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Aetna-maggedon

Adding to Connecticut’s fiscal woes, Hartford is losing one of its signature companies. June 2, 2017
Cities
Economy, finance, and budgets

Aetna, one of Connecticut’s largest employers, confirmed this week that it is leaving the state. Though rumors of an exit have swirled since last year, the news still comes as a shock. It extends a long run of bad news coming out of the Nutmeg State, including General Electric’s January 2016 announcement that it will relocate its headquarters from Fairfield to Boston, mounting population losses, and enormous fiscal challenges at the state and city level, which, in Hartford’s case, have prompted open discussion of bankruptcy.

Aetna has been in Hartford for over 150 years. It’s the city’s fourth-largest taxpayer and a major source of corporate philanthropy. Many details remain unclear regarding the insurer’s exodus, including how many of its Connecticut-based 5,800 employees will remain in-state. But the departure will do nothing to ameliorate the dire fiscal problems facing Connecticut and its capital city.

With one month left in the current budget season, Hartford has yet to close the massive deficit it faces for the next fiscal year. In fact, Mayor Luke Bronin and the city council never truly balanced this year’s budget: their plan for fiscal 2017 relied on an assumed $15.5 million in union concessions that have failed to materialize. Hartford’s budget woes are structural, rooted in excessive debt and an extraordinarily weak tax base. With limited options, the city recently solicited proposals for the services of municipal-bankruptcy lawyers.

Hartford’s budget is so strained in part because half of its tax base is tax-exempt. Over decades, the city failed to attract for-profit corporations, instead increasings its reliance on state government and nonprofits, such as hospitals and universities. For Hartford, a major company like Aetna is irreplaceable.  

But the news will probably stiffen state officials’ resolve to avoid a Hartford bankruptcy at all costs. Bronin estimates that he needs $40 million in additional aid from the state to keep the city solvent. Both Democratic and Republican state officials already sound open to bailing out Hartford, voicing fears about how Connecticut’s reputation would suffer if its capital city files for bankruptcy.

From a political standpoint, Bronin will likely emerge from this disaster unscathed: a popular mayor respected by the business community, he has only been in office since early 2016. The same can’t be said for Governor Dannel Malloy, who announced earlier this year that he won’t be running for a third term, due to plummeting approval ratings. (According to the Morning Consult, Malloy is the most unpopular Democratic governor in the nation.) The budget and the economy are Malloy’s weakest issues. The governor admitted that he failed to secure a direct meeting with Aetna’s CEO, which will confirm to his critics that he is clueless as to how to stimulate growth in Connecticut.

For his part, though, Malloy’s pretty sure that he knows what needs to be done: invest in Connecticut’s cities to make them more exciting. “We all know that employers—especially large employers—are attracted to city centers,” said Malloy. “It’s why my budget proposal this year is so focused on not just protecting our cities, but in growing them. In making them into even more dynamic and exciting places to work and to live.”

Let’s keep things in perspective: Connecticut’s urban centers bear more resemblance to Rust Belt cities like Reading, Pennsylvania or Springfield, Massachusetts than to Boston, San Francisco, or New York. It’s the value of Connecticut’s suburbs as talent magnets that is underappreciated. Connecticut ranks in the top five states in measures of productivity, educational attainment, and per-capita income. True, the regions it’s competing against—New York and Boston—also boast strong metrics along these lines. Urban excitement may matter at the margins, but if having a productive and educated workforce is irrelevant to economic policy, then nothing’s relevant. Connecticut officials have been trying to revitalize Hartford, Bridgeport, and New Haven for decades, but these cities continue to struggle. Maybe Malloy and Bronin know something that escaped the notice of previous generations of politicians, but it’s doubtful. A massive investment in cities, especially if it somehow comes at the expense of the suburbs, would be a dangerous overcorrection to the loss of GE and Aetna.

Instead, the state needs to hold the line on taxes, enact substantive pension reform, and make changes to collective bargaining laws along the lines recently suggested by Senate Republicans. Unchecked growth in debt and deficits represent future tax increases, as the executives at GE and Aetna surely understand. Responsible budgeting at the state level is the soundest economic policy; unlike urban revitalization, it’s something that government clearly can do.

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