2014 Connecticut Economic Outlook

 

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Connecticut’s economy is sure to be a focal point in the 2014 gubernatorial election. And while there have been modest economic improvements, particularly in the housing market, the state’s ability to add jobs is lagging behind the nation as a whole.

What steps need to be taken to remake the economy in 2014? For Donald Klepper-Smith, chief economist and director of research for DataCore Partners in New Haven, part of the answer involves streamlining government in order “to make Connecticut more business-friendly, more affordable.”

“Right now, the pace of spending in state government continues to outpace our ability to afford it,” says Klepper-Smith. To reduce the level of state spending, Klepper-Smith favors what he calls “the creative reconstruction” of state government, including the privatization of some services. “There are opportunities to be explored and if enough savings can be achieved, it’s something that should be considered,” he says. “Of course, there are some union issues that need to be considered. But if it can be done while maintaining the same quality of service, then it definitely ought to be considered.”

Under current conditions, Klepper-Smith is projecting that Connecticut won’t regain all of the jobs it lost during the recession until late 2016. That projection is based on the state adding 1,700 new jobs per month between now and then.

Despite much-heralded efforts like Gov. Dannel Malloy’s “First Five” job-creation initiative, such steps aren’t quick fixes, says Matthew Nemerson, president and CEO of the Connecticut Technology Council. As an example, he points to the state’s success in luring Jackson Laboratories to Farmington. “There’s a short-term payoff in terms of construction, but it will be 10 years before people start to see the real benefits,” he says. “But that’s the kind of bold step you have to make when you’re competing in a global economy as well as against other states. It’s important for Connecticut to be able to play in that league.

According to Klepper-Smith, one potential area of job growth is the energy sector and more specifically, in the natural gas industry. Although Connecticut isn’t the first place one thinks of in terms of the natural gas industry, it is home to three natural gas pipelines. And if the Malloy administration has its way, more gas will be flowing through those pipelines to Connecticut homes and businesses.

Only about a third of Connecticut homes currently use natural gas, according to state officials. But during the 2013 legislative session, Connecticut’s Comprehensive Energy Strategy was updated to include expanding its availability to homes and businesses statewide. The state’s three natural gas transmission lines—the Algonquin, Iroquois and Tennessee gas pipelines—all have upgrades proposed to take advantage of  the lower cost of natural gas available from the Marcellus Shale deposit that stretches from central New York through Pennsylvania and across five other states.

Shelton-based Iroquois announced in January it was entering into a venture with the proposed Constitution pipeline project west of Albany, N.Y. The agreement would allow Iroquois to increase its supply of natural gas to New England. Houston-based Spectra Energy unveiled plans in May for an upgrade of its Algonquin natural gas transmission line, some portions of which have been around since 1958. Tennessee Gas, the third pipeline operator, has proposed eight miles of new transmission lines in the Hartford area.

Statewide, the Algonquin upgrade involves replacing about 33 miles of older transmission lines with newer pipes that are wider in diameter in various segments along the route. It also calls for adding 19 miles of new pipeline to the spurs that go into New London and other parts of eastern Connecticut.

Spectra Energy also has a transmission spur, or lateral, that goes into New Haven County via a route through Cheshire, Wallingford and North Haven, according to Jim Luskay, Spectra Energy’s regional project director. He says that improvements being done to the North Haven spur do not involve upgrading the diameter of the transmission lines or building extensions of the line at this point.

The upgrade of the main portion of the Algonquin line, which stretches from Danbury in the west to Thompson in the state’s Northeast corner, would enable the line to handle greater volumes of natural gas. Spectra Energy’s customers are utilities such as Yankee Gas and Connecticut Natural Gas that will have a greater need for the fuel as expansion of lines within communities grow.
 

 

The Malloy administration is already projecting that between 3,000 and 4,000 new construction jobs will be created over time, thanks to a new plan to expand the state’s natural gas distribution network proposed by Yankee and Connecticut Natural Gas as well as by Southern Connecticut Gas. The plan, which was approved by Connecticut utility regulators in November, calls for adding 900 miles of natural gas distribution lines to 280,000 customers over the next 10 years.

Department of Energy & Environmental Protection (DEEP) Commissioner Dan Esty recently visited a union training program in Meriden that is designed to provide some of the workers needed to fill those jobs. During the visit, Esty said the expansion of the natural gas distribution network in the state will ensure that “Connecticut’s energy future will be different from Connecticut’s energy past.” In addition, he said, “This is a big deal in terms of jobs. We desperately need to present this state as a platform for jobs. You’re seeing some of the work being done already, but it will really pick up the pace after the beginning of the year.”

