July 7, 2014

Bridgewater's deal collapse signals weakness in Malloy's development strategies

Connecticut taxpayers realized $115 million in savings last week, but it wasn't thanks to some much needed state government cost cutting.

Instead, one of the largest hedge funds in the world, with $150 billion in assets, announced it was turning down $115 million in state aid to move its headquarters from Westport to Stamford, where it planned to build a new corporate office.

Bridgewater Associates' $750 million Stamford relocation now appears to be off the table, the victim of local political infighting that has left egg on the face of Gov. Dannel P. Malloy, the former Stamford mayor, whose administration put together the loan, tax credit, and grant package to support the move.

For now, the future of Bridgewater Associates and its 1,225 employees remains uncertain, but where the company eventually settles could have major implications for Malloy's economic development policies.

A key part of Malloy's economic development strategy has been to provide businesses with state loans, tax credits, and grants so they can add and/or keep jobs in Connecticut. Malloy has argued such investments are necessary to fend off other states from poaching Connecticut companies.

The Bridgewater Associates case will help us understand whether or not that argument holds true. If the hedge fund, headed by billionaire Ray Dalio, moves out of Connecticut following the collapse of its Stamford deal, then Malloy's strategy is bolstered. If, however, Bridgewater stays in the state and/or builds a new headquarters in Westport without taxpayer incentives Malloy gets even more egg on his face.

The results will serve as major talking points in an election year that will put Malloy's policies under a microscope.

The governor's corporate greenmail strategy has come under intense criticism, particularly from Republican lawmakers, and is certainly not an effective long-term strategy for making Connecticut more business friendly. CNBC confirmed that recently when it ranked Connecticut as the fifth worst state to do business; a year earlier Connecticut was ranked sixth worst and its position has fallen steadily from 31st in 2007.

The state's poor economic performance in recent years and high costs of living and doing business were blamed for the poor ranking.

With its limited resources and deficit issues looming, state government doesn't have the funds to continue making business investments that will significantly move the dial in growing Connecticut's economy. Broader industry investments, like the Bioscience Connecticut initiative, may prove to be effective, but giving individual companies millions of taxpayer dollars to grow or retain jobs doesn't make sense. It's also the equivalent of putting a Band-Aid on a gaping wound.

To be fair, Malloy is right when he says other states are competing for our businesses. But they're doing so not because of our lack of incentive programs, but because the high cost of doing business is a major burden.

The much harder, but more effective, way of creating a stable business environment requires choices that policymakers haven't been willing to make. That includes passing a budget that balances for the long-term, not just over one or two fiscal years. Continual deficits create business uncertainty as the threat of new or higher taxes ceases to subside. We need to look at our overall tax policies, particularly the property tax, which hinders job growth and investment. The state's regulatory climate is an issue.

Sweeping changes won't occur overnight, but the state needs to act quickly before its economic competitiveness rankings continue to slide. If we create a more stable business environment large companies like Bridgewater Associates will expand or grow jobs here without government incentives.

That is the true sign of a business-friendly state and a healthy economy.

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