The first shots of the 2014 gubernatorial race have been fired, and it’s clear much of the rhetoric and hostilities will be focused on the economy.
State Sen. John McKinney is the first Republican to jump into the race, and he wasted no time criticizing Gov. Dannel P. Malloy for the hundreds of millions of dollars in tax incentives, grants, and forgivable loans the Democratic governor has awarded to businesses staying and growing in Connecticut.
Malloy’s economic development strategy has focused largely on providing huge swaths of taxpayer money to corporations and small businesses.
The results have been mixed.
Connecticut’s economic recovery has been painfully slow. The state has gained back only 48 percent of the 121,200 jobs lost during the Great Recession.
Still, Malloy has marketed Connecticut aggressively, taking trips across the country and even overseas to woo business. He’s also implemented a comprehensive energy policy that aims to lower energy costs for businesses and residents.
Malloy should be applauded for those aggressive tactics and his pro-business mantra.
But corporate greenmail is not an effective long-term economic development policy. In fact, it will ultimately lead to a race to the bottom, as states spend limited (and in many cases dwindling) resources stealing businesses away from each other.
The net effect is few, if any, new jobs added to the overall U.S. economy. And taxpayers, including the very businesses the state is trying to keep in Connecticut, are left to foot the bill.
Sure, the headlines following splashy government giveaways like the “First Five” deals give Malloy a chance to call himself business-friendly.
But economic incentive packages are a short-term fix that attempt to cover up Connecticut’s inability to compete with other states on business retention and growth. Connecticut’s high cost structure — including its taxes, cost of living, energy prices, etc. — don’t exactly serve as a welcome mat to businesses.
There are no simple solutions. In an ideal world, states would agree to an armistice, promising not to use taxpayer funds to lure businesses outside their borders.
That’s an unlikely scenario. And it until that happens, Malloy, and any governor that follows him, will face pressure to offer incentive packages to businesses that threaten to flee the state.
Rather than bribing them to stay, Connecticut should focus on keeping businesses from wanting to leave.
The state’s business advantages are a skilled workforce and an established history, and Malloy should focus on helping businesses take advantage of those strengths.
If a business wants to leave for the lower energy prices and taxes in Georgia, Connecticut can’t compete; but the state can remind businesses the dangers of venturing into an unproven workforce and reinventing its supply chain.
In the meantime, policymakers must focus on a long-term economic development strategy that ultimately lowers the cost of doing business in Connecticut.
Lawmakers can start by eliminating taxes that were due to sunset this year but were extended to help close a looming budget deficit. That includes the 20 percent surcharge on corporate profits.
Taxing businesses in order to give businesses taxpayer money is a vicious cycle that will end badly for Connecticut. With the state in election mode, the cycle is unlikely to be broken anytime soon.
But it’s a good time to debate the issue.
