Two CEOs shaping CT economic policy say state's future at stake

Last spring, Bob Patricelli, the serial entrepreneur who recently sold his physician practice management firm Women's Health USA Inc., was facing retirement but he wasn't quite ready to hit the slow lane just yet.

He also harbored deep concerns about the state's economic and fiscal future and thought the business community wasn't doing enough to influence public policy in a way that promoted growth and stability.

So he tapped his network of friends — many of them top executives of other Connecticut companies — to brainstorm ways they could form a new public-private partnership with policymakers. The self-proclaimed “Friday Group” met last spring over several months for Friday breakfasts at the Hartford Club.

Among the attendees were Stanley Black & Decker President and CEO Jim Loree, recently retired Webster Bank CEO Jim Smith, Eversource's general counsel Greg Butler, along with nearly a dozen other business, nonprofit and higher-education leaders.

Together they developed the concept of the Commission on Fiscal Stability and Economic Growth, a mainly private-sector led coalition that would propose comprehensive structural reforms to state government.

Patricelli and Smith, who co-chair the group, floated the concept to the governor and then legislative leaders last September, who eventually slipped the commission's formation into the state budget that passed in October.

Their efforts in some ways harken back to the days of Hartford's bishops, when a group of high-profile insurance and bank executives directly wielded their power to influence city development and policy.

“We were just saying, 'Hey, we haven't stepped up to the plate. We have to get engaged,' ” Patricelli said during a wide-ranging interview with the Hartford Business Journal, where he was joined by Smith, who is still Webster Bank's non-executive chairman.

Smith said he, too, felt a responsibility to play a more active role in a policy debate that could shape Connecticut's fortunes. And it's a role he'd like to play outside elected office.

“It wasn't 'we know the answer, let's get together and provide it,' ” Smith said. “It was 'we have a responsibility to try to make a difference if we can.' ”

Such blue-ribbon panels are not new in Connecticut; what makes this particular commission unique was that it was formed at the behest of some of the state's top CEOs, a group that in the past shied away from public discussions on policy for fear of upsetting the political establishment, or possibly shareholders.

“I'm sure that was weighed by folks before they agreed to do it,” said Joseph Brennan, CEO of the Connecticut Business & Industry Association, the state's largest business lobbying group. “It's more a question of the times we're in right now that people are willing to take those risks that maybe they wouldn't have taken in the past.”

Brennan said he hopes the commission's deep bench will enable it to deliver a message that carries added heft.

“It has the clout of people who employ tens of thousands and have control over where they are located in the future,” said Brennan, who is not a commission member. “Hopefully we'll move the needle.”

Key to getting buy-in from commission members, several of which were part of the Friday Group, was a provision in the budget that apparently requires the legislature to take some action on their recommendations.

“There are so many existing reports and panels that, by and large, have been ignored,” Patricelli said.

The budget language says that three legislative committees must hold public hearings on the commission's report by the end of March. In addition, at least one of those committees must report out a bill with the report's recommendations and the legislature must hold a vote. (There may be one hiccup: The Office of Fiscal Analysis says it's unclear whether that provision will be enforceable.)

Big job

Strengthening Connecticut's economy and fixing its tenuous finances may seem like an impossibly big task. The commission intends to focus on what it views as major structural problems facing the state's budget and economy. Smith and Patricelli declined to reveal specific recommendations, but they did say they plan to pitch “bold” reforms that aim to make significant and long-lasting changes.

They are discussing policies to address an array of issues including: Sluggish GDP growth; the state budget's high ratio of fixed costs; structural deficits; a stressed transportation fund; a mountain of debt and unfunded pension and benefit liabilities; tax expenditures; tolls and gas taxes; public employee compensation; the revenue-raising authority of cities and towns and their reliance on state funding; regionalism; and state-agency consolidation.

Adding to the challenge is the short time frame the commission has to complete its work — they met formally for the first time Dec. 15 and a final report is due to the legislature March 1.

Patricelli and Smith say the quick turnaround is necessary because the state's situation is urgent and action is needed this year to impact almost inevitable deficits in the next two-year budget cycle. Some commission members also can't make a long-term time commitment.

To help complete its work, Patricelli will tap funding from a nonprofit he created last year to pay for consultants and other services. The commission did not receive any money from the legislature.

Connecticut Rising Inc., which is registered to Patricelli, is currently raising outside money. Smith, who sits on the nonprofit's board along with another non-commission member, and Patricelli have kicked in money, and they expect 20 to 30 donations.

They didn't disclose exactly how much they aimed to raise, but Smith said “it's not millions.”

The commission has hired McKinsey and several other firms to analyze corporate incentives and other subjects. They've also hired outside public relations help, a rare move for state-appointed commissions.

Significant challenges

The 14-member commission has tapped some panelists to lead on certain issues. For example, Christopher Swift, chairman and CEO of The Hartford, is the economic growth leader, while Bruce Alexander, Yale's vice president for New Haven and state affairs and campus development, is focused on city and transportation policy.

Stanley Black & Decker's Loree is the competitiveness leader and a report he recently published raised eyebrows in terms of the challenges Connecticut faces.

The report, for example, showed that the state's 0.3 percent average annual economic growth rate (as measured in GDP) since the 2008-09 recession is among the worst in the country, while many of Connecticut's tax rates (including corporate, sales, income and property) are higher than the U.S. average.

At the same time, the state has lost population in each of the last six years and the average departing household earned $123,000 annually in income vs. the $93,000 earned annually by households moving into the state.

Paramount to stimulating economic growth, Patricelli and Smith both agree, is having a more robust transportation system and cities that are more attractive to employees.

They seemed open to highway tolls and a higher gas tax to fund transportation investment.

“It's clear from talking to growth experts that you're not going to get new companies or even existing companies growing as robustly as they might if they don't view your central cities as attractive to their potential workforces,” Patricelli said.

Wary labor

The commission's membership is bipartisan, but it doesn't include a labor representative, which hasn't been the case on many recent panels and commissions.

Lori Pelletier, president of the Connecticut AFL-CIO, is concerned what that may portend.

“Obviously we're disappointed with who's on it and that we were not included, but we will keep an eye on it,” Pelletier said.

She said calls for privatization of government functions is “the same drumbeat all the time” and that too many people blame workers for the state's fiscal troubles.

She also criticized Loree's report, which compares Connecticut to three states that rely more on sales tax and less on income tax. The report calls Florida, Texas and North Carolina “aspirational states.”

Pelletier refers to them as “anti-worker states.”

“If our aspiration is to be like states that pay their workers less so that they don't have the ability to retire, then that's not the Connecticut people remembered,” she said.

Patricelli and Smith said it was ultimately up to legislators and Malloy to appoint commission members. They insist they want labor to be part of the discussion.

“I think it's important that this not be characterized as a bunch of business people getting together and saying 'hey you know, we've got the answers,' ” Smith said. “We need to collaborate with labor. We can help them to understand the depth of the problem and they can help us to understand some solutions.”

Patricelli said the commission should be seen as a good thing for public workers.

“We have to find a way to fund liabilities,” he said. “This is a positive thing for labor. They've received a bunch of promises that are hollow and people aren't going to invest in Connecticut while we have close to $100 billion in debt and unfunded liabilities.”