🔒Interstate no-poaching compact puts CT at disadvantage

Economic incentives are once again front and center in Connecticut’s public policy debate with the Lamont administration officially unveiling its new strategy to reward companies that create jobs in high-growth industries.

But what’s more interesting is a push by several state lawmakers to get Connecticut to join a nascent interstate compact that restricts incentives states use to poach companies and jobs from each other.

Rep. Josh Elliott (D-Hamden) and Rep. Jason Rojas (D-East Hartford) recently announced legislation that aims to protect the state against corporate blackmail by limiting Connecticut’s ability to actively recruit companies from other states using loans or grants and vice versa.

They say New York, New Hampshire, Florida, Illinois, Hawaii and West Virginia are considering joining such a compact.

Last year, Missouri and Kansas signed a historic agreement that prohibits tax incentives to companies that jump between those state’s borders within the Kansas City region.

As someone who’s been highly critical of the way Connecticut has doled out economic incentives to companies in recent years, particularly under the Malloy administration, I was initially intrigued by the concept.

But after thinking it through, and talking to a few experts, I think it’s impractical. In fact, state lawmakers shouldn’t waste time debating it because it could actually hurt Connecticut’s economic competitiveness in the long run.

The compact’s underlying premise is that state incentives are the main driver of company relocations and not companies themselves. That’s a false notion.

Talk to any corporate and commercial real estate expert and they’ll tell you economic incentives may provide icing on the cake to a company’s plan to relocate, but it’s never a chief reason to move from one city or state to another.

Other factors like tax and regulatory climate and workforce talent are much more important factors that influence where companies locate.

“From a national perspective there is absolutely no traction” to interstate economic incentive compacts, said Tom Stringer, managing director and practice leader of site selection and incentives at BDO, an international accounting and consulting firm. “It doesn’t make economic sense. This is the mercy rule for economic development. What Connecticut has to do is look inward quite frankly, look at its assets and look at its issues and try to fix them.”

Stringer, who is based in New York City, obviously has a stake in keeping incentives around but he’s also familiar with Connecticut and has done several deals for corporate clients in the state over two decades.

He said companies need to be free to move and make business decisions while communities and regions must have a value proposition that encourages economic growth.

He said Connecticut has many attractive assets — an inordinate amount of wealthy people and hedge funds, Yale, UConn, proximity to Boston and New York, high quality of life, etc. — but its value proposition compared to the cost of living and doing business here presents challenges.

“Tax regime, permitting process, regulatory environment — those are all negatives,” he said. “What Connecticut has to do is find a way to say despite the cost, here are the assets, here is the value proposition. They’ve got to get their arms around this. Connecticut has had a number of important industries over the years (manufacturing and insurance) that instead of shepherding them, quite frankly they’ve done the opposite.”

He said Connecticut, like other states, has fallen short in developing its future workforce for key industries, something the Lamont administration is trying to reverse. His main point, which I agree with, is that high-cost jurisdictions must have a way to mitigate costs for businesses in order to be more competitive. If, for example, Florida and Connecticut join the same no-poaching compact, the Sunshine State gains a bigger advantage because it’s a lower-cost destination.

If Connecticut can use incentives responsibly to mitigate (not eliminate) that cost differential, it can take advantage of a more highly skilled and educated workforce, swinging the pendulum.

“You can argue about the quality of workforce and schools, but they all come with a cost,” Stringer said. “If you can find a way to mitigate that cost, even a little, then you are maximizing your value proposition.”

Instead of pursuing the interstate compact, lawmakers should focus on supporting the Lamont administration’s new incentive program, which I believe is much more sensible than what’s been done in the past and will prevent some of the corporate blackmail that ran rampant under the Malloy administration because it provides clear and strict parameters for which companies qualify for aid and how.

The new incentive program — called Jobs CT — will reward companies in specific industries (financial services, aerospace/defense, IT, life sciences, manufacturing and digital media, among others) that create at least 25 jobs paying 85% or more of the median household income in the municipality where the jobs will be located.

The company would be reimbursed an amount equal to 25% of the state income tax paid by the new employees. The benefit would increase to 50% of the state income tax paid if a company is located within an Opportunity Zone.

The payments would start at the beginning of year three and run through year seven. Let’s approve this program, give it a chance to work and closely track its progress.

In the meantime, lawmakers should continue to focus on getting our state’s fiscal and economic house in order while building up our cities, including Hartford, New Haven and Stamford. That way we won’t have to worry as much about other states poaching our companies and workforce talent.