately, rare in Connecticut.

Calling environmental violations in the state “mostly minor and correctable,” DEEP Commissioner Robert Klee emphasized his agency’s continued focus on transparency, process improvement, and “heavy investments in pre-application guidance and compliance assistance.”

“We’re working toward a reverse pyramid,” said DEEP’s Nicole Lugli, describing an approach to environmental compliance that’s accomplished primarily through technical training, education, and permitting assistance rather than referrals and administrative orders. Lugli is office director of compliance assurance for the agency’s Office of Planning and Program Development.

“The message is we’re willing to meet with you to understand your business and your challenges and help you solve those problems,” said Klee.

The special meeting at E. C. Goodwin Tech ended with a Q&A between manufacturers, regulators, and enforcement officials, followed by a tour of the school’s manufacturing center, where students training for jobs in various high-demand industries met with prospective employers. ■

Lesia Winiarskyj is a writer on economic and public policy issues at CBIA. Contact her at lesia.winiarskyj@cbia.com.

Learn more about CBIA’s Environmental Policies Council here.

CBIA Establishes Connecticut Bioscience Growth Council

Strengthens support for state’s biotech, biopharma companies

As the biotechnology, biopharmaceutical, and related industries in the state continue to grow and innovate, they will now have a greater voice with the creation of the Connecticut Bioscience Growth Council.

As part of CBIA, the council will represent the interests of biotech and biopharma companies—large and small—at the State Capitol and regulatory agencies, providing greater advocacy support and resources and developing an overall plan for better positioning these companies at the state, regional, and national levels.

The council is led by CBIA’s Paul Pescatello.

“Biotechnology and related industries are a keystone for Connecticut’s future,” says Pescatello.

“The value they bring to the state and, most importantly, to patients and consumers, will be more effectively represented and communicated by the deep bench of government affairs talent and resources at CBIA.”

“These industries represent new and emerging technologies as well as key economic drivers for the state,” says Joe Brennan, CBIA’s president and CEO.

“As they develop lifesaving medicines, new medical treatments, critical medical devices, and other innovative products made possible with life sciences technology, we need to make sure that Connecticut is a great, desirable place for these companies to operate and invest.”

Pro-Growth Policies

Paul Pescatello will head up CBIA’s new Bioscience Growth Council. He also serves as president of the New England Biotech Association, chairs We Work for Health Connecticut, and works closely with the Biotechnology Industry Organization (BIO).

As part of the Bioscience Growth Council’s government advocacy, Pescatello will work to enhance and secure important policies, such as the research and development tax credit for both established and early-stage companies.

Tax credits foster innovation, spur employment, create better opportunities for long-lasting careers, and make Connecticut a more attractive place for companies looking to relocate. Such policies also drive economic activity and help Connecticut compete with other states and countries.

The council supports well-funded basic, translational, and industry research, coupled with robust clinical and product development, which leads to new medicines on pharmacy shelves, new medical device options for patients, and higher quality foods for consumers.

“The Bioscience Growth Council will be a highly effective means to amplify the voice of Connecticut biotechnology,” says Mary Kay Fenton, executive vice president and chief financial officer at New Haven-based Achillion Pharmaceuticals and a CBIA board member.

“If we want this vital industry to grow in Connecticut, policymakers need to know the issues that are important to us.

“Tax policy, intellectual property protection, and infrastructure improvements—including transportation—are critical to us and are paramount to the mission of the Connecticut Bioscience Growth Council.”

“With the establishment of the Bioscience Growth Council, the biopharmaceutical sector is connected directly to the larger Connecticut business community,” says Jim Baxter, senior vice president, development, at Boehringer Ingelheim in Ridgefield and a CBIA board member.

“That broader community, in turn, will benefit greatly from the talent pool, innovation, and economic growth biopharma helps bring into Connecticut.”

Up-and-Comers

While the state’s established biopharmaceutical firms are critically important, also essential to the health of Connecticut biopharma is nurturing a pipeline of startup ventures. Recognizing that, the council is committed to collaborating on public policy concerns with the state’s entrepreneurial and economic development organizations.

