Proposal aims to crack down on state incentive deals

As Connecticut braces for what could be the loss of another corporate headquarters to Boston, one lawmaker has dredged up an idea, last attempted 25 years ago, to create a multi-state compact barring states from stealing each other's companies. The proposal, which aims to prevent business poaching “through the use of large economic incentives,” is largely aspirational as its passage is unlikely this year, according to Rep. Roland Lemar, a New Haven Democrat who introduced the measure. But he hopes the bill sparks a larger conversation on what he calls the zero-sum poaching game that state governments play when they lure companies using an array of taxpayer-backed incentives like low-interest loans, grants, tax credits and other vehicles. “I was trying to create this conversation amongst legislators in multiple states about what this framework would look like,” Lemar said. “All [these incentive deals] end up doing is costing us more as individuals. We celebrate them when we get them, and we mourn them when we lose them.” Lemar said even if the bill did pass, other states are unlikely to play ball, fearing it may send an anti-business signal, tie their hands or be unenforceable, among other concerns. Lemar said he hoped to convince legislators in other states to introduce similar bills this year, but recent discussions didn't yield much success with counterparts in Massachusetts, New York and Rhode Island. The sentiment was “sounds good, you go first,” he said. Smith: Effort admirable, even if unworkable Even Connecticut's top economic official Catherine Smith, who has overseen incentive packages big and small for Gov. Dannel P. Malloy's administration (including a $220 million deal in September to ensure Sikorsky keeps its headquarters here), wishes things were different. In a recent interview, Smith, commissioner of the Department of Economic and Community Development (DECD), recalled a 2015 National Governor's Association conference during which she and officials from other states discussed company poaching. “It's in the back of all our minds that it's not necessarily adding a lot of value, if you think about the U.S. as a whole, but at the same time, it takes everybody signing a pact to make it work,” Smith said. “If everybody would sign in blood, it'd be great. I don't know exactly what it would take.” Such an agreement would free up more time to focus on helping existing companies and recruiting internationally, she said. But the devil is in the details and there are many hurdles. If two states agree not to poach, other states would still be free to do so. How would the agreements be enforced? What loopholes might be possible? “I don't think you're ever going to change it, is the reality of it,” said Robert Santy, CEO of the Connecticut Economic Resource Center, which offers company relocation assistance. Barring a federal law, states will continue to target each other, said Joe Brennan, CEO of the Connecticut Business and Industry Association. “We need to be in that game because other states are very aggressive,” Brennan said, adding that an overall attractive business climate will help a state more than any economic development incentives ever could. Eking out value in the poaching game Despite sharing some of Lemar's sentiments, Smith defends the way in which Connecticut uses incentives, noting they have helped lure more than 20 companies to the state since Malloy took office in 2011. She said DECD, which oversees the largest deals, focuses on value when it invests to attract or keep a company, ensuring its deals “pencil out.” “While I don't really appreciate the fact that we have competition from other states, when we do offer financial assistance, we are putting it through a filter,” she said. Joseph McGee, vice president of public policy at the Business Council of Fairfield County, backed up Smith, saying that incentives are best used when targeted at industry clusters. He said incentives helped the state build up its financial services industry in the 1990s. He sees the bioscience and genomic medicine industries as the newest target for Connecticut. Smith said she doesn't know exactly how many companies have been lured out of Connecticut since Malloy took office in 2011. One major example comes to mind: General Electric. Government officials in Massachusetts and Boston dangled incentives totaling approximately $150 million to lure GE's corporate headquarters and several hundred jobs in a deal announced in 2016. Malloy said at the time that Connecticut offered its own incentive package to keep the company. Despite the headquarters move, however, GE has said it will keep most of its approximately 4,000 Connecticut jobs in the state. Now, just over a year later, Hartford health insurer Aetna is in talks with Boston officials about a potential move, the Boston Business Journal recently reported. In 2015, Aetna joined GE in publicly railing against Connecticut tax hikes, which lawmakers ended up scaling back. Since then, the insurer has made no concrete promises that it will remain here. Last week, Malloy proposed an insurance-premium tax cut aimed at helping companies like Aetna. A prior pact broken States have played the incentive game for a long time and are unlikely to stop anytime soon, according to James Bennett, an author and economics professor at George Mason University, who views incentive wars between states negatively. Bennett penned a 2015 book titled “Corporate Welfare: Crony Capitalism That Enriches the Rich,” which examines various major incentive deals throughout U.S. history and presents a case for a federal solution to prevent them. “Politicians like to take credit” for adding jobs through incentives, Bennett said in a telephone interview. “This sells to the public.” In his book, Bennett notes that Connecticut was a member of a no-poaching pact in 1991 with New Jersey and New York. The agreement was short-lived, ending in 1993 when New Jersey's governor announced his state lured a newspaper printing plant from New York, according to the New York Times. McGee, who was Connecticut's economic development commissioner in the early 1990s, recalls the pact being informal. “