Cross-posted from Pelto’s Point (New Haven Advocate)
One of the most telling commentary pieces I’ve read in a long time was published this past weekend in the Hartford Courant. Greg Hayes, senior vice president and chief financial officer for Hartford-based United Technologies Corporation wrote “Tough Choices On Taxes, Spending Will Help Business”
The strength of the commentary piece lies in the belief that Connecticut can and should align its “business practices” with that of one of the most successful corporations in the world.
Hayes instructs the people of Connecticut and its elected officials that, “Streamlining state government will pay big dividends for Connecticut’s citizens and taxpayers by lowering costs while improving services. Although not an easy task, we can do more with less. Don’t let anyone tell you that this is not possible. It happens whenever you reduce waste and improve efficiency, something the employees of United Technologies do every day.”
He further warns that, “Tax increases should be modest and last only as long as absolutely necessary to resolve the budget crisis. Strict ‘sunset’ provisions must be enforced to ensure today’s temporary taxes do not turn into permanent tax hikes.”
Considering that Connecticut would need $3.2 billion in new revenue to maintain its current level of services, it’s instructive that UTC’s message is to only look to increased revenue as a last resort and then only adopt minor and short-term tax increases.
This “new revenue as only a last resort” is a profound observation coming from a company that receives two-thirds of its revenues from outside the U.S. A company that is the “dominant player in the Chinese elevator market with an impressive three-quarters share of the market.” Today China has about one in every three elevators in the world and their ever-increasing need for more elevators means UTC’s revenues will continue to grow.
In addition, much of UTC’s remaining (and U.S. based) revenue comes from the sale of aircraft, aircraft parts and aircraft maintenance. As a result, UTC’s revenues have been growing significantly since 2001 thanks to major orders from the U.S. government. As one Wall Street expert noted “Specifically, the company has benefited from the ongoing war in Iraq.”
To equate the concept of taxes with that of corporate revenue is a telling observation.
By far the most interesting part of the commentary piece is the executive’s directives on what the state should be doing on the expenditure side of the budget.
First, he tells Connecticut to deal with its pension crisis, noting that UTC has done just that.
Hayes informs the reader that UTC has not only made structural changes to their pension plans for new and future retirees but “added more than $1.5 billion to its global pension funds last year alone to ensure we can honor commitments to our employees for their retirement.”
We know that Gov. Rell and the Democratic legislators choose exactly the opposite strategy forgoing almost $300 million in required payments to the pension fund over the last two years.
Hayes goes on to instruct state leaders to maintain their research and development tax credit that gives significant tax breaks to companies that conduct research to develop more products (which UTC and its subsidiaries have regularly benefited from). Hayes says these types of tax breaks encourage “businesses to invest in high-value knowledge work that is best suited to Connecticut’s relatively high cost of living.”
Finally, UTC reminds the state to make education a priority. He points out that education “is critical to maintaining a globally competitive workforce” and reflects on his company’s extensive commitment to training its employees. Hayes challenges Connecticut suggesting that “the state’s commitment to quality educational performance should be equally strong”.
Finally Hays concludes that “No household, government or business can thrive by continuously spending more than it takes in. Nor can any organization succeed without sowing the seeds of growth. That’s why measured cuts in state government, improved efficiencies, modest and limited tax increases and protection of key incentives are the steps we should take to promote lasting job growth and prosperity. Gov. Malloy’s tone and leadership on resolving the state’s budget crisis have us on the right track.”
Considering that just a few weeks ago, Aetna’s CEO informed us that Connecticut’s budget decisions would determine whether Aetna moved jobs out of state, I suppose it’s heartening to hear that UTC thinks the Governor’s “tone and leadership” have put Connecticut on the right path.
But, of course, the threats and complements from Connecticut’s corporate elite leaves out the broader question of whether, in fact, running a company focused on profit is or is not different than operating a government that is responsible for fulfilling our collective obligation to provide for a just and civil society.
While UTC is certainly a shining example of how a corporation can succeed by maximizing the opportunities of the global marketplace and benefiting from the “military-industrial complex”, one would expect that someone as educated and successful as a senior executive at UTC would, at the very least, make some mention that a multi-national corporation has greater “flexibility” to make ends meet since it is not “burdened” by having to provide a wide range of vital and important services, none of which “make money.”
Certainly if prisons and public safety, nursing homes and group homes, schools and infrastructure or providing services for those with developmental disabilities, mental illness or other social, health or human needs could be profit making ventures, the role of government would be very different.
In a democratic society each person has an opportunity to stand up and be heard and UTC’s executive viewpoint is an interesting addition to the discussion. However, speaking out should come with some obligation to put observations in context and be truthful about the challenges that face our society and our government.
Last quarter, UTC’s earnings per share rose 14%, with the company’s large engine business up by 45%. Thanks to this revenue growth, UTC exceed Wall Street’s consensus estimate for the sixth consecutive quarter.
This is not to say Mr. Hayes’ observations are not worthy of consideration but it would have been a bit more honest if he has revealed that as corporate Connecticut raises concerns about the number, pay and benefits going to Connecticut’s state employees, the author of the commentary piece recently received a compensation package of $5,956, 757 including salary, bonuses, restricted stock awards, non-equity incentive plan compensation, deferred compensation and other benefits.