“This council will be an indispensable bridge between early-stage companies, scientists, and the established biopharma community,” says Usha Pillai, Ph.D., president of Aria Management Consulting. Pillai, who worked in new medicine development at Pfizer for over 15 years, also worked with Connecticut United for Research Excellence (CURE) and the New Haven Economic Development Corporation to create Bioscience ClubhouseCT.

“It ties one of the state’s key economic development efforts—the recruitment and retention of biotech R&D, including The Jackson Laboratory—to one of its most important business sectors.”

To learn more about CBIA’s Bioscience Growth Council, contact Paul Pescatello (860.244.1938; paul.pescatello@cbia.com) or Therese Wallace (860.244.1950; therese.wallace@cbia.com). Or visit cbia.com/ctbio.

Energy Forecast: Cloudy, Periods of Sun

Regulators, businesses, media weigh in on Connecticut’s energy future

By Lesia Winiarskyj

Speaking at 21st Century Energy, an annual conference presented by CBIA and the Connecticut Power & Energy Society, DEEP officials Katie Scharf Dykes and Robert Klee give an overview of Connecticut’s energy challenges, including accessibility, capacity, environmental impact, and cost.

In his 2015 energy forecast, delivered at this year’s 21st Century Energy: What’s the Deal conference, DEEP Commissioner Robert Klee noted that with a “cheaper, cleaner domestic energy supply just 90 miles away,” his agency is aiming for 50% natural gas penetration in Connecticut to achieve parity with neighboring states.

He acknowledged, however, that natural gas is not a viable option for the foreseeable future in half the state, “which is why need to keep pursuing energy efficiency…and driving down the cost of alternatives.”

Noting that “there are limits to what consumers can and will pay,” Klee called for leveraging more private capital to reduce subsidies—crowdsourcing, the Groupon approach, and other innovative ways to encourage deployment at scale.

‘It All Boils Down to…’

“We’ve entered a very volatile period in our energy market,” said Deputy Commissioner of Energy Katie Scharf Dykes, underscoring the challenges to sustaining a competitive economy.

“It all boils down to a problem of inadequate infrastructure.”

Connecticut’s pipeline constraints and limited natural gas buying capacity, said Dykes, resulted in $3 billion in additional costs last winter and are expected to keep prices elevated this winter too.

Stopgap solutions such as increased reliability on coal and oil “take us backward from a cost perspective [by increasing wholesale electricity costs] and an environmental perspective,” she said.

“And the problem will only get worse.”

‘Too Big for One State to Solve’

Price volatility in New England will continue, said Dykes, until three things happen: we secure adequate natural gas infrastructure; we diversify our energy supplies to include more renewables and large-scale hydropower; and we reduce consumption of electricity or gas—or both.

She acknowledged, too, that our energy challenge requires a regional approach, such as the New England Governors’ Energy Infrastructure Initiative, which would expand natural gas and renewable energy infrastructure capacity by appropriate cost-sharing—cooperative investments in pipelines, electric transmission, renewable generation, and energy efficiency across the six New England states.

“This problem is too big for one state to solve on its own.”

The Politics of Energy

A panel of Connecticut business reporters discusses the politics of energy. L-R: Moderator Steve Kotchko, Connecticut Radio Network; Brian Dowling, The Hartford Courant; Luther Turmelle, The New Haven Register; and Mark Pazniokas, The Connecticut Mirror.

21st Century Energy: What’s the Deal was held on Oct. 8—less than four weeks before Election Day, when Connecticut’s race for governor was in a dead heat.

Moderating a panel of reporters, Connecticut Radio Network News Director Steve Kotchko asked why the gubernatorial candidates weren’t more vocal about their energy strategies—especially with energy prices expected to spike again this winter.

“Cheaper has left town,” said Mark Pazniokas, Capitol bureau chief at CTMirror.org, calling energy a politically “dangerous and difficult issue,” one that requires nuance and complexity—which, he noted, don’t work well in political campaigns.

