New business formation continues to lag

May 5, 2015

Article as it appeared in the Stamford Advocate

In promoting the idea of an entrepreneur “learner’s permit” this spring, state Sen. L. Scott Frantz, R-Greenwich, hoped to speed the formation of new businesses in his district that covers parts of Greenwich and Stamford, and in the rest of Connecticut.

Entrepreneurship has slowed to a crawl, as Connecticut and the country mark National Small Business Week in the first week of May.

Connecticut registered 6,769 businesses in the first quarter, more than 600 fewer than the first three months of 2014 and the lowest total for any first quarter since 2001, according to data from the Connecticut secretary of the state.

What’s more, the first quarter saw the largest stretch of business dissolutions since 2001, with the secretary of the state not posting data online from years prior to then.

The new data comes as a surprise, given the expanding economy, improved housing and loan markets allowing entrepreneurs to tap home equity or other financing to underwrite business costs, and efforts by the state to spur entrepreneurship through financing programs like the Connecticut Small Business Express program or through business accelerators like the Stamford Innovation Center.

“We’ve done not such a great job here in the last 15 to 20 years as a state, in terms of being able to retain businesses here and certainly to attract enough businesses to have a certain level of critical mass –unlike many states in the country where there’s been a proven track record of good, solid business growth,” Frantz told members of the Stamford Chamber of Commerce in March. “Connecticut has just gone down into the dumps with respect to the business environment … The entrepreneur learner’s permit is just one of many, many efforts that we’re making.”

Co-sponsored by state Sen. Tony Hwang, R-Fairfield, and state Rep. Fred Camillo, R-Greenwich, among others, the Entrepreneur Learner’s Permit would waive permits and licensing fees for two years associated with the formation of a new business in the state, excluding health, fire and other permits required for public safety. Last week, the Commerce Committee of the General Assembly issued a favorable report on the bill, keeping it alive for the current session.

In a recent interview, Frantz described as “unbelievable” the pace of new business formation in Connecticut, which as of March had declined on a year-over-year basis for six straight quarters. Frantz blames high taxes and excessive regulations, and says with a massive transportation bill under consideration by the General Assembly, taxes are likely to only go up, putting more burdens on residents as well as businesses large and small.

Business dissolutions are not a true measure of actual economic activity due to many owners keeping inactive businesses on the books, but the startup index provides a strong indicator given state law that requires registration for companies doing business here. If an increasing number of businesses have dissolved their registration with the state, startup creation continues to easily outpace business stops.

The Connecticut Department of Economic and Community Development is seeking legislative approval to extend the Small Business Express program to microloans, with the goal of stretching available funding to more businesses at the earliest stage of formation.

“Sometimes, the smaller businesses in these communities have real potential, but they really don’t need $10,000,” said DECD Commissioner Catherine Smith, in testimony to the Commerce Committee in March. “Maybe they need something very small –$1,000 (or) $2,000 — to do the work that they need to do to buy a piece of equipment, hire another part-time person, or just simply get some counseling from others … We want to work hard on setting up a program that really gets at those … micro-grants and loans.”