Hartford Business Journal

14 Hartford Business Journal • March 9, 2015 www.HartfordBusiness.com fiscal 2017 and 60 percent thereafter. Even though the cap applies to all business- es it would be a blow to bioscience in particular because it isn't as established as other indus- tries and is heavily involved in research activi- ties, said Bonnie Stewart, a lobbyist for the Con- necticut Business & Industry Association. "To change poli- cies midstream has a devastating impact on those companies in Connecticut," Stewart said. "It discourages investment in Con- necticut when you mess around with policies like that." In Connecticut, companies can earn a tax credit equal to up to 6 percent of their annu- al R&D spending, and they can hold onto those credits until they're used up. Businesses also can earn additional R&D tax credits each year by increasing the amount they spend annually on research; these incremental R&D tax credits are equal to 20 percent of the increase in spend- ing, and they have to be used within 15 years. Connecticut businesses claimed $26.1 million in R&D tax credits in 2012, the most recent year available, according to the Department of Revenue Services (DRS). A big issue with Connecticut's R&D program, however, is that companies earn more credits each year than they can actually use. That's because the state currently allows companies to offset only 70 percent of their tax liability. By tightening that cap even further, Malloy's budget will make it even harder for com- panies to cash in their R&D tax credits, Stewart said. A 2010 study from the Connecticut Cen- ter for Economic Analysis estimated Connecticut compa- nies held more than $1 billion in unused R&D tax credits. Meanwhile, Massachusetts, with its biosci- ence hub in Cambridge around MIT, would gain a further competitive edge over Connecticut. The Bay State allows companies to use their R&D tax credits to offset nearly all of their tax liability, down to a $456 minimum tax. "Why would companies stay here if they can get a better deal in Massachusetts?" Stew- art said. Neither Malloy's office nor the Office of Pol- icy & Management, which developed the pro- posed budget, offered comment for this story. While advanced manufacturing would be impacted as well, a major user of the R&D program would be exempt from the tax credit cap, softening the blow. Hartford conglomerate United Technologies Corp. — with subsidiaries like East Hartford jet engine manufacturer Pratt & Whitney and Farm- ington heating and cooling system manufacturer Carrier Corp. — reached an agreement with Mal- loy last year to use $400 million in unused tax credits in exchange for UTC investing $500 mil- lion in new Connecticut facilities. That deal is not impacted by Malloy's budget. Companies supporting UTC operations don't do much R&D themselves, so as long as UTC's subsidiaries keep sending them work, the state's suppliers shouldn't feel much of an impact from the cap either, said Al Samuel, executive director of the trade group Aero- space Component Manufacturers. Smaller companies not impacted The one bright spot, bioscience officials say, is that the R&D cap won't have much of an impact on startups because they will still have access to an R&D cash refund program created in 2000. Under the program, which Malloy's budget left untouched, businesses with less than $70 million in gross income but no tax liability can receive a cash refund from DRS equal to 65 per- cent of their R&D credits' value. This cash refund program is especially important for bioscience startups because it is typically one of their few — if not only — revenue sources, Froshauer said. Biosci- ence startups can spend up to $1 billion in research and 15 years before a product hits the market, so having even the smallest of revenues is key to attracting investors. "The ability to get credits back that can be used as cash is very important for the [profit and loss statement] for the company, and it is important to the investors to offset the incredible expense of developing a drug and getting it out there," Froshauer said. The bigger issue is that a more stringent tax credit cap will make Connecticut less attractive for startups as they grow into larg- er companies, which is the ultimate goal of Malloy's bioscience initiative. The hope is that the $1 billion taxpayers have invested in the UConn Health Center and bring- ing Jackson Laboratory to Farmington, among other initiatives, eventually will lead to spin-off companies that grow into major job creators. Malloy's initiative assumes those companies will stay in the state because they were founded here, but a less competitive R&D tax credit pro- gram would undermine that, Stewart said. Jackson Laboratory won't be impacted by the R&D credit cap because it is a nonprofit and doesn't pay taxes, said Michael Hyde, the genomics research organization's vice presi- dent for external affairs. The impact on Jackson spinoffs probably will be minimal as well, Hyde said, because they can take advantage of the R&D credit cash refund program. "A larger company, though, that has tax