“This is not an easy issue to tackle, with so many moving pieces,” he said, referring to changing markets, technology, environmental impacts, regulatory policy, and something that Kevin Hennessy, New England director of federal, state and local affairs for Dominion Resources called a “mismatch in the gas and electricity markets,” with the natural gas industry based on long-term contractual agreements (commonly 1511–20 years), while New England’s electricity industry operates on short-term market price signals—up to seven years for new resources and year-to-year for existing ones.

Echoing Dykes’ remarks, Pazniokas reiterated that any meaningful change in transmission capacity in New England is a regional problem, which complicates the issue of having a single gubernatorial hopeful make energy a key part of his or her platform.

Luther Turmelle, north bureau chief for the New Haven Register, agreed.

“A lot of what determines the price of energy does not happen at the state level, so it’s kind of disingenuous for anyone to claim victory for lower prices.” [Read more…]

A New Era of Innovation

UConn’s Next Generation Connecticut

By Bill DeRosa

(L-R): Jim Torgerson, Mun Choi, Cato Laurencin, Deborah Dorcemus, Rachel Winsor, Stephen Escedy.

On Oct. 30, more than 500 business and government leaders at CBIA’s 199th Annual Meeting and Reception learned how UConn’s Next Generation Connecticut (NGC) initiative is reigniting the state’s spirit of innovation and driving economic growth.

On hand at the Marriott Hartford Downtown to discuss NGC were five panelists from UConn: Mun Choi, provost and executive vice president for academic affairs; Cato Laurencin, professor of chemical and biomolecular engineering; Deborah Dorcemus, biomedical engineering Ph.D. candidate; Rachel Winsor, biomedical engineering senior; and Stephen Escedy, materials sciences and engineering senior. Moderating was Jim Torgerson, president and CEO of UIL Holdings Corp. and chair of CBIA’s board of directors.

Proposed by Gov. Malloy and approved with bipartisan support by the state legislature in June 2013, NGC provides funding for increasing UConn’s enrollment, expanding faculty in STEM (science, technology, engineering, and math), and building new research and teaching facilities.

A Vision Amplified

Although past state investments enabled UConn to “hire the faculty, build the buildings, and develop the curriculum that would make our students and faculty nationally competitive,” said Choi, “with Next Generation Connecticut, that vision was amplified, with the clear goal of working with industry.”

One way the university is achieving that goal is by reaching out to Connecticut companies to find out what they need, and then providing it.

“We found that in many cases, they needed access to core equipment, like an additive manufacturing machine or an electron microscope that, individually, they could not afford to have in their facilities,” said Choi.

As a result, Choi noted, UConn recently entered into a $25 million partnership with scientific instrument maker FEI that will create the world’s foremost microscopy facility at the UConn Tech Park planned for the Storrs campus.

The desire to forge a working relationship with industry is closely aligned with NGC’s objective of making the university an economic driver in Connecticut.

Laurencin explained that the UConn Health Center is no longer just a place that provides great clinical care, research, and education, but is also helping to improve Connecticut’s economic environment by fostering a culture of innovation.

“The Health Center is doubling the amount of business incubator space for the entire university,” he said.

Critical to the university’s becoming a bigger economic player in Connecticut, he adds, is its ability to obtain and leverage federal funding.

“For…Connecticut, every million dollars of NIH [National Institutes of Health] funding equals 10 jobs. And every million dollars in NIH funding equals one invention disclosure. Every three or four invention disclosures equal a patent. And every three or four patents equal a company.”

One such company among several UConn-grown startups on display at the Annual Meeting is DuraBiotech, which specializes in novel heart valve designs and was created through the university’s Storrs-based Technology Incubation Program.

Building a 21st Century Workforce

To provide a strong pipeline of workers with advanced technological skills, NGC emphasizes hands-on learning, applying classroom experience to the real world of science and engineering.

“We have students that work on, let’s say, advanced manufacturing,” says Choi. “Instead of learning just by watching a video or just having a base layer of understanding of the equipment, we bring them into our Pratt & Whitney Center for Additive Manufacturing. If they want to work on genomics, they work with colleagues at The Jackson Laboratory.”

