Hartford Business Journal

www.HartfordBusiness.com • December 9, 2019 • Hartford Business Journal 17 want to avoid clawing back money if a deal goes sour. It also allows governors or may- ors to make out politically, he said, because they get the upfront ben- efit of announcing new jobs, while the next administration typically has to pay out the incentive. Regardless of the form, Bartik says many state incentives are ex- cessive, and in 75 percent of cases, most jobs would have been created even without government support. He argues there are other things states can do to spur job creation that would be more cost effective, like invest in customized job train- ing or other workforce-develop- ment programs. "A majority of voters really like it when governors and mayors aggressively go after jobs," Bartik said. "They don't understand all the complicated arguments over whether these incentives pay off." Here's a breakdown of the four incentive programs DECD plans to focus on: Small Business Express The Small Business Express program was created under the Malloy administration toward the tail end of the Great Recession to make available additional capital at a time when banks had tightened their lending standards. It provides grants, loans and forgiv- able loans to small businesses with 100 or fewer employees, ranging from high-tech firms to mom-and-pop shops that promise to add jobs or make some kind of capital investment. From fiscal 2012 to the end of fiscal 2018, the program doled out $295 million to 1,825 companies, which promised to create 6,944 jobs and retain an existing 19,305 jobs. The Malloy administration hailed the program as a success and lawmakers renewed funding for it multiple times, but it wasn't with- out controversy. A number of deals went sour, raising concerns the state was wasting taxpayer dollars. Bankers also criticized the program, arguing state government shouldn't be in the lending business and that Small Business Express was taking away some of their potential customers. Connecticut Bankers Association President and CEO Tom Mongellow said bankers urged the Malloy ad- ministration to convert the program into a loan-guarantee product akin to the U.S. Small Business Administra- tion, but their pleas went nowhere. Lehman, on the other hand, is buying in. He said he wants to move DECD away from being a direct lender. Instead, the agency would work with banks on a loan- guarantee program, where lend- ers handle the underwriting, due diligence and actual loan, while the state puts aside a pot of money to back bad bets. Banks would pay the state a fee for guaranteeing the loans. "The indus- try has always been in favor of that type of approach," said Mongellow, who added that banks will be able to better leverage state dollars because $1 million set aside by taxpay- ers can support $10 million in private loans. "That is great use of limited state dollars." Lehman said the program's emphasis would also shift toward woman-owned companies, under- served communities and distressed municipalities. "We want to change the way we do small business lending," Lehman said. "We were doing a lot of direct lending and my fear is that we were doing loans that were competing with banks and offering a better rate [3 percent to 4 percent] so we were cannibalizing their business. Or, we were making loans that banks wouldn't make and there was this adverse selection." The Grow CT Rebate incentive Another incen- tive — The Grow CT Rebate — will reward compa- nies in specific in- dustries (finance and insurance, advanced manu- facturing, health care, bioscience, technology, and digital media) that create at least 25 jobs pay- ing above-average wages. The goal, Lehman said, is to move away from providing incentives to any old company and strategically invest in well-paying jobs that sup- port important industry clusters. To qualify, a company will need to create at least 25 eligible jobs that pay above a certain threshold, say 110 percent above the median income within a certain town, city or county (the exact pay threshold hasn't been determined). The company would be reimbursed an amount equal to 25 percent of the state income tax paid by the new em- ployees. The benefit would increase to 50 percent of the state income tax paid if a company is located within an Opportunity Zone, Lehman said. The payments would start at the beginning of year three and run through year seven, but could be extended two years beyond that. Bartik, the economist, said that type of incentive "is not huge," compared to what other states are offering. Lehman said the program, which will require legislative approval, will be transparent, allowing com- panies and others to understand who qualifies and how. "Every economic developer in every town will know exactly the benefits that are available," Lehman said. "There will be transparency and simplicity." Sales & Use Tax Relief Program The Sales & Use Tax Relief Pro- gram hasn't received a lot of public attention over the years even though it's been around for two de- cades and has issued $286 million worth of sales-tax exemptions to 111 companies and projects. Most recently, Connecticut Innova- tions, the state's quasi-public venture investor that oversees the pro- gram, approved its largest deal ever — a $55.2 million exemp- tion on the pur- chase of comput- er servers to fill a proposed New Britain data cen- ter that's slated for construction in the coming years. Lehman said it's a powerful program because some states don't charge a sales and use tax on certain equipment, so it allows Connecticut to potentially level the playing field. "Just from a competitive stand- point there are times when you want to utilize that, particularly for significant or transformative investments," he said. To qualify, a project must be valued at more than $4 million, so the program is only for initia- tives that involve fairly significant investment. The program has avoided the spotlight perhaps because it provides tax exemptions, rather than loans or grants that typically add to the state's bonded debt, or tax credits that can impact state revenue projections. The statewide sales and use tax rate is 6.35 percent, but state lawmak- ers over the years have carved out exemptions for an array of purchases, including manufacturing machinery. Lehman said he would like to bet- ter define how companies qualify for the program. Urban and Industrial Site Reinvestment Tax Credit WWE made a splash earlier this year when it announced plans to relocate its Stamford global head- quarters within the city, leasing 410,000 square feet at 677 Wash- ington Blvd., the former North American home of UBS. The state also helped facilitate that deal by offering the wrestling enter- tainment company $8.5 million in Urban and Industrial Site Reinvest- ment Tax Credits, which is available to projects that add significant new economic activity and jobs at an old industrial site or urban center. To be eligible, projects have to invest at least $2 million to $50 million or more, depending on the type of development. WWE, for ex- ample, plans to invest $160 million and create 275 new full-time jobs over time, DECD said. The full tax credit is allowable over 10 years, but companies don't see any benefit until three years after they made their investment. It can be used to defray a number of taxes, including those levied against corporations, insurance companies and healthcare centers. From fiscal years 2009 to 2018, the state awarded $506.5 million in Urban and Industrial Site Reinvest- ment Tax Credits, which supported $2.6 billion in projects. Small Business Express assistance portfolio Total assistance (since 2011) $295M Jobs to be retained 19,305 Jobs to be created 6,944 Financial assistance per job $11,241 Source: Department of Economic and Community Development Tim Bartik, Senior Economist, W.E. Upjohn Institute for Employment Research

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