New DECD chief O’Keefe: Post-pandemic trends offer CT major growth opportunities

Daniel O’Keefe, the former tech investment executive recently appointed acting commissioner of the state Department of Economic and Community Development, said recent population and economic gains have Connecticut poised for future growth.

In O’Keefe’s eyes, this upward trajectory has been fostered, at least in part, by the post-pandemic shift to remote work, which has given employees more latitude on where to live.

That’s grown the appeal of Connecticut’s small cities and suburbs, he said.

But, with Connecticut’s projected budget surpluses shrinking, the state must capitalize on these tailwinds with existing programs and resources, O’Keefe said.

In other words, don’t expect any major new economic development programs with large price tags in the near future.

For now, O’Keefe said, his role will be that of a steady hand on the wheel, confidently advocating for the state and its businesses while overseeing existing programs and incentives.

“Priority one is just continuing the good work that is already ongoing,” O’Keefe said in a recent interview with the Hartford Business Journal. “I think I am benefiting from a series of programs and a series of leaders that have set us up for success. And so, I think the first priority is, ‘do no harm.’”

O’Keefe was referencing Gov. Ned Lamont’s first two DECD commissioners, David Lehman and Alexandra Daum, who spearheaded major changes to the state’s economic development toolbox.

That included creation of the $100 million CT Communities Challenge grant program, which invests in transit-oriented development and other housing projects; and JobsCT, a rebate program that offers tax breaks to companies that reach certain job-creation targets.

Innovation focus

Lamont tapped O’Keefe for the commissioner role in December, after his predecessor, Daum, accepted a job managing a portion of Yale University’s real estate portfolio.

O’Keefe still needs confirmation by the General Assembly, which is expected to take up his appointment early in the upcoming legislative session.

O’Keefe started with DECD in July, when he was appointed to the newly created role of chief innovation officer.

He came to state service following his retirement from the private sector earlier in 2023. The DECD job offer stemmed from a lunch meeting with Lamont, arranged by a mutual friend.

O’Keefe said he was considering a role at the federal level, but the governor convinced him to stay local, arguing it’s where he could make a bigger difference.

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HBJ PHOTO | STEVE LASCHEVER

In his office, Daniel O’Keefe has photos of himself posing with President Joe Biden, former Presidents Barack Obama and Bill Clinton, as well as former U.S. Sen. and Secretary of State Hillary Clinton.

As the state’s first-ever chief innovation officer, O’Keefe’s job was to serve as an advocate for the innovation economy, focusing on economic growth, workforce development and job creation.

For now, O’Keefe is keeping the chief innovation officer title, but he’s looking for someone to fill that role.

Part of the answer could come from an agency consolidation plan O’Keefe and others are working to engineer. It would involve DECD absorbing CTNext, a quasi-public economic development agency created in 2016 to invest in and boost innovative startups capable of growing jobs.

A request to fold CTNext’s functions into DECD and form an Office of Innovation will go before state lawmakers in the coming session, O’Keefe said, noting that he sees continued growth opportunities for the life sciences industry in New Haven, fintechs in Stamford and insurtechs in Hartford.

Before public employment, O’Keefe spent seven years at the helm of Apax Digital, a New York-based growth equity arm of global investment firm Apax. Before that, he was a general partner at TCV, a California-based technology investment firm.

His interest in politics and policy is apparent in his new Hartford corner office within DECD’s downtown Hartford headquarters, at 450 Columbus Blvd.

O’Keefe’s office decor includes framed photographs of the 49-year-old former business executive posing with some of the top U.S. Democratic politicians of recent decades, including President Joe Biden, former Presidents Barack Obama and Bill Clinton, as well as former U.S. Sen. and Secretary of State Hillary Rodham Clinton.

O’Keefe said he’s been an enthusiastic supporter of Democratic candidates for president, and has volunteered as a fundraiser for national campaigns since the late 1990s.

Changing economic dynamic

O’Keefe doesn’t foresee a near-term reversal of a post-pandemic shift to remote work. It’s a trend on which the state should capitalize.

“I have a thesis that the pandemic rewrote certain rules in a way that benefits a state like Connecticut,” he said.

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Connecticut in 2022 saw a net increase of nearly 57,000 residents from other states, driven by people coming from New York and Massachusetts, according to U.S. Census Bureau data.

“So, if you can choose where to live, why not live in a place where the quality of life is high, where the quality of education is high, where the quality of health care is high,” O’Keefe said.

