Dannel Malloy wants big fish.
In his budget proposal on Wednesday, the Connecticut governor rolled out a plan giving anything and everything in the state’s incentive toolbox to big businesses investing significant jobs and money. The first five through the door even get a fancy name.
“Our new ‘First Five’ initiative will offer powerful incentives to the first five companies that bring hundreds of new jobs to Connecticut,” Malloy said in his budget address Wednesday. “To these first companies that commit to creating hundreds of new jobs, Connecticut says, ‘Welcome, let’s get to work.’”
This “First Five” initiative seeks in-state and out-of-state companies creating 200 jobs in Connecticut in the next two years. Alternatively, the companies could create 200 jobs in five years, as long as they invest $25 million as well.
In exchange, Malloy personally will approve every business incentive the state has to offer without restriction. The new commissioner of the Department of Economic and Community Development — who has yet to be appointed — can remove the statutory requirements on tax credits and other incentives; eliminate caps on direct state financial assistance; and override the limits on tax credit programs.
As part of this economic development package, Malloy’s budget expands the Urban and Industrial Site Reinvestment Tax Credit from $500 million to $750 million and increases the Job Creation Tax Credit from $11 million to $20 million. He eliminates the cap on the amount of credits a company can take, as long as they create enough jobs.
The budget provides $80 million in bonding for direct incentives. Malloy pointed to programs such as the Manufacturing Assistance Act to help catch these large fish, a program that invested $32 million in the past fiscal year for 12 manufacturing projects.
Connecticut already has many generous tax credit and incentive programs to offer, and combining them into significant packages is Connecticut’s best alternative during its fiscal crisis, said Benjamin Barnes, secretary of the Office of Policy & Management.
“Right now, we are in a much more difficult business recruitment climate,” Barnes said. “Our plan is to try to use the existing programs that we have to be as successful as possible.”
The problem with Malloy’s plan is that Connecticut is still Connecticut, said Oz Griebel, CEO of MetroHartford Alliance. The state needs a fundamental shift in its corporate cost environment to ultimately be a job growth state, not the one that has shed more than 100,000 jobs since 2008.
Connecticut never will be the lowest cost state, Griebel said, pointing to labor and energy costs near the highest in the nation. But government officials can create a predictable cost environment where taxes and credit remain stable over extended periods of time.
“The problem with relying on tax credits is they are always going to be subject to the current political climate and the current economy,” Griebel said.
But Connecticut’s costs are no higher than other states in the metro New York and Boston area, and in some cases are a little cheaper, said Matthew Nemerson, president and CEO of the Connecticut Technology Council. According to a December CTC study of tech CEOs, the costs of Connecticut are less important than the state fostering an environment of strong innovation and government support.
Companies looking to relocate — especially during a time when many states are in fiscal crisis — want governments committed to business growth, Nemerson said. Malloy’s “First Five” plan is a good way to market the state as business-friendly, and Connecticut should look beyond those big companies.
“It is great that the governor is looking for five big companies, but we also need 30 smaller companies to come to Connecticut other than the ones that are organically starting here,” Nemerson said. “The name of the game is to get people’s attention.”
In the past six years of Gov. M. Jodi Rell’s administration, Connecticut essentially had a travel ban where economic development people couldn’t travel overseas or to other states to entice companies to move to Connecticut, said Ed Stockton, former commissioner of economic development under Gov. Ella Grasso.
This lack of state business marketing made it nearly impossible for Connecticut to grow industry or even replace companies who left, Stockton said.
“Connecticut outside of the state has a great reputation. People in the state don’t think so, but we do, particularly overseas,” Stockton said. “But we need people out there hustling for the state… You don’t market Connecticut from behind a desk in Hartford.”
Stockton called the “First Five” program a giant leap forward for a state stuck in neutral for economic development for the last 16 years. Malloy should focus on the manufacturing industry, he advised, as Connecticut has lost 138,400 manufacturing jobs over the past 20 years.
“We’ve got to rebuild our manufacturing base, which I think we can do if we market for it,” Stockton said. “My theory on economic development is anything is better than nothing, and for the past 16 years, we’ve done nothing.”
While facing a $3.2 billion budget deficit, Malloy didn’t make any cuts to business tax credits, with the exception of the film tax credit transferability.
The research & development tax credits in particular are a big reason why companies such as United Technologies Corp. hire high-paid researchers in Connecticut while some of their lower-skilled jobs are sent out of the state, Griebel said. R&D tax credits spur innovation, which in turn creates new companies and jobs when ideas go to market.
Cheshire drug maker Alexion Pharmaceuticals Inc., for example, increased its R&D spending in 2009 to $82 million in a year that saw the first ever decrease in R&D spending in the state and the nation. In 2010, that spending increased 20 percent to $98 million, and the company will increase it another 25 percent in 2011, said Alexion spokesman Irving Adler.
Because of the state’s existing incentive package wasn’t ruined in the budget, Connecticut has the tools to attract businesses to the state, said Demetrios Giannaros, University of Hartford business professor. The “First Five” program can attract the right kind of businesses.
“Given the budget climate in the state and the difficulty in attracting new businesses, this is the best economic development program package that you could hope for,” said Giannaros.
Businesses will look for markets where the labor pool and productivity is strong for their type of business, and where the core of their industries is thriving with strong infrastructure, Giannaros said. If Malloy plays up those Connecticut strengths while offsetting the state’s high cost with a plenty of incentives, the “First Five” program could be a success.
“I’m sure if the sixth company is a good fit, they will expand the program,” Nemerson said.
