The Top 10 Connecticut Business Stories of 2012

Connecticut Capitol Building

Connecticut Capitol Building (December 31, 2012)

In some ways, 2012 was a carryover year from news of 2011, as the governor continued his aggressive economic development spending, United Technologies Corp. consummated a deal it announced in 2011, and the year's nastiest labor strike grew out of a 2011 lockout. But in the big picture of the state's economy, Connecticut got worse, not better, compared with the nation. That became the state's top business story of 2012 and will shape the scene in 2013.

1. Unemployment Spikes Upward

The year started as 2011 had ended, with Connecticut's unemployment rate dropping nicely, at a level lower than the nation's. Then in June, July and August we had the jobless summer, when the rate inexplicably shot upward and job creation stalled.

By the end of the year, the state's economy had created basically zero jobs since the same months in 2011 — a stunning situation three years after the end of a recession. The November unemployment rate stood at 8.8 percent, with 175,000 people out of work and actively looking for jobs, compared with 7.7 percent for the nation.

Connecticut's mix of industries is partly to blame, with defense cutbacks, a restructuring of the investment banks in Stamford, sluggish gambling at the casinos, and an insurance industry treading water. Cutbacks in public employees also hurt, and Connecticut is more affected than most states by the threat of a fiscal cliff, which quelled hiring by defense contractors.

2. Amputation For The Stag

The Hartford Financial Services Group has long been the largest insurance employer in the state, but it is getting smaller since it announced March 21 it would sell off three divisions and stop selling annuities to individuals.

The moves followed intense pressure from the company's largest shareholder, New York hedge fund billionaire John Paulson. In a Feb. 8 conference call with CEO Liam E. McGee, analysts heard Paulson pointedly demand that The Hartford spin off its property-casualty operations. Paulson followed with a campaign aimed at forcing McGee's hand.

The sale of retirement services to MassMutual, individual life to Prudential Financial and Woodbury Financial Services to AIG, along with the end of new annuity sales, was not the spinoff that Paulson wanted, but it had the effect of focusing the company on its property-casualty and mutual fund businesses.

The company had about 11,000 jobs in the region at the start of 2012. It is still not clear how many jobs The Stag will have in central Connecticut when it all shakes out, and how many will be retained here by the three large buyers and a smaller company that bought a piece of the annuity business. Shares are trending upward after a mid-year slump.

3. No, They Don't Have A Blimp

The $16 million purchase of Goodrich Corp. by United Technologies led to a reshuffling of the state's largest private employer, with the loss of Hamilton Sundstrand as a division.

UTC closed on the Goodrich sale in July, but even before that the Hartford-based company laid the groundwork to merge Windsor Locks-based Hamilton into a new division, UTC Aerospace, based in Charlotte, N.C.— where Goodrich had its headquarters. With few exceptions, the top 75 managers of Hamilton all moved to the new head office in the South.

UTC also sold off several businesses, including some Hamilton Sundstrand industrial units in the Midwest; Pratt & Whitney's Rocketdyne rocket engine unit; and Power Systems, which makes stationary power plants based on jet engines. Just this month, the company sold its South Windsor-based fuel cell division to an Oregon fuel cell maker, leaving the fate of hundreds of local employees unclear.

UTC was rebuked by federal regulators in its attempted sale of a Goodrich business that includes a West Hartford factory with 500 employees, but that business must still be sold, under an antitrust ruling.

4. Fiscal Woes, Part 2

Gov. Dannel P. Malloy inherited a $3.5 billion hole in the state budget in 2011 and managed to fill it with tax increases, some slowing down of spending, and a deal with state employees. Then in late 2012, the crisis emerged again, with a $400 million shortfall for the current fiscal year and, much worse, the prospect of $1 billion gaps in each of the next two years.

The reasons for the new crisis are higher-than-expected spending for Medicaid and lower-than-expected tax collections in a slumping economy.

Working together with little fuss, Malloy and lawmakers erased the $400 million shortfall with across-the-board spending cuts and about $22 million in added revenue from power companies and businesses receiving tax credits.

But Malloy's options for 2013-14 are limited, as he has little room politically to raise taxes, has little leverage for a new deal with state unions, and may not have an improving economy coming. Look for some borrowing, a measure that should be a last resort but may be needed in 2013.