In addition, says Choi, NGC is working with economic development entities, such as Connecticut Innovations, to create technology bridge programs that provide support to companies that hire UConn students as interns.

UConn senior Stephen Ecsedy, who is part of a German team designing a sample mount for a custom-built electron microscope, believes that getting young people interested in STEM fields is critical.

As a member of the engineering ambassadors program at UConn, Ecsedy works with middle and high school students to spur their interest in engineering.

“We give them an engineering design challenge,” he says. “It really sparks something. Hopefully we can make a lasting impact.” ■

Bill DeRosa is editor of CBIA News. Contact him at bill.derosa@cbia.com.

Connecticut’s Economy Still the No. 1 Business Concern

‘Cost is a real factor’

Steve Blazejewski, global president of Covidien’s General Surgical Products business.

Steve Blazejewski oversees a portfolio of $2 billion in surgical product sales for medical device manufacturer Covidien, which spends $500 million a year on research and development, employs more than 3,000 Connecticut residents in its North Haven and New Haven facilities, and boasts the largest medical technology internship program in the state.

“We really do believe the best and brightest minds are here,” he told a packed room at The Connecticut Economy, CBIA’s Sept. 5 economic conference in Rocky Hill.

The global president of Covidien’s General Surgical Products business, Blazejewski acknowledged that despite the state’s talent pool, most of his company’s 40-plus manufacturing operations are located outside the U.S.

“Cost is a real factor. We want to stay here, and we want to continue to invest. We’d like it to be a little easier.”

When asked what Connecticut would have to do to bring more of Covidien’s operations in state, Blazejewski was direct. “Promote a viable economy. Minimize taxation and regulation.”

That was the message echoed by a number of speakers at the sold-out event.

Survey Shows Mixed Results

“We live and work in a great state,” said Jim Torgerson, president and CEO of UIL Holdings, noting among other things advances in bioscience, aerospace, medical technology, and financial services that would not be possible without a highly productive workforce.

But, he added, “Our economic recovery has not kept pace with the national and regional economies.”

Indeed, in a survey released that morning, the state’s economy emerged as the single greatest concern among Connecticut companies.

The CBIA/BlumShapiro 2014 Survey of Connecticut Businesses found that while three times as many Connecticut companies are growing as contracting, and nearly half are adding new products or services, concerns about the economy run deep. The most important actions policymakers can take to enhance the state’s business climate, according to survey respondents, are to reduce taxes, regulations, and government spending.

Torgerson called on business leaders to support the CT20x17 campaign, saying that they needed to ensure that the major issue of the 2014 elections is “making Connecticut a top state for business, jobs, and economic growth.”

Supported by a broad coalition of business, professional, and community organizations, CT20x17 is a multiyear campaign to move Connecticut into the top 20 states for business across a range of national business climate rankings by 2017.

“It’s about responsibility, and those of us in this room have an important role to play,” he said. “As business leaders, as leaders in our community, we have a responsibility to our employees, to our clients, to our family, friends, and neighbors—a responsibility to get involved.”

A Rising Tide Lifts All Boats

Dr. Susan Coleman, professor of finance at the University of Hartford’s Barney School of Business.

“While we continue to recover from the depths of the recession,” said Dr. Susan Coleman, professor of finance at the University of Hartford’s Barney School of Business, “and we have a healthy mix of large and small firms in a diverse array of industries, and our educational attainment is higher than the national average, Connecticut’s job growth lags the northeast region and the U.S.”

She noted that Connecticut ranks near the bottom in several national business rankings, including the Thumbtack.com 2014 Small Business Friendliness Survey (which give the state a grade of D) and the Tax Foundation’s 2014 State Business Tax Climate Index (42nd place). Similarly, CNBC’s study America’s Top States for Business put Connecticut’s business climate at fifth worst in the country.