Those factors drove O’Keefe and his wife, Sarah, to move from New York City to New Canaan in 2011. His wife was pregnant at the time, and they wanted a quieter setting in which to raise their children, he said.

“I think that’s what’s starting to happen,” O’Keefe added. “We are seeing people with greater flexibility start to choose Connecticut because they can.”

The future of remote work still remains a question that many employers struggle with. Why flexibility still exists, more employers are requiring workers to come to the office at least a few days a week, embracing a hybrid model.

Goldman Sachs recently estimated that between 20% to 25% of U.S. workers work remotely at least part of the time, with the majority of people (16%) in hybrid roles.

Recent data that shows fully remote workers are losing out on promotions at a higher rate, and are also more likely to be laid off, further complicates the picture.

Regardless, to support population gains, Connecticut must continue to invest in housing and other amenities, especially near mass transit in small cities, O’Keefe said.

Lamont recently announced plans to boost transit-oriented development in the state, by providing funding to a statewide economic development agency — called the Municipal Redevelopment Authority — that would provide gap financing and other support to new apartment developments near bus or train lines.

“If you look at constraints on an economy, housing looms large,” O’Keefe said. “Our economy cannot and will not grow at its potential if we cannot house the people to do it.”

O’Keefe also touted Connecticut’s recent economic performance, noting a recent revision to 2022 gross state product data by the U.S. Bureau of Economic Analysis placed Connecticut at the top of the nation’s GDP growth curve.

According to that revised data, Connecticut’s 2.9% GDP growth in 2022 was the seventh-fastest in the nation, ahead of neighboring Massachusetts (2.1% growth) and New York (2.3%).

It follows a “lost decade” between 2008 and 2018, when Connecticut was one of three states whose economies contracted, O’Keefe said.

GDP growth rates for 2023 will be released later this year. In the third quarter of 2023, Connecticut posted 4.7% GDP growth, 27th among all states.

The state Department of Labor recently announced that Connecticut added 22,700 jobs in 2023, down from 26,800 job gains in 2022.

Connecticut’s 3.8% unemployment rate is slightly higher than the U.S.’ 3.7% jobless rate.

Short-term gains, long-term mediocrity

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Fred Carstensen

Fred Carstensen, director of the Connecticut Center for Economic Analysis and a professor of finance and economics at the UConn School of Business, praised the preparation O’Keefe has put into his new role, and the respect the new commissioner has shown for data.

But Carstensen questions just how much enthusiasm there should be for Connecticut’s current economic position.

While there have been positive trends in the short term, Connecticut has seen essentially no net gain in jobs in 35 years, he said.

Gross state domestic product “just inched” past 2008 levels, Carstensen said.

A string of blockbuster budget surpluses since 2017 – totaling nearly $11 billion, according to the Connecticut Mirror – allowed the state to pay down billions in unfunded pension liabilities, while also building up a more than $3.3 billion rainy day fund.

However, the years of billion-dollar surpluses could be coming to an end. The current fiscal year, ending June 30, will close with a projected $178 million surplus, according to the most recent estimate by State Comptroller Sean Scanlon.

O’Keefe cites the shrinking state surplus as the reason Connecticut cannot afford to add big-ticket economic development programs to its current lineup.

“We are in a tight and tightening cycle, we are going to do steady as she goes,” O’Keefe said. “The approach is going to be the same, we are going to invest alongside partners. We are not just going to throw money around.”

Carstensen said he strongly disagrees with the contention Connecticut can’t afford to significantly ramp up economic development investments, including more support for local growth companies.

“Dan has a whole career of making investments in companies,” Carstensen said. “Why isn’t Connecticut devoting some of its billions of dollars investing in Connecticut? Connecticut seems to have been unimaginative. We have missed opportunities. We let Massachusetts grab life sciences. We let New York develop an enormous lead with nanotech and IT.”

Chris DiPentima, president and CEO of the Connecticut Business & Industry Association, said O’Keefe “has the DNA” to be a champion for business.

DiPentima said he hopes to see the new commissioner advocate for smoother and speedier approval processes within other state agencies.

O’Keefe said he will ultimately measure his success by how well he helps Connecticut capitalize on recent momentum.

“My north star is 25 years from now, I want to look back and say we took advantage of a moment in our shared history,” he said. “What if we look back and realize, after all the global financial crisis, that this is our moment? I just don’t want to squander it.”