Tuesday, June 07, 2005

David Verses Goliath: The Future of UTC in Connecticut

In a speech given before the Middlesex Chamber of Commerce in Cromwell, CEO of United Technologies George David, ever polite, said that he had “hard words” for his audience. He recalled a phone conversation he once had with then Governor Lowell Weicker, who was attempting to persuade David to amend a note receivable held by UTC that would facilitate the sale of the Hartford Whalers hockey team.

Weicker had mentioned that both David and he were “big boys,” major employers in Connecticut. But for the first time that year, Weicker said, he was a little bit bigger than David: The number of state employees had grown larger than UTC workers.

“I put the phone down,” David told his audience, “and recalled asking myself whether this was the right theory.”

Much water has flown under the bridge since that conversation. Connecticut’s payroll has increased 24 percent since 1992, although its population, David noted pointedly, has grown during the same period “by only 2 percent, with outward migration slightly exceeding births.” And the state – if it is possible to imagine such a thing – has become even more insistent on its prerogatives than was ex-Governor Weicker, to whom David refers tenderly in his address as “tough and patronizing, in his usual way.”

Connecticut, a Goliath that has doubled its spending since 1992, also has adopted “business-unfriendly tax measures” to ease its budget shortfalls. The 25 percent corporate income tax surcharge levied in 2002 was never sunsetted as promised. Three years ago, the state reduced by 30 percent a Research and Development tax credit intended to produce higher income jobs and promote intellectual property. Last year the state proposed a Homestead Act designed to shift property tax burdens from residential to corporate taxpayers. A “Pay or Play” bill now before the legislature, David said, “requires employers of 5,000 or more to move their privately negotiated medical plans up to levels for state employees or pay a corresponding tax on the difference,” thus increasing UTC’s Connecticut tax burden by more than half. The bill is onerous not only because it would require unnecessary benefits from UTC but also because “state intervention in otherwise private negotiated agreements between employers and employees is a grave precedent indeed.”

Before he completed his address, David firmly but politely fired a shot across the bow of Connecticut’s state government. “I want to be circumspect in responding to SB 1147,” said David, “but also to be clear with our legislature that there are choices in where we locate ourselves and where we locate our work.”

In an era in which the politics of parties have been replaced by the politics of interests, it would be foolhardy of politicians not to realize that businesses are driven by interests, foremost of which is profit making. If it is more profitable for UTC to rupture its historic ties to Connecticut and move to the greener pastures of a more business friendly state, that is what UTC will do to survive in a world in which nostalgia and false sentimentality can only spell disaster.

When asked recently whether he thought Connecticut’s millionaires, whose assets he had hoped to acquire through a millionaire’s tax, would remove themselves and their assets to a less predatory state, Speaker of the House James Amann expressed surprise. Hadn’t millionaires in Connecticut and elsewhere realized profits from a favorable change in federal tax policy? If enacted, the millionaire’s tax Connecticut Democrats were proposing would still leave them with a net profit. Such being the case, Amann doubted the tax would result in an exodus of millionaires. Connecticut, he said, was “such a nice state.”

The state does indeed have much to recommend it, and moving is always a nuisance. But companies are not persons. It may seem brutal to put it his way, and David is much too polite to employ such language, but the prime directive of a company is to grow or die. And if the soil in which it finds itself is no longer nourishing, it would be fatal not to seek a more favorable business environment elsewhere.

David’s remarks are an indication that Connecticut may be approaching a point where its politicians will be forced to decide whether they want jobs or services; and if companies begin to leave the state, who --other than millionaires bound to a specific geographic area by nostalgia – will finance the increasingly expensive services?

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