As if Connecticut and capital city Hartford didn’t have enough to worry about with widening deficits and bond-rating woes, insurance behemoth Aetna Inc. piled on Wednesday by confirming relocation talks with other states.
Hartford has been home to Aetna since 1853, when it opened its red brick complex on Farmington Avenue west of downtown. The company employs 5,800 people statewide.
“We are in negotiations with several states regarding a headquarters relocation, with the goal of broadening our access to innovation and the talent that will fill knowledge economy-type positions,” T.J. Crawford, Aetna’s senior director of media relations, said in a statement.
“We remain committed to our Connecticut-based employees and the Hartford campus, and hope to have a final resolution by early summer.”
Aetna’s possible move was no secret locally. Aetna and other corporate giants have spoken out against the state’s tax policies and what they consider an anti-business climate for the past three years. Last year, General Electric Co. moved its corporate headquarters from Fairfield, Conn., to Boston.
“Based on multiple conversations with Aetna's senior leadership, I think it is clear that Aetna decided a long time ago to relocate their corporate headquarters out of Connecticut,” said Hartford Mayor Luke Bronin.
“They have said that Aetna remains committed to its Connecticut workforce, and that the Hartford campus will continue to be a substantial employment base for thousands of Aetna employees. But losing Aetna’s flag is a hard blow for the state and for the greater Hartford region.”
Fears of jobs siphoning to the south emerged when Aetna and Louisville, Ky.-based Humana announced a $37 billion merger. A federal judge in January struck down the merger as anticompetitive.
Talking with reporters Wednesday afternoon, Gov. Dannel Malloy said Aetna chief executive Mark Bertolini had brushed aside offers from the state since early March, including matching any offers from a competing state. Major nearby cities New York and Boston are considered the relocation favorites.
“We've also included specific proposals that would, among other things, strengthen the city of Hartford, bolster our workforce development around Aetna's needs, improve transportation in the region in which they operate, and make our state an even better and more responsive marketplace for them and other insurers,” Malloy added.
“To date, while we have continued to have conversations, we have not been taken up on these offers.”
Malloy said he believes some change is coming, “and that it will likely include a change in their headquarters designation, along with some number of executive positions.”
In January, Aetna – along with Hartford-based insurers Travelers Co. and The Hartford – agreed to contribute a combined $50 million to Hartford over five years. The teetering city is at risk of bankruptcy, and Bronin has admitted the city is soliciting for counsel should it have to file under Chapter 9.
Bronin has asked Malloy and state lawmakers for an additional $40 million in aid for the city, which last fall received four-notch downgrades from S&P Global Ratings and Moody's Investors Service. On Tuesday, Moody's said it would place its Ba2 rating for the city under review for yet another downgrade,
Aetna delivering another psychic gut punch to the state could not come at a worse time, with the state and capital city each immersed in severe budget crises.
State revenue has plummeted, largely due to diminished income-tax receipts, with Gov. Dannel Malloy and state lawmakers starting at a deficit of up to $5 billion for the next millennium.
"The state’s somewhat steep income tax structure further concentrates the personal income tax on the highest earners, making it even more vulnerable to swings in asset prices and capital gains tax receipts," said Nuveen Asset Management.
Connecticut has received six rating downgrades in little over a year.
Late Wednesday, Kroll Bond Rating Agency rejoined the conga line when it lowered its outlook on Connecticut’s general obligation bonds to negative from stable. Kroll affirmed its AA-minus rating.
Kroll cited “the state’s continuing difficulty in accurately projecting income tax revenues and the resulting draw down on the state’s budget reserve fund to zero at the end of [fiscal] 2017.”
Malloy two weeks ago modified his proposed biennial budget for fiscal 2018 and 2019, submitting a $39.4 billion spending plan. He also announced he would withdraw virtually all of the remaining $236 million in the state’s reserve, or rainy-day fund, to balance the budget for fiscal 2017, which ends June 30.
"Given Connecticut’s high fixed costs, concentrated revenue base, and weak balance sheet, a return to a robust financial profile is unlikely in the short term," said Nuveen. "As a sovereign entity Connecticut has an array of tools at its disposal to maintain fiscal stability. Solutions may involve, among other things, tax hikes, expenditure reductions, or a combination of the two."
In mid-May, Fitch Ratings dropped Connecticut GOs to A-plus from AA-minus, while Moody's Investors Service lowered them to A1 from Aa3. Connecticut joined Illinois and New Jersey as the only states with ratings below double-A.
The Aetna announcement should prompt Connecticut to look hard at itself, according to state Sen. Scott Frantz, R-Greenwich.
“Although the possibility of yet another one of Connecticut's finest anchor corporate citizens moving out of state is not a surprise, the governor and the General Assembly need to immediately outline a legislative strategy to demonstrate that we are dead serious about becoming more pro-growth, pro-business and fiscally rational,” said Frantz, who co-chairs the legislature’s joint finance, revenue and bonding committee.
“We need structural changes right away to shore up a crumbling balance sheet, which has corporate Connecticut and taxpayers frightened about their fiscal future.”