🔒CT’s earn-as-you-grow business incentive strategy is now law, marking major shift in philosophy

Connecticut officially has a new business incentive strategy that’s been signed into law, a move that could have significant implications on the state’s ability to attract new companies, and retain existing ones that are growing.

The state’s new rebate program, JobsCT, offers tax breaks to companies that reach certain job-creation targets.

The program, included in Gov. Ned Lamont’s recently-signed budget implementer bill, codifies the administration’s earn-as-you-grow tax incentive strategy, which has been discussed for more than two years, but didn’t receive legislative approval until this past May.

However, even before the legislation passed, the state Department of Economic and Community Development had reached rebate agreements with about a dozen companies that have promised to add hundreds of jobs in the state in the years ahead.

JobsCT marks a significant change from policies under the Malloy administration, which gave grants to businesses upfront.

“There were large incentive deals where the state would provide forgivable loans, where a portion of the loan was forgivable from day one, so the company could utilize that money, but the state was exposed to credit risk,” said David Lehman, commissioner of the Department of Economic and Community Development.

Targeted industries

Under JobsCT, companies in specified industries may earn rebates against their insurance premiums and/or corporation business and pass-through entity taxes based on the number of new jobs they create. There are no upfront payments, and the tax breaks don’t kick in until year three.

Businesses in the finance, insurance, manufacturing, clean energy, bioscience, technology and digital media industries are eligible for the rebates if they create and maintain at least 25 new positions.

Companies need to apply and be accepted by DECD into the program, which Lehman touts as providing valuable incentives for job creation, at a lower cost to taxpayers. He estimated the program’s cost is roughly $10,000 per job created, compared to nearly twice as much under the previous administration.

Lehman said Connecticut needs to offer business incentives to compete with other states, but the value of the benefits should be weighed against the cost and risk to taxpayers.

“It’s objective and it’s formulaic and it’s low risk, because the incentives are earned over time so there’s no taxpayer money going out the door from day one,” said Lehman, who added that JobsCT also does not require state bonding.

He said businesses like the program because the formula allows them to calculate exactly how much of a rebate they can receive.

Connecticut Business & Industry Association President and CEO Chris DiPentima said the incentives-strategy shift was supported his members. JobsCT applies to any qualifying business and will help existing companies grow while also attracting new ones, he said.

One concern is that it may be difficult for smaller companies to access JobsCT, because it requires a minimum of 25 new jobs. That would be a large number of new hires for a business with say 10, 50 or even 100 employees.

Long-term investment

John Lanza, a partner with accounting firm CohnReznick, said the state’s new incentive program rewards companies for longer-term investment in Connecticut. It ensures companies are not only investing money in the state, but continuing to grow here instead of relocating.

“The businesses need to understand, and it’s a bit of an education to let them know, this administration is incentivizing long-term commitment as opposed to assisting with upfront investment,” Lanza said.

Lanza said businesses plan for the long term, usually five to seven years into the future. The program helps by providing a quantifiable benefit.

“They want some certainty in this marketplace, and what this program does is adds certainty to it,” Lanza said. “They know as long as they maintain these jobs, they will receive benefits in years three through seven.”

Employers that meet the program’s requirements will earn a grant-in-arrears equal to 25% of the withholding taxes from the net number of new employees. Employers that locate or grow in an Opportunity Zone or distressed municipality are eligible for a 50% grant.

The jobs must have salaries that are at least 85% of the median household income of the municipality where the jobs are located.

Payouts are earned in years three through seven, with benefits in years eight and nine at the discretion of the DECD.

The law prohibits a business from receiving a rebate if it does not maintain at least 25 new jobs in the calendar year immediately before the year in which the rebate is claimed.

Businesses can receive rebates for up to seven successive years. The law caps the aggregate rebate amount awarded by the state at $40 million per fiscal year.

The program takes effect July 1, and applies to tax years on or after Jan. 1, 2023.

Rebates already in play

Before the new incentives program was recently signed into law, the Lamont administration had been accepting applications through the state’s Manufacturing Assistance Act.

As of May 27, DECD had rebate agreements with 12 companies. Among them is wealth management firm Mirador, which is moving its headquarters from Darien to Stamford, where it plans to create 250 new jobs over the next three years.

DECD plans to provide Mirador a grant-in-arrears of up to $3.3 million, contingent upon the firm creating and retaining the new jobs.

The state is in active discussions with another 12 companies about projects that could create over 500 jobs, according to DECD.