“As you can see,“ said Coleman, “we’re at the wrong end of these business climate indexes. We need to educate our policymakers, legislators, and voters on these issues. We cannot let ourselves keep spiraling downward. We need to act now.”

Coleman urged policymakers to “aggressively tackle the high cost of doing business,” address government spending in excess of the growth rates of personal income and population, and combine public and private dollars to leverage key industries such as aerospace, financial services, and bioscience.

“A rising tide lifts all boats.”

Picking Up the Pace

Robert Triest, vice president and economist at the Federal Reserve Bank of Boston, and Donald Klepper-Smith, chief economist and director of research at DataCore Partners, observed that while New England and the nation have rebounded to pre-recession employment levels, Connecticut’s economy has merely chugged along, forcing many employers to hold tight on hiring. (Connecticut has reclaimed only 64% of the jobs lost during the recession, while neighboring Massachusetts has recovered 169%.)

Among the recommendations for boosting the economy and Connecticut’s business climate rankings were reduced costs and administrative burdens on businesses; a clear, cogent, strategic plan for IT investment; and greater fiscal responsibility, including more efficient, cost-effective delivery of public services and health and human services. ■

Lesia Winiarskyj is a writer on economic and workforce issues at CBIA. Contact her at lesia.winiarskyj@cbia.com.

State Tax Commissioner: ‘Are We Driving Folks Away?’

Kevin Sullivan delivers keynote at CBIA’s 2014 Connecticut Tax Conference

By Lesia Winiarskyj

In his keynote address at CBIA’s annual Connecticut Tax Conference, Department of Revenue Services Commissioner Kevin Sullivan addressed recent legislative developments and their impact on business taxation and the state’s economy.

“We had quite thoughtfully predicted we would collect $35 million in state tax amnesty money and—surprise—in October we had reached $193 million,” Sullivan (pictured at left) said.

That surplus, however, was tempered by another surprise, in April—overoptimistic estimates of Connecticut’s gift and estate tax revenue, which in fact saw a shortfall of $262 million from 2013.

Other sources of volatility, said Sullivan, included lower-than-expected income tax revenues; a federal fiscal cliff “echo”—much longer than economists had predicted; and a trend toward stock market “banking,” whereby wary traders simply park their money.

“But there are signs of life,” he said—a rise in base tax collections that points to a rebounding “Main Street economy.”

These signs, he said, include increases over 2013 in:

  • Withholding taxes
  • Sales and use taxes
  • Real estate conveyance taxes
  • Petroleum gross receipts tax
  • Admissions and dues taxes

Hot Topics

A number of positive developments for businesses, said Sullivan, include:

  • Aerospace R&D credit reinvestment—“This has a huge multiplier effect because of the long supply chain in aerospace manufacturing.”
  • Uniform apportionment of business income—AlanLieberman, partner at Shipman and Goodwin, called this “one of the most important and positive developments from this legislative session,” noting that pass-through entities were often seeing double taxation on their income.
  • Manufacturing apprenticeship tax credit for pass-through entities
  • Gift tax credit on estate taxes
  • Elimination of a “going out of business” fee—Sullivan said many defunct businesses were still on the state’s business registry because their owners, understandably, did not want to pay a dissolution fee, which he called “salt in the wound.”

New Tax Review Commission

Another hot topic, he said, is the proposed Tax Review Commission appointed in August with the task of “unpacking the legacy tax structure in Connecticut.”

While the goal is laudable, he said, the timeline is “unrealistic.”

The problem, he says, is that the newly formed commission has “only five months to take a long, deep dive into all the taxes and do a comprehensive review of the current tax structure.”

Sullivan recommends that the 15-person commission be allowed to “focus on what is doable, what is achievable—a short list that includes business-to-business service taxes, nuisance items, and an examination of how the estate tax is a disincentive for high-end taxpayer retention.

“We have to ask ourselves ‘Are we driving folks away?’” ■

Lesia Winiarskyj is a writer on economic and workforce issues at CBIA. Contact her at lesia.winiarskyj@cbia.com.

Study Reveals Striking Shifts in Global Manufacturing Costs in Past Decade

Many low-cost emerging markets are no longer cheaper than the U.S.

