Stamford's, And Connecticut's, Losing Strategy
/In case you missed it (and you probably did -- who reads Pravda any more?), the lead story in the Sunday Business section of the New York Times this week had the headline "In Connecticut, the Twilight of a Trading Hub." This long article (about 3000 words) chronicles the rapid recent shrinkage of employment at a few large international banks that had located their trading floors, and thousands of employees, in downtown Stamford, Connecticut. These were not just any jobs, but plum, super-high-paying jobs on the big, exciting trading floors. Now the trading jobs are rapidly drying up, and the big downtown office buildings near the train station are emptying out.
Why is this happening now to poor Stamford? If you believe the Pravda narrative, the main reason would be "bad luck":
Stamford had the bad luck of housing the American headquarters of two European banks, which are facing particular challenges as the Continent has struggled to cope with several debt crises. RBS, or Royal Bank of Scotland . . . recently announced plans to reduce its work force in Connecticut, which was once 2,400 people, to fewer than a thousand, making its gleaming building far too large a home. The number of UBS employees in Stamford fell to 2,000 last year, from 4,400 before the crisis, and more cuts are likely. HSBC and Deutsche Bank are the most recent banks to announce major global overhauls. The financial crisis in Greece is the latest headwind likely to challenge any recovery at European banks.
Really? Let me ask you a question: Might high taxes and/or a gigantic overhang from unfunded government employee pensions have anything to do with Stamford's loss of high-paying jobs? Get this: In about 3000 words on why Stamford is losing high-paying jobs, the Times doesn't mention one single word about either high taxes or the pension overhang. Well, then I guess "bad luck" must be the only explanation!
So perhaps the Manhattan Contrarian should provide a little context to Stamford's "bad luck." Until 1992, Connecticut had no state income tax. The income tax began that year at a rate of 1.5%. Today the top rate is 6.7%. Democratic Governor Dannel Malloy was elected in 2010 on a promise not to raise taxes, and promptly raised them. He was re-elected in 2014 on another promise not to raise taxes and has promptly raised them again. The Tax Foundation in its most recent ranking of the states puts Connecticut 42nd of 50 for tax burden. The most recent (June 2015) state budget included individual income tax increases (by eliminating some credits) as well as an extension of a 20% surcharge on the corporate profits tax that put a bullseye right on the heads of the biggest corporate employers. From Rex Sinquefield in Forbes on June 16:
One of the budget’s most egregious inclusions is a $700 million increase in taxes on businesses, including extending the state’s 20 percent surcharge on the corporate profits tax. Not surprisingly, the hikes are prompting corporations headquartered in Connecticut to seek friendlier economic climates in order to maintain their competitive advantage. Last week, House Republican Leader Themis Klarides equated the newly passed budget to “holding up a sign at the border to businesses and saying get out.” Indeed, multinational companies are reading that sign and looking for an exit. Jeff Immelt, the Chief Executive Officer of General Electric, announced to his thousands of Connecticut-based employees he’s built a team tasked with evaluating a move to a state “with a more pro-business environment.” Insurance giant Aetna, currently headquartered in Hartford, already pays $65 million a year in state and local taxes; under this new budget, Aetna’s tax burden goes up by another 27 percent.
According to data here from the Connecticut Department of Labor, Connecticut had 1,640,000 jobs in 1990 and 1,690,000 jobs in May 2015, or just about 3% growth in 25 years. Or you could call it about 0.1% growth per year over that period. It's almost perfect stagnation for two and a half decades.
Could it be just coincidence that two and a half decades of complete stagnation started right when the income tax came in? If it helps you in considering that question, I can remember from personal observation that Stamford was having a boom back in the 70s and 80s. New office buildings were going up everywhere. In the late 70s New York's top income tax rate for combined state and city reached 19%. Connecticut had no income tax at the time and its suburbs closest to the City boomed. From the late 70s through the 80s New York State cut its top rate from about 15% to 7%. And then Connecticut instituted its income tax in 1992. Draw your own conclusions.
After putting in its income tax in 1992, Connecticut adopted an extreme form of job-buying crony capitalism to make its economy seem better than it was. This is the ultimate game for suckers. The job-buying crony capitalism is how Stamford got the big bank trading floors in the first place. The New York Times article linked above actually has a pretty good list of the huge handouts that Connecticut has paid over the years to attract these bank jobs. It started right there in the early 90s. Examples:
Stamford began its bid to capitalize on Wall Street’s expansion in 1994, when it offered $145 million in tax credits, and a free parcel of land, to what was then Swiss Bank to build its American headquarters in the city.
RBS came substantially later in 2005:
RBS . . . agreed to build its American headquarters in Stamford in 2005 after the state promised incentives worth $100 million in exchange for 1,150 new jobs in the state.
And the great thing about blackmail is that you can keep going back to the marks and hitting them up for more money. For example, in 2011 UBS threatened to move its trading operation back to Manhattan, and hit up Connecticut for a big subsidized loan:
In 2011, Connecticut’s governor, Dannel P. Malloy, the former mayor of Stamford, gave UBS a $20 million loan to keep employees in the state. Last year, Mr. Malloy, despite criticism, extended the loan to 2021.
And now they're saying that they are going to move the trading operation back to Manhattan anyway, and scatter an equivalent number of (much lower paying) stockbroker jobs around the state to fulfill their jobs commitment. Hahahahahahahahaha.
Here's another thing I remember: the cheerleading campaign of the New York Times editorial page back in 1992 pushing Connecticut to enact an income tax. How has that worked out for you guys?