By Kevin McNabola
Orange Board of Finance
Kevin McNabola
Connecticut has made great strides with financial discipline and reforms. It has had six straight years of surplus, adhering during that time to the “fiscal guardrails” put in place in 2017, which has led to fiscal sustainability for the first time in decades.
However, Connecticut lawmakers in Hartford and Washington now need to focus on how to make Connecticut more competitive in attracting corporate business to the Nutmeg State.
The first challenge in attracting new businesses to the state is much-needed tax reform by restructuring and lowering the tax burden for both residents and businesses. Connecticut ranks at the bottom when compared with other states across the country.
The Tax Foundation, a Washington, DC-based think tank, ranked Connecticut 47th overall on an index that analyzes how well states fare against each other in four major tax categories: corporate tax, property tax, sales tax and individual income tax. Factoring in taxes at both the state and local levels, Connecticut residents pay 15.4 percent, second only to New York at 15.9 percent for the highest tax burden. Just to put this in perspective: nationwide, the median value for the state-local tax burden is 10.2 percent and the nationwide average is 11.6 percent.
Another key challenge for Connecticut’s competitiveness is the recent increase in electric rates for both businesses and residents. For small and medium manufacturers in Connecticut, the increase in electric costs is significant, with some companies paying an additional $180,000 to $320,000 per year. Some manufacturers in Connecticut experienced a 59 percent increase in 2024 versus 2023. Manufacturers within Connecticut typically have very small operating margins – around 8 percent, with 4 percent to 5 percent of the margins going back into capital investment and automation in order to stay competitive. It comes down to affordability.
Residential customers also have seen similar increases from both Eversource and United Illuminating, seeing an average 30 percent increase from Eversource and 35 percent from United Illuminating.
There are two major drivers for the latest rise in electric prices. The first was a public benefits charge collected by the utility on the delivery side that supports the cost of renewable energy sources and energy efficiency programs. The largest portion of the utility increase –roughly 77 percent, or $605 million – is related to an agreement approved by the state legislature to continue buying power from the Millstone nuclear power plant in Waterford.
Millstone currently generates 52 percent of the electricity for Connecticut and produces no carbon emissions. It is a viable source of renewable energy along with wind and solar. I believe Connecticut needs to be a leader in taking a leading role within New England in implementing a new energy policy that reconsiders the emission reduction targets an invests in building nuclear-powered generation, the most reliable and affordable way to decarbonize the New England grid. Connecticut needs to be proactive in this endeavor, especially since the state now ranks third behind Hawaii and California as the states with the highest average electricity rates, and second behind Hawaii for the highest average price per kilowatt hour (33.01, a 12.6 percent increase from last year).
Gov. Ned Lamont seems to be on board with the prospect of nuclear energy and seems to be concerned about cost increases. Connecticut needs a renewed focus on increasing the affordable energy supply for residents and businesses, which is a huge factor in continuing to recruit companies to the state. Lamont has expressed openness to expanding nuclear capacity, possibly through modular nuclear reactors that have a power capacity of up to 300 megawatts per unit.
A recent study by the Yankee Institute indicates that New England decarbonization plans will cost $850 billion through 2050. New England contributes less than 0.4 percent of global emissions, so the cost may outweigh the benefit that was originally intended.
In the final analysis, Connecticut needs to take a leading role in implementing a new energy policy that reconsiders emission reduction targets and invests in building nuclear power.
Kevin McNabola is the chief financial officer for the city of Meriden and a member of the Orange Board of Finance.