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Gramm-Rudman Hollings What does it mean for Connecticut business. Our topic this week on the Fairfield County Business Report. Hello I'm Lynn Blaster many questions remain about the controversial Gramm-Rudman Hollings legislation. We'll tackle some of them in just a few minutes after our business news calendar and a report on how one city's officials are prepared to cope with spending cuts. If Hutton and company is three hundred fifty thousand dollars poorer as a result of state action Conn. imposing the strictest measures taken by any state since Hutton pleaded guilty last year to 2000 charges of mail and wire fraud in addition to paying that hefty fine. Hutton was on a

year's probation and is barred from opening new accounts or doing business with new customers in Connecticut from February 18 through March 3rd. Attorney General Joseph Lieberman who prosecuted the case had recommended that Hutton's license be suspended for six months and be ordered to pay a $500000 fine. Yes Boston has five offices in Connecticut. Sometime within the next week or so President Reagan will decide whether or not to sign legislation that would affect two area companies. The House and Senate have both okayed a bill that would require health warnings on snuff and chewing tobacco and banned advertising of the products on TV and radio. Greenwich based U.S. tobacco and American maze of Stanford are both leaders in the smokeless tobacco industry and had favored federal rather than state by state laws regarding warning labels. If the measure is signed the Federal Trade Commission will have six months to write its regulations the companies will then have another six in which to comply. Work has been at a standstill this past week at time income International in Fairfield members of UAW Local 376 are walking a picket line after bargaining and negotiating for five weeks.

The union voted to strike. The main issue job security according to John the Tolo one of the union strike captains. The ball bearing and bushings manufacturer has laid off over 200 workers in the past five years and has been sub contracting jobs with local vendors and Apolo said workers are asking for the aforementioned job security wage increases and want to maintain current insurance benefits. Income employs 300 people and recorded over 10 million dollars in gross sales last year. According to the William Pitt real estate folks the office vacancy rate in Greenwich has dropped by almost two percent. They're crediting the drop to the third major least it's negotiated in Greenwich this winter. The newest resident will be Birky photo which has signed a long term eight million dollar lease for property on Holly Hill Lane. The two other newcomers are selling nice and Moran towing and transportation 8 Danbury area companies have pledged their support to the second Community Science Fair. The donations totaled twenty four and a half thousand dollars and come from the bargain Corp barrel boring or in the Ehime care field processing a

division of am heart broken Elmer and Union Carbide among others science Horizons is running the programme for the second year it's a nonprofit cooperative business and education venture in the Danbury area. On the move this week John Andrews Jr. has been appointed senior vice president at associated Madison in New York at American can's financial holding company Eli Lilly and Company in Indianapolis has a new director of sales for the eastern region. Louis Leggett who's working in the Stamford office Mayra Applebaum a senior product manager for union Penn and Greenwich Union Carbide is named Bryan Murray vice president of Human Resources and communications. David Holland is editor in chief of Encyclopedia Americana at Grolier in Denver area had a passing of the mantle let's do Leonard stew Jr. is now president and Stu Sr. has moved up to Chairman. Congratulations to these and other area business people on the move. Our Fairfield County Business Report calendar is full once again. So if there's something that interests you you. It's hard to go a day without some newscaster mentioning Gramm-Rudman Hollings the recently enacted law

has caused quite a stir on Capitol Hill and elsewhere. One of those places is right here in Fairfield County. Reporter Ron Moreau talked with government leaders in one city to gauge their reaction. At his recent press conference President Reagan reaffirmed his commitment to the Gramm-Rudman Hollings law and its aim of reducing the deficit and eventually balancing the budget. In Norwalk city officials are worried about the effects of those cutbacks. Democratic Mayor William Collins has been one of the most vocal in opposing those cuts. We're trying to wind our citizens now that if this keeps up we're going all have to put up with more local tax increases it's going to be over 10 percent here not this year. I was sitting around at lunch with some of the other mayors in the region. Last week and just about everybody's going to be over 10 percent tax increase so it's just a matter of passing the buck as far as we can say in his State of the state message. Governor only a proposed dollars of state revenue which will challenge our city's exile will enable local governments to better withstand the pressures of getting very small tax.

