February 10, 2020; Wall Street Journal
Governor Ned Lamont (D) is calling for significant cuts in the tax breaks that the state offers to corporations in exchange for locating jobs in Connecticut.
“In prior years, the state issued hundreds of millions of dollars in bonds to pay for economic incentives they would give to companies upfront before they created jobs,” writes Joseph De Avila in the Wall Street Journal. Now, “under the governor’s proposal, the state will grant the tax breaks after the positions are added and won’t use bonds to pay for it.”
Previously, under Lamont’s predecessor Dannel Malloy, also a Democrat, large companies like Cigna, ESPN, and NBC Sports received millions in incentive payments.
The revised program will still include some tax abatements for companies in targeted industries such as aerospace, financial services, and information technology, which can still qualify for a tax break if they create 25 or more jobs. Companies that add jobs in the state’s urban centers can receive extra incentives. The total cost of the retooled state program is $40 million a year.
Lamont tells De Avila that the goal is “to totally recast how we do the incentives.” Rather than focusing on tax abatements, the new approach involves focusing on education, workforce training, and transportation.
It appears Lamont’s approach has gained widespread support. Republican Senate Minority Leader Len Fasano tells De Avila that he supports Lamont’s plan to streamline the state’s incentive offerings. “I think that’s a much better plan,” Fasano remarks.
David Lehman, commissioner of the Connecticut Department of Economic and Community Development, says the Lamont administration believes business incentives still have a role, but should only be used on a limited basis.
Lehman observes too that incentives can alienate the public, pointing to New Jersey’s controversial program, which prompted an audit by the office of Governor Phil Murray (D). (New Jersey had spent an estimated $11 billion in tax incentives over the previous 14 years). When the audit was completed in January 2019, it found “control deficiencies that weaken the transparency and accountability of the incentive programs and their success,” including a failure to monitor firms that received awards or to substantiate that promised jobs were created. An audit sampling of a sliver of the incentive awards found, for example, “2,993 reported jobs that were not substantiated as having been created or retained.”
“That’s the kind of stuff,” Lehman adds, that makes “taxpayers scratch their head and say, ‘Why?’” And, as NPQ has widely covered, incentive payments at that level—and nationally corporate tax incentives cost state and local governments roughly $50 billion a year—can substantially cut into available funding for nonprofits and public services, especially education. Indeed, as NPQ readers may recall, nonprofits in Connecticut have often found state funding of nonprofit services to be highly inadequate.
Joe Brennan, chief executive of the Connecticut Business and Industry Association, tells De Avela that his organization largely agrees with the Lamont administration’s plan to retool economic incentives, but expressed concern that small businesses can’t qualify for the tax breaks (given that they, by definition, are unlikely to create 25 new jobs).
According to De Avila, the Lamont administration intends to replace a previous state program that provided loans and grants for small businesses with a new program in which private banks, rather than the state, will provide the loans, with Connecticut subsidizing the loans by providing partial guarantees of those loans to the banks.—Steve Dubb