Manufacturing cost competitiveness around the world has changed dramatically over the past decade—so dramatically that many old perceptions of low-cost and high-cost nations no longer hold, according to new research by The Boston Consulting Group (BCG).

To shed light on the shifting cost dynamics of global production, BCG has developed the Global Manufacturing Cost-Competitiveness Index, which tracks changes in production costs over the past decade in the world’s 25 largest goods-exporting nations. The index covers four direct economic drivers of manufacturing competitiveness: wages, productivity growth, energy costs, and currency exchange rates. The 25 countries account for nearly 90% of global exports of manufactured goods.

The 10 countries with the lowest manufacturing costs, according to the index, are a mix of nations from around the world. Six of the 10 are in Asia, while several others are in North America and eastern Europe. A number of other countries have experienced extreme drops in cost-competitiveness: Australia has the highest manufacturing-cost structure of the 25—around 30% higher than the U.S.

“Many companies are making manufacturing investment decisions on the basis of a decades-old worldview that is sorely out of date,” says Harold L. Sirkin, a BCG senior partner and a coauthor of the analysis. “They still see North America and western Europe as high cost and Latin America, eastern Europe, and most of Asia—especially China—as low cost. In reality, there are now high- and low-cost countries in nearly every region of the world.”

Four Patterns of Change

The research identified four distinct patterns of change in manufacturing cost competitiveness over the past decade that involve most of the 25 economies studied.

1. Under pressure. Five economies traditionally regarded as low-cost manufacturing bases—China, Brazil, the Czech Republic, Poland, and Russia—have seen their cost advantages erode significantly since 2004. The erosion has been driven by a confluence of sharp wage increases, lagging productivity growth, unfavorable currency swings, and a dramatic rise in energy costs. China’s manufacturing-cost advantage over the U.S. has shrunk to less than 5%. Costs in eastern European nations are at parity or above costs in the U.S.

2. Losing ground. Several countries that were already relatively expensive a decade ago, primarily in western Europe, have fallen even further behind. Relative to the costs in the U.S., average manufacturing costs in Belgium rose by 6%; in Sweden, 7%; in France, 9%; and in Switzerland and Italy, 10%. Higher energy costs and low productivity growth—or productivity declines—are the chief reasons.

3. Holding steady. A handful of countries held their manufacturing costs constant relative to the U.S. from 2004 to 2014 and have significantly improved their competitiveness within their regions. Declining currencies, along with productivity growth that largely offset wage hikes, helped keep overall costs in check in Indonesia and India. The UK and the Netherlands, on the other hand, have kept pace thanks to steady productivity growth. As a result, the cost structures of Indonesia and India have improved relative to Asia’s other major exporters, while the UK and the Netherlands have boosted their cost competitiveness relative to other exporters in western and eastern Europe.

4. Rising stars. The overall manufacturing-cost structures of Mexico and the U.S. have significantly improved relative to nearly all other leading exporters across the globe. The key reasons were stable wage growth, sustained productivity gains, steady exchange rates, and a big energy-cost advantage that is largely driven by the 50% fall in natural-gas prices since large-scale production of U.S. shale gas began in 2005. Mexico now has lower average manufacturing costs than China. Overall costs in the U.S., meanwhile, are 10% to 25% lower than those of the world’s ten leading goods-exporting nations other than China.

Implications for Manufacturers

The findings have implications for both companies and governments as they consider their manufacturing options. Several countries that have lost ground since 2004 risk becoming even less cost competitive if current wage and productivity trends continue. In some nations with low direct-manufacturing costs, BCG found that competitiveness could be undermined by other factors, such as a difficult business environment or poor logistical infrastructure.

The study’s authors recommend that companies reassess their global production and sourcing footprints in light of today’s cost structures and trends. Manufacturers need to look beyond wages and take into account total costs, including differences in productivity and hidden costs.

To request a summary of the research, contact Eric Gregoire at 617.850.3783 or gregoire.eric@bcg.com.