Cuts our cities and towns will surely bear the Great. The fact that a federal redux mayor Collins calls not basically a good plan. However. Much of what he's proposing to do with that money doesn't help us particularly the amount of additional aid. For the municipalities. We are grateful is very small and most of the money he's talking about is going into improving teacher salaries. And that's fine we teachers salaries are the improved We're glad the state will be paying for some of that anyway although we get stuck with a lot of it. But it really doesn't provide much help for our budgets. Washington Street in South Norwalk is the cornerstone of the city's revitalization program. But city officials are worried that progress year will slow in other parts of the city will experience the same problem of Gramm-Rudman goes forward. We have certainly got the revitalization program well underway. I think it means we're going to have to be a little more creative than in the past and I think the Burbank project is certainly an example we're working with a private nonprofit group action housing to

develop the units without further cost to the city in terms of dollars from the state or federal government. It makes it more difficult to carry out programs but certainly not possible. This constant sort of look to the federal government said Bill it. Is Over. But we can do more with less. If we have the cooperation of the three units of government. It certainly is going to make it more difficult to provide affordable housing. I think we'll be looking to the State Department of Housing which will have some dollars that for which we can make application. I think we'll be looking to work with the private sector. You know there might be ways that we could encourage the private sector to develop housing by increasing densities exciter that that could allow private developers to. Make up some of the affordable housing units in Norwalk. Round up the act for the Fairfield County Business Report greater Norwalk Chamber of Commerce president Shelley Girard says he's concerned about what the cuts will do to the city's defense

industry. If you are going expect the cuts this year won't be too severe but he does expect them to take a toll in the next two to three years. Well March 1st is the critical day that's when the first round of cuts will be made. Sequester ration is the word being used in Washington and until the Supreme Court decides whether the law is constitutional or not. Gramm-Rudman Hollings will have a profound impact on many aspects of our business and personal lives. Here with me today to discuss that are William J Perrette partner in charge at the Lloyd Haskins Ansel's and Stanford State Representative Christine Mittermeier Democrat of Fairfield and Jetson Mehta senior vice president of Rite Investors Service in Bridgeport. Thanks for joining me. Complex will come your reversal topic. I spoke to somebody in Washington who covers the hill the other day and she said you know that's the darndest thing nobody can figure out what's going on even down there they can't see where we're going to try and do it right here today. Bill let's start with you let's talk just to set the stage. The budget excess that Gramm-Rudman Hollings is going to try to eliminate.

OK Lynn. Well the budget is in a bit of a say a trillion dollars a year and what the Gramm-Rudman is saying is that for a fiscal year in 1986 the deficit of one hundred seventy one billion dollars would be permitted. And then that would be dropping down through fiscal year 1981 in permitting one thousand eighty seven hundred forty four billion in one thousand nine hundred seventy two billion. And finally in 1981 we'd have to have a balanced budget. And you know that is the heart of the problem right there. It all sounds very noble when for years we've been talking about balancing the budget and how we have to proceed in previous administrations this was discussed as a realistic expectation. Certainly I expect that most of us here and in fact the public would agree that we need to bring down the federal deficit. When you have a deficit of over 200 million dollars and you have a 2 trillion dollar federal debt and you have interest rates that are higher than they need to be you have an overvalued dollar that affects our trade deficit in this country and affects jobs you need to do something about it. My prime concern about this Gramm-Rudman Act

is that it really is an abrogation by Congress of its fundamental budget authority. You are in effect putting a straitjacket on the federal budget and saying that we're going to delegate our budget responsibility to the federal branch number one. Number two we're going to make those cuts in a mindless formula like manner we're going to say that 50 percent of the cuts have to come on the social side and 50 percent of the deficit has to be trimmed back from the defense side without really looking at what works and what doesn't in terms of programs how we can incorporate savings by. Reforming various programs in various services that the federal government provides. And so I think it's really a cop out for Congress to adopt such legislation while it places more pressure on them there's been pressure on Congress for years to balance the deficit and I think that the deficit has to be brought down by citizens that are made as we make on the state level and as mayor Collins and other officials make on the local level by looking at programs and by trying to trim down areas that can be trimmed down. But making that judgment based upon the merits of a program and not just a mindless formula.