Esty’s remarks in Meriden came before Malloy announced in early December that he had reached an agreement with his counterparts in the five other New England states to promote joint investment in—and cooperative planning of—energy-infrastructure projects across the region that would be paid for with pooled ratepayer money. The main goal of the effort is to lower energy costs by building new natural gas and electric transmission lines that would link to cheaper and cleaner energy sources in remote parts of New England and in Canada. That will lower costs for existing businesses and enable Connecticut and the region to become more competitive in attracting new business, according to Esty.

He predicted that the states’ efforts in expanding natural gas transmission lines beyond what has been proposed by the private sector has the potential to cut the cost that Connecticut consumers now pay for the fuel in half.

But Joel Gordes, a West Hartford-based energy consultant, says that by focusing largely on transmission projects, the Malloy administration is missing out on an opportunity to create jobs in other segments of the energy technology sector. “If this agreement means building more transmission lines around New England, I don’t see that as strength,” says Gordes. “I see that as a weakness particularly if it comes at the expense of the solar industry and of developing more microgrids.”

Solar energy, microgrids and fuel cells are key elements in what’s known as distributed generation, which involves the production of energy at a local level rather than using large regional power plants.

The state is already home to a pair of significant fuel cell manufacturers: Danbury-based Fuel Cell Energy and Proton OnSite in Wallingford. Connecticut has also seen a surge in rooftop solar installation, in part because of the Solarize Connecticut program, which is offered through the Clean Energy Finance and Investment Authority (CEFIA). Fifteen towns or groups of communities are participating in the program, which is based on a model that already has been successfully used in Oregon and Massachusetts, says Bryan Garcia, president and chief executive officer of CEFIA.

“We continue to see our financing tools and the Solarize model bringing down the cost of solar and making it affordable for more and more homeowners throughout Connecticut,” says Garcia.
 

 

Another potential area identified by Klepper-Smith for employment growth is in the technology sector, which is already starting to happen at a small, grassroots level for several New Haven-based technology companies.

MEA Mobile makes apps for smartphones. The company moved to New Haven less than two years ago and is looking to add three new programmers to its staff of 10 employees. Its highest profile success to date is its Printicular app, which was launched last year and allows users to send photos taken with their mobile phones directly to any of 8,000 Walgreens stores across the country to be turned into prints. Printicular users don’t have to go to the nearest Walgreens to pick up the prints—they can now have them mailed to a location anywhere in the world. In December, Printicular also started offering prints in sizes up to 30-by-30 inches. MEA Mobile gets a percentage of each print Walgreens sells; since Printicular’s launch last year, tens of thousands of pictures have been printed by Walgreens.

Another New Haven tech company to watch is Continuity Control, which expects to double its 25-person workforce this year, according to Andy Greenwalt, the company’s chief executive officer and founder. While Klepper-Smith favors making government less costly and complex, Greenwalt’s business is based on helping small banks and credit unions comply with government regulations. When it comes to the creation of jobs, “state and city governments are part of the solution, but not the whole solution,” he says. “They can water the plant, but they can’t grow a new one.”

“We need to create an environment that will bring the best and the brightest here,” he adds. “They have lots of options.”

Nemerson says that while there is global competition for top talent in any field, Connecticut must improve upon its ability to train people in mid-level positions. He suggests that when companies leave Connecticut, it’s sometimes because they are able to find more people to fill jobs at those levels elsewhere.

Greenwalt believes another way to make technology workers aware of what the state has to offer would be to bring a world-class technology conference to New Haven on an annual basis, aimed specifically at the programmers and other types of technology workers in short supply in Connecticut right now.

New Haven Mayor John DeStefano, in his final few weeks in office, remarked that efforts to remake the city into a technology hub are a logical follow-up to the city’s past as a manufacturing center. “I’m reminded that we’re still a city that makes things; it’s just a different platform,” DeStefano said, adding that betting on the city’s future as a technology hub represents a smart idea for economic growth. “It’s less real estate-based and more idea-based.”

Nemerson says the state needs to be constantly vigilant in assessing itself against other states. “We’re beginning to be competitive, but we’re not where we need to be,” he says. “You have to be reality-based and do focus groups and research. When people leave, you have to do comprehensive exit interviews to find out why, and when they choose a Connecticut company, you need to ask why they did and what other companies they chose it over.”

Because major cities are considered to be dynamic places to work, Nemerson believes other parts of Connecticut must develop a connection with larger population centers. “Jackson Labs doesn’t seem to have any trouble finding people for a place like Farmington,” he says. “But when you’re talking about Storrs, now that UConn has reorganized its research operation, it has an added burden of trying to stay connected with New Haven, New York and Boston.”

Keeping it all connected will be just part of the overall challenge the state continues to face as it works to improve its economic picture.

 

2014 Connecticut Economic Outlook

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