liability would feel the pain," Hyde said. n from page 1 Bioscience relies heavily on R&D credits P H O T O | K e v i n B u r g i O ' 1 0 ( c l a S ) / u c O n n UConn, Southington manufacturer team to battle animal-induced power outages UConn, Southington manufacturer team to battle animal-induced power outages By Matthew Broderick Special to the Hartford Business Journal T he record-breaking snow across much of Connecticut this winter likely has many state residents thinking inspirationally about the return of migrating birds this spring. But one bird species in particular has utility companies concerned: the Monk Parakeet. These tiny birds — which have a history of building their nests on utility poles — have caused big problems and expenses for power companies. Monk Parakeet nests can weigh more than 200 pounds and have caused power outages in established breeding grounds like Florida, New York and Connecticut. But new research from UConn — lead by Ph.D. student Kevin Burgio and his faculty advisor, professor Margaret Rubega — has not only shed light on the nest-building hab- its of Monk Parakeets, but also could lead to new technology that deals with the problem. UConn has teamed up with Southing- ton-based Midsun Group Inc. to produce a device that will better protect utility poles from the migrant birds. Midsun, founded in 1992, makes animal migration products that protect substa- tion, transmission and distribution lines from potential predators and they're hoping their latest gadget, which is currently in the development stage, will soon be piloted by Orange-based United Illuminating Co. and deployed by other utilities, said Sabrina Santilli, Midsun's marketing manager. "Animal-caused outages are typically one of the top three reasons for power out- ages across the country," Santilli said. According to the U.S. Department of Energy, power outages cause approximate- ly $80 billion in losses in the U.S. each year and an estimated 11 percent — or $8.8 billion worth — are caused by wildlife, including birds, snakes and squirrels. In Florida — over a five-year period — utility companies removed more than 3,000 Monk Parakeet nests at a cost of more than $4.7 million. In 2009, more than 69 nests were removed from utility poles by United Illuminating in Stratford, West Haven and Hamden. That effort provided the foundation for UConn's research, which studied — over the course of a year — how these South American-native birds rebuilt their nests. The study's findings were published in the online journal PeerJ review in 2014. Burgio's research found that the key to pre- venting the nest building is to disrupt the bird's access to power lines in the earliest stages. Although Monk Parakeets build nests where the power line intersects with the utility pole, they typically always land on the wire and use it as a walkway to the pole; they don't land on the utility pole itself. Those research findings have formed the basis for a proprietary commercial device that Midsun is creating with UConn that would pre- v e n t the birds from walking over the last foot or so of the line to the pole, said Rita Zangari, exec- utive direc- tor of UConn's Technology Incuba- tion program, which oversees research projects designed to create business solutions for a number of business sectors. "Knowledge sharing and technology transfer is an important aspect of UConn's role," Zangari said, noting that the school provided Midsun with exclusive access to its Monk Parakeet research. Animal-related prevention technology has become a significant part of Midsun's business, Santilli said. Although she wouldn't provide specific details on the latest device they are developing, she said Midsun expects it to attract the interest of large utility providers like United Illuminat- ing, which has faced challenges in addressing bird nests in certain communities. "Animal contacts [with our power systems] are an ongoing concern," said Ed Crowder, a United Illuminating spokesperson. "Squirrels and other animals routinely travel along our lines and, at times, even chew on components of our systems. That can cause power outages for customers and generally end poorly for the animals." In 2012, Crowder said, lightning struck a bird's nest that caught fire in Milford, knocking out power in the neighborhood for several hours. He noted United Illuminating, which has yet to evaluate Midsun's Monk Parakeet-related product, takes preventive measures twice a year to minimize the pesky birds' impact. The company's current strategy is to remove the nests each spring and fall, Crowder said, noting the parakeets seem to be "taking the hint." n A pair of Monk Parakeets sitting on a powerline just outside their nest in Stratford. The nests can weigh up to 200 pounds or more. Bonnie Stewart, lobbyist, Connecticut Business & Industry Association Gov. Dannel P. Malloy and former United Technologies Corp. CEO Louis Chenevert at last year's press conference announcing $400M in tax breaks for the Hartford conglomerate. P H O T O S | H B J F i l e

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