And Jane we all agree that something has to be done about the deficit is there a better solution than g r h. Jared use the solution one thing policymakers have to watch out for to reach is there to be doing big Any probably see decisions. And it's on the side of generating a recession that's one thing that we cannot afford. Today we are talking about a 200 billion dollar problem. If there is a recession as it occurred in 80 182 or as it occurred in 1970 or 70 then these 200 billion dollar problem can become a 100 billion dollar problem. So we need to cut the deficit is one way of doing it but one thing we should not do is come up with any probably see that who holds our economy group hostage to this

reduction in deficit otherwise we would only compound this problem. I like to just follow up on that because I think thats a real excellent point. There is a concern that with this formula of cutting back on the deficit at specific amounts every year that if we see a mild downturn in the economy and if. Under traditional economic practice you would then want to pump money into the economy to prevent unemployment and to get the economy back rolling again and this new law will be a straitjacket preventing that. There is a provision in the new law that says that if the I believe the Office of Congressional Office Budget Office and they verify that there is over 2 consistent quarters some feeling that there may be going into a recessionary condition that we can turn back some of those budget cutting measures. But I think it's unlikely that you will see a situation where those two officials will make that judgment. And when they do make that judgment if they do it could be too late to be able to catch the economy quickly enough unless that joint budget committee. Yes of course.

I would hope in the financial community is that it does not reach the stage of boost to our prescience. The 435 congressmen and senators and the president that we have we hope will reach a consensus in a meaningful and intelligent manner that she suggested before the problem that I was in for last four years. There have always been a Spielman and be who they are this time there will be less offers a deal made and we compromise on them or otherwise would have been the case. The one thing that Gramm-Rudman really does not it does not suggest is zero based budgeting. And you know if you want and evaluate each program on its merits I think that's what Chris was suggesting and rightfully so. That's the way of really cutting the deficit and keeping the programs that need to be kept and should be kept in eliminating the excesses of the fat as you and I do in our daily lives. There's some talk about if. If the Supreme Court does uphold the act and neither Congress

nor the president can reach some sort of a compromise there are some people that are saying Well Congress will just repeal the act. They can do it. Yes they can do it but politically. I don't think. What are the chances. I don't know I see many Congressman I was in Washington last week and many of them including those who voted for Gramm-Rudman are now trying to run as quickly as they can away from Grant Gramm-Rudman they see the chaos that it is causing. They also see the uncertainty that it causes not only state local government here in Connecticut. We're uncertain as to how much of a cushion we should provide next year in our budget so that we don't have to increase taxes in order to make up for the loss in federal funding for various programs and local officials have the same problems I imagine the business community is looking at those same kind of problems where they may hesitate to invest in expand business if they don't know if they're going to be cutbacks coming down to them as well. Let's talk about the business community and let's go to you Bill. Talk about what the business community thinks about this.

Well I think the business community is concerned much like the government is concerned particularly concerned as to you know what are the plans for 1000 remaining part of 1986 1987 and you know over the next five years how should they plan their business most businesses not all businesses run their business off a one year operating plan in a three and five year strategic plan and it's difficult to have that plan when you have such uncertainty and and also the concern as to what's going to happen to the tax structure both at the federal level and at the state level because there is going to have to be an offset on the revenue side somewhere whether it be at the federal level or at the state level as mayor Collins said you know passing the buck to a certain degree. There are many areas in which states are going to have to take up the slack. Let's go through some of those areas that will be affected in Connecticut and then let's talk about what we might see is there a solution or a problem in our own state here. Some of the main effects in Connecticut obviously the defense industry which is a major employer in our area affects on the defense industry here short term and then long term I think

short term the effects will be less dramatic and then long term we think short term the reduction in the deficit is coming down this fairly slow pace you know through 1991. A lot depends upon the economy and you know what offsetting if we go into a recession the effects would even be more dramatic as we get into as you know a balanced budget phase. Early on here there are some opportunities for the Defense Department to move allocations around a little bit to keep those contracts that are most important. But I think long term you can see significant cuts at the federal level and that's going to filter its way down to those companies that are dependent on defense industry and we have a big part of that here in the state. I think one thing that's important to remember is that so many of the defense contracts that companies in our area have are exempt from this. There's that tremendous pie that is not being cut from because they have these long term contracts that are sacrosanct now and what years they eat what year they end. Has a lot to do with it as well. Chris you looked like you wanted to say something.

