February 22, 2016

Business fights back against state's push into private industry

Images | HBJ file & Elnur, shutterstock.com
Images | HBJ file & Elnur, shutterstock.com
CBIA CEO Joseph Brennan (left) and state Comptroller Kevin Lembo (right) have different views on state government’s involvement in private industry.

Telecommunications and financial services are largely distinct industries, but they've been linked recently as Connecticut policymakers and advocates push for greater state government involvement in each sector.

Separate bills are expected to be pitched this legislative session that would establish a government-run retirement plan for private-sector workers and use state funds to help expand the availability of affordable, ultra-high-speed Internet to residents and businesses.

Both proposals face fierce opposition from industry groups like the Connecticut Business & Industry Association (CBIA) and the New England Cable & Telecommunications Association, which argue state government would be overstepping its role by competing with private-sector companies.

Advocates for the proposals, including State Comptroller Kevin Lembo, say state government has a duty to intercede when it perceives private industry has failed or not provided adequate service.

Debate on scope of state government

The debate on both issues raises larger questions about the role and scope of state government and whether it should dive more deeply into areas that are regulated, but largely controlled by the private sector, particularly at a time when Connecticut faces serious financial constraints.

Arguments for or against a state-run retirement plan also mirror many of the political talking points spawned during the debate over federal healthcare reform, which deeply divided the nation when it was passed in 2010, overhauling the private and public health insurance markets.

CBIA CEO Joseph Brennan, whose organization represents a wide array of Connecticut businesses, said state government should act as a facilitator or organizer, rather than a market participant.

"For the government to take another area where they're going to jump in, it just seems to … be going in the total wrong direction," said Brennan, whose business lobbying group has been urging state government to privatize more of its services rather than expand them.

Lembo, a Democrat who previously served as the state's first healthcare advocate, where he fought for patients who were denied insurance claims, said his support of the high-speed Internet and public-retirement plan proposals are not grounded in a philosophy of "government can solve this."

"That's not my orientation," Lembo said. "But at the same time, I don't think anything is sacrosanct in that if a market is failing, there isn't a role for government being a sharp stick in that space."

Retirement savings debate

Lembo and other supporters argue the retirement-planning industry is not adequately servicing certain swaths of the workforce, particularly those in lower-paying jobs at small companies.

There are an estimated 600,000 workers in the state whose employers don't offer a retirement plan, and the percentage of employers nationwide participating in savings programs is lackluster.

Meantime, the U.S. Government Accountability Office said last year that 29 percent of American households aged 55 and older had neither a defined-benefit plan, such as a pension, nor savings in a 401(k) or IRA account. For those who had savings, balances averaged $104,000 for the 55 to 64 age group.

The state has a duty, Lembo said, to address the well-documented failure of American workers to adequately save for retirement, so that the burden of supporting them doesn't eventually fall to government.

Mandated retirement plans

The legislature authorized a study of a public-retirement plan for private-sector workers in 2014. The Retirement Security Board (RSB), which Lembo co-chairs with Treasurer Denise Nappier, released their final report last month, recommending that all employers with five or more workers who don't sponsor a retirement plan be mandated to do so or, alternatively, to enroll their employees in a state-created IRA plan. Non-compliers would face unspecified penalties.

The RSB said the state would need about $1 billion in assets to make the government plan sustainable.

Opponents of a state-sponsored retirement plan point out that anyone can walk into a bank or financial services office and sign up for an IRA. Investment in financial education relaying the importance of socking away retirement funds, and other wealth-accumulating strategies, is a better long-term solution, they say.

"What they're trying to achieve is commendable," said Karen Waltemath, owner of New Milford's Financial Planning and Benefits Resources. "My No. 1 problem is it doesn't solve the problem."

Bonnie Stewart, CBIA's general counsel and vice president of government and public affairs, expressed similar reservations.

"It's not just a question of savings," Stewart said. "It's life as a whole and how people need to be aware of different options and the choices they make."

Employers costs for retirement plans

She said added costs employers would face from a public-retirement plan, including additional paperwork and other requirements, would likely result in lower salaries for workers or layoffs.

