While the public's attention is keenly focused on whether Illinois will reach a budget deal in the next 2 days ahead of the next fiscal year which begins on July 1, avoiding the first ever downgrade to junk for a US state as the state piles up some $15 billion in unpaid bills and now oews more than $800 million in interest on the unpaid balances alone, the financial peril facing Connecticut is just as dire.
We laid out the big picture one month ago in "Connecticut State Capital Prepares For Bankruptcy Amid Collapse In Hedge Fund Revenue." And now, as the state rushes to iron out its own budget deal ahead of the June 30 deadline, another major hit for the fiscally challenged state has emerged because one of the state's most reliable sources of corporate tax revenue, Aetna, is leaving Hartford and moving to New York.
According to the NYT, Aetna, the insurance giant founded in Hartford, where it has been for the past 164 years, announced Thursday that it would move its headquarters to New York City despite intensive lobbying efforts by Connecticut officials. The move is a blow to the company’s hometown, which is facing severe financial problems, and a potential boon for Aetna, which stands to receive $24 million in tax breaks over the next decade, among other benefits, for its new headquarters in the Chelsea neighborhood of Manhattan.
The relocation, which involves 250 current and new executive and digital jobs, bolsters New York City’s vision of itself as an emerging digital powerhouse, but also continues the erosion in Connecticut of an industry that has long been an economic engine there. The number of workers employed in the insurance industry in Hartford and the surrounding area has plunged to 37,000 this year from over 60,000 in 1990, according to federal statistics.
According to Empire State Development, New York State’s economic development agency, Aetna will invest $89 million to transform 145,000 square feet in a building on Ninth Avenue into its new home.
The decision to move from CT was likely not easy, although in the end NY provided enough incentives to management to make the switch: efforts to lure the company were highly competitive — Aetna considered numerous cities for its new home, but in the end New York offered one of the most attractive deals. Besides the state tax credits, which are based on the number of new jobs Aetna creates, the New York City Economic Development Corporation will provide nearly $10 million worth of incentives through a combination of property and sales tax credits, among other benefits.
The move is a coup for Mayor Bill de Blasio who said that “New York City is where talent and technology come together" adding that "we’ve never been stronger.’’
The decision comes as a double blow to Hartford, which had agreed to match the package after news broke this year about Aetna’s plan to move, according to the administration of Connecticut’s governor, Dannel P. Malloy. But it was not meant to be: "the company places greater emphasis on creating digital tools for people to manage their health care, being in New York City, with its large reservoir of talent, seemed vital to the company’s future" said Mark T. Bertolini, Aetna’s chairman and CEO.
New York provides “the ecosystem of having people in the knowledge economy, working in a town they want to be living in, and we want to attract those folks, and we want to have them on our team,” Mr. Bertolini said in an interview. “It’s very hard to recruit people like that to Hartford.”
"It is a difficult decision,” Mr. Bertolini added. “We have continued to work with the governor and mayor of Hartford to try and improve the quality of life in the Hartford area, but that is too slow in coming.”
While Aetna is moving its headquarters out of the state, about 5,000 employees will remain in Connecticut, although it is unlikely they will remain in their seats for long.
Meanwhile, realizing just how precarious the situation is for the troubled state, a spokeswoman for Gov. Malloy quickly came to Hartford’s defense.
“While Hartford may not be New York City, we are proud of the city’s revitalization,’’ the spokeswoman, Meg Green, said. “Hartford provides a strong foundation for any company in the insurance sector, large or small. From a very deep bench of top insurance talent, to incredible school systems and a high quality of life for employees, Connecticut remains the insurance capital of the world for good reason.”
For Hartford, losing Aetna, a company with a history closely linked to the city (a son of the founder served as the city’s mayor), is not just a crushing blow in terms of revenue, but leaves it with just one major insurance company.
That company, the Hartford Financial Services Group, which has been in Hartford for more than 200 years, isn’t going anywhere, according to its chairman and chief executive, Christopher J. Swift, unless of course some Chinese conglomerate comes in and swoops it up once the moratorium on outbound M&A ends.
The good news, at least for now, is that Hartford remains "bullish on the city", where recent real estate developments could help reverse its economic slide. “We are encouraged by the early signs of revitalization in the city and the more honest assessment and discussion of priorities in light of fiscal realities at the city and state level.” Mr. Swift said. “We are committed to the city, and the state of Connecticut.”
He may change his mind soon, especially if - as some have speculated - a bankruptcy for Connecticut is imminent.