Well I was going to add that for Connecticut its defense industry is one segment of the possible effects of the new cuts that are becoming down we stand to lose according to our projections over a hundred sixty seven million dollars in federal funding for Fairfield County when you look at business in the private sector you look at job training programs over six million in that area. You look at transportation the need for employees to get to work in Fairfield County which will affect the economy as well as the business climate. We stand to lose over 53 million dollars in highway funds that we have factored into a 10 year program to bring our transportation system up to par. All right let's talk about transportation for a moment because that is one of the top legislative priorities that satiate has made a top priority for business transportation and housing. Both will be affected we're going to see big cuts in transportation subsidies and unfortunately for Connecticut bridge repairs mass transit highways things like that and how this affects business. We've been trying we've been bandying various

solutions about but it's really going to force us to come to terms with it is a question on that. You know here we are talking about grammar bill and seeing that all of these cards are going to be leased out of the court is going to take place because Greymouth Aardman beware because the budget deficit is too big. If so was it grandmother and baby was not then we have these budget deficits or we would have brought about some cards. I think that's a good point. Obviously there would be cuts and there need to be cuts I think there's consensus on that. The question is do you make them in a mindless manner which is set up under this law. I suspect if we sat down the people in this country to make cuts in the federal budget after having bridges collapse around this country and having a 200 billion dollar shortfall in the amount that we need to bring our roads and bridges which affects public safety up to par and what we have now they would not start by making cuts there. And certainly it's a matter of priorities but what we see is we see a process where if Congress does not agree

with the president's budget cutting proposal and if they are unable to come up as they have been in such paralysis over the last few years with an alternative budget you will see those budget cuts go into effect and then you will see very harsh impacts that have no direct relationship to how valuable that service is and how crucial it is to the livelihood of people in this country. But so the one point that is clear from here is that we are we have been in the stalemate for the last several years and even this year the stalemate is going to be live. Gramm Rudman at me suggest one solution. What are the solutions. We don't go into Gramm-Rudman stalemate is going to be police or at least you know it will solve Baertschi made out of it are there ways that we can solve the steamer. All the other solutions would be to look at each program individually and to cut out. Nobody has said that that has it has that it should be done and it can be done on the state level. Your state legislators and our appropriations committee one year we cut 50

million dollars out of the state budget which doesn't sound like a lot but as a percentage of our Connecticut budget it's a large portion of it should be done. Maybe it would be done he went on their game without much bend automatic card problem problem in order if you're going to track record hasn't it hasn't really been happening. Everybody talks about and everyone agrees that it needs to be done but there's always somebody who's ox being gored and then that doesn't happen and then they move on to another program and there are 20 reasons why that program should be kept and I think the sponsors are really hoping you know through the back door that they're going to be forcing zero based budgeting but that is not necessarily guaranteed under the current legislation. Investment community I think seems to be betting when you look at the new record high of the stock market or the bond price is that some sensible solution is going to be brought about. Well maybe in some circumstances. The automatic cuts might be a sensible solution and I hope not. What would the investment community like to see a shift in when the

investment community would first like to see in my opinion. Significantly lower interest rates they hope that this program a reduction in budget deficit would take away one excuse from the Federal Reserve which is from time to time. Got one excuse to tighten monetary policy and raise interest rates so we think there are at least the stock market seems to be seeing their excuses now gone and probably hopefully will not hold. Our economy grew at whole stage with the budget deficit. And along that same vein what should happen to anyone. Well I am one is a very very good talk in terms of long term. We should clearly have and we're growing at least as much as GNP growth should be there now my GNP growth should be there. We are talking in terms of I think we still can afford about 4 to 5