Others argue a public plan would add to the state's budget woes and hurt Connecticut's business climate by ruffling the feathers of private-sector companies in the industry.

Lembo concedes that virtually any adult can open an IRA account, but it's not typically what happens. A state-run plan would include a payroll deduction directly from workers' checks, a simple but powerful tool for boosting savings, Lembo said.

He was also explicit about the intent for the plan not to compete with private-sector providers.

"The goal isn't to have a public plan own the market," he said, adding that if the retirement plan becomes a reality, the state would likely bid out management and administration services.

CT's Internet future

While even opponents of a public-retirement plan recognize that Connecticut residents aren't saving enough money, the broadband debate is different.

Proponents of a state and municipally-coordinated effort to expand gigabit-speed Internet say there isn't enough access to affordable high-speed Internet.

Telecom companies, led by the NECTA, wholeheartedly disagree, pointing to a December Federal Communications Commission report that said Connecticut had the second-highest Internet speeds in the country. Another study last year by content delivery network and cloud services provider Akamai ranked Connecticut's average connection speeds ninth-fastest in the country.

"The speed issue is a red herring," said NECTA CEO Paul Cianelli. "They are projecting Connecticut as a state that doesn't have adequate Internet service, when in fact we're on the front edge of providing business and residential Internet service."

The majority of Connecticut's urban population had access to relatively fast speeds in 2014, according to the U.S. Department of Commerce. Of that population, 97 percent could access 100 megabit-per second downloads and 73 percent could access uploads at that rate.

Lack of One-Gigabit speed

But less than 4 percent of the urban population had access to both one-gigabit download and upload speeds, which is 10 times faster than 100 Mbps. Advocates say access to a more affordable, statewide gigabit network would serve as an economic development tool, attracting technology, bioscience and other companies using large amounts of data.

But Cianelli said local and state governments are poorly equipped to compete with private Internet providers and market demand for ultra-high-speed Internet remains low. An extensive 2014 New York Law School study detailed the fates of various government-owned networks across the country, including one in Groton, which the town sold in 2013 at a loss of more than $30 million.

Despite Connecticut's relatively high Internet speeds, state Consumer Counsel Elin Swanson Katz said she sees enough evidence of customers paying high prices for higher speeds to warrant government involvement.

A recent report released by the Office of Consumer Counsel's broadband office assessed Internet offerings at a handful of Connecticut businesses. For some, higher-speed infrastructure was tantalizingly close by — maybe across the street — but the cost of making that "last-mile" connection was "prohibitively high" ranging from $10,000 to $30,000, in addition to several thousand dollars of monthly service costs.

NECTA blasted the OCC report, saying the consultant that wrote it was not objective and only named seven specific locations where conditions were assessed.

Swanson Katz countered that the report shows a conversation about the future of high-speed Internet service in Connecticut is warranted.

"I'm hoping we can put the idea that everything is fine behind us," she said.

Broadband bonding

She said broadband advocates are hoping the legislature will consider bonding up to $20 million for a high-speed Internet pilot program to demonstrate that a multi-town partnership with matching local and corporate funds, could work.

Swanson Katz said the pilot could be a "supporting actor" to the CT Gig Project, which has been working since 2014 to bring about statewide gigabit access.

The pilot would likely include West Hartford and New Haven, which were founding members of the gigabit coalition in 2014. Since then, the coalition has been rounding up towns that might be interested in an eventual joint RFP to build out gigabit-speed infrastructure on a larger scale.

It's not exactly clear whether there will be legislative or executive branch support this year for the broadband or public-retirement plan proposals, particularly at a time when the state is confronting billion-dollar deficits in the years ahead.

Gov. Dannel Malloy hasn't publicly committed to either idea, and if his recent budget proposal is any indicator, he may not support the state's involvement in the CT Gig coalition. The proposal calls for cutting the OCC broadband office's $307,000 in funding next year.

Swanson Katz said such a cut would hurt OCC's ability to continue to study Connecticut's Internet climate with outside experts.

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