Hartford Business Journal

18 Hartford Business Journal • February 10, 2020 • www.HartfordBusiness.com By Sean Teehan steehan@hartfordbusiness.com N ew Britain's Stanley Black & Decker this year introduced the world's first artificial intelligence-enabled robotic pill dispenser. Across the Connecticut River at United Technologies Corp.'s Re- search Center in East Hartford, employees are tinkering with ways they could use quantum computing to design stronger and lighter met- als for aerospace products. At Bloomfield-based Kaman Corp. R&D workers recently introduced light-weight titanium bearings that cost less than previous models, while Stratford-based Sikorsky is getting closer to greenlighting a fully autonomous helicopter. Behind all these innovations is a vast array of patents collected by Connecticut-based companies, some of which are the most prolific nation- wide when it comes to stockpiling government-backed protections for new discoveries, underscoring their positions as leading innovators. In fact, about 5,600 patents were filed by Connecticut residents in fiscal 2019, up nearly 5% from a year earlier, according to an annual report issued by the U.S. Patent and Trademark office. Among the largest patent fil- ers and recipients were employees at Stanley and UTC, both of which have large research and development operations in Greater Hartford. It's precisely those R&D facilities and jobs that Connecticut has been hard-pressed to keep in-state. For example, pharmaceutical giant Bris- tol Myers-Squibb moved its research operations out of Wallingford. And while there's been some effort to incentivize private-sector R&D to stay here, some say it's not enough. Connecticut offers research and development tax credits that reim- burse companies up to 6% of their annual R&D spending. However, due to tight program restrictions, companies have accu- mulated significant R&D tax credits over the years they can't cash in. That's because the value of some companies' tax credits exceed their relative corporate income tax liability and there are state-imposed limits on what portion of a tax liability a com- pany can offset with tax credits. In fiscal year 2018, the latest data available, Connecticut companies carried over $1.8 billion in R&D tax credits because they were unable to use them, according to the Depart- ment of Revenue Services. For years, UConn economist Fred Carstensen has championed allow- ing companies to use stranded R&D tax credits in exchange for making impactful capital investments. In response, the state legislature in 2017 passed a "Stranded Tax Credits" program, which allows companies to apply their R&D credits to capital projects, and buy and sell the credits. But the program is capped at $50 million per year, which Carstensen said limits its impact. "It's a very limited program, too small to really leverage substantial investment," said Carstensen, who is also executive director of the Connecticut Center for Economic Analysis (CCEA). CCEA calculated in 2010 that every $1 billion in stranded credits that companies use would create up to 45,000 jobs. Against that mea- sure, $50 million would create no more than 2,250 jobs. So far, Wilton computer-chip maker ASML US LLC is the only company that's taken advantage of the new program, according to the Department of Economic and Com- munity Development's 2018 annual report, allocating $6 million in R&D credits for a capital project. The company is expected to create 524 jobs and spend more than $82.91 million on construction and equip- ment over six years, DECD said. A DECD spokesman said the stranded credits program hasn't been around long enough to judge its effectiveness. But one project has shown such a policy can help anchor companies to Connecticut. In 2014, before the stranded tax credit program was in place, the Mal- loy administration inked a deal with UTC that allowed the conglomerate to use up to $400 million in unused R&D tax credits on a $60-million refurbish- ment of its East Hartford Research Center, and a new $180-million engi- neering facility for jet-engine maker Pratt & Whitney. As a result of that investment, UTC has no plans to move its R&D activities out of East Hartford, even as the company prepares to relocate its headquarters to Massachusetts, once its $120-billion merger with defense giant Raytheon is complete later this year, said Andreas Roelofs, vice president of research and direc- tor of UTC's Research Center. "When you see the recent invest- ments that have been made into [the Research Center], as well as into new large facilities, which are tens of millions of dollars, it is extremely important that we'll continue to be [in East Hartford]," Roelofs said. R&D tax credit claims Between 2006 and 2015 companies claimed $116.4 million in Connecticut research and development tax credits. Here's a breakdown of the types of companies that claimed them. Sum of tax credits claimed Company type (2006-15) Transportation equipment manufacturing $68,867,796 Miscellaneous manufacturing $9,484,841 Professional and technical services $8,052,730 Chemical manufacturing $7,786,526 Management of companies and enterprises $4,393,216 Electrical equipment and appliance manufacturing $3,900,758 Total $116,412,140 Source: Department of Economic and Community Development Innovation State CT companies spend billions on research and development, but some say state should incentivize more of it A researcher works at Stanley Black & Decker's Manufactory 4.0 facility in downtown Hartford. HBJ PHOTO | STEVE LASCHEVER

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