percent real dollar growth on top of that you might want to add 3 or 4 percent. Inflation So you are talking about a B to 9 percent growth. Now if interest rates do decline what happens is that the loss would be. Off and one also reduces And therefore again we need more group that normally is the last year to be at about 12 percent group. I think we should not do much less than that for the next. What do you want to get back to some of the kinetic impact that we would be feeling we've spoken about transportation we've spoken about defense housing is another one of our problems and as less mortgage money is available and as the government moves towards privatization that's going to increase the burden on local communities and the state isn't it. It is in fact in Fairfield County I think will be hit the hardest because supply is always a problem the key problem in Fairfield County is affordability. Many of

us would prefer to see though the federal government less involved in creating and building new public housing more involved in just maintaining that existing supply and providing tax credits investment tax incentives to the mortgage market so that the banks and other financial institutions can offer. Mortgages to first time home buyers at lower interest rates. The extent to which that is going to be affected is really too early to see We've seen some general numbers on how much the federal government will have to pull back the strings in that area but I don't think we know for certain yet. But there will I'm sure be a negative impact in that area wouldn't surprise me if in the final analysis the state really has to step in in the housing area irrespective of whether we stay with Gramm-Rudman have some other proposal that seems to be one of the areas that the state is really going to come up on. And of course the states can have to come up with a revenue somewhere as well and there's going to be probably a tax increase in one form or another maybe not a state income tax but they would have to be or using of the surplus that we currently have. There's another area that the state has not been that involved in that has really been federal involvement.

Going to see some changes there and that's dairy farmers we are one of the top 10 dairy producing states in Connecticut which a lot of people don't realize. Very big industry here another big cuts in terms of the farm bill. And then as of March 1st there isn't going to be an additional four point three percent income reduction for our state dairy farmers. And the figures that I have is that right now it's twelve dollars and sixty cents per 100 pound weight going to drop to probably $10 maybe even lower. That's going to put our dairy farmers in big trouble. There's going to be overproduction and the state will probably have to step in there. Are we prepared to do all this here. That's going be very difficult area for us here in the state because of course that's those cuts Mo's reductions are you talking about coming on the heels of very difficult times for the agricultural industry as a whole. What would high interest rates the tight tight money supply into for things that nature so that I think that's an area that should be of great concern to the state. I mean also particularly in some of the major centers here

in the state the land values of continuing to rise at the farm are those involving dairy farming of course between their value they'll angling up and the inability to stay in business and make a profit to support their families. And so they're to someone's going to have to step up and certainly you know in a near term. Come up with some supports to offset the reduction at the federal level. And then of course we also have the Small Business Administration that poor beleaguered agency that keeps being juggled like so many bowls every year. That doesn't look too good either does it. It's likely that the SBA will be on the chopping block again and again it's not that it's on the chopping block all of the federal programs have to be reanalyzed and cuts will probably have to made within certain programs within certain agencies of the federal government it's just that under this new proposal you're going to see perhaps. Programs in agencies like the SBA that stick out like a sore thumb that have been proposed for cuts in the past possibly

completely eliminated. What I'd like to do is briefly ask you all to just give a summary prognosis of where you think this is taking us Bill. Well I think with steak you know whether Gramm-Rudman stays in its present form or whether we have some other form of legislation I think that you know Congress is committed by them by then your vote to a balanced budget in one form or another whether it's increasing the revenue side or reducing expenses and I think they will be reducing the expense side rather than increasing the revenue side. I jetted I would have probably one other idea that I was thinking or for actually there'd be just automatic growth probably we could have said the heart of the problem should be solved by cards that could be started by raising the revenue if this that is that it's reducing the interest rates then a lot of the problems that we talked about at the state level would be minimized.

All right Chris a couple seconds. I I don't think it does anything to solve the crisis I think Congress has to roll up their sleeves and make individual program decisions. OK on that note we're going to have to close Gramm-Rudman Hollings will be around with us for a while as well budget cuts. So in the coming weeks we will be hearing more about this for now my thanks to today's guest Bill Paret Chris Niedermeyer and Justin Mehta next week on the Fairfield County Business Report. Mothers corporations or daycare who is responsible and what's being done I hope you can join us then. I'm Lynn plaster. This has been a public affairs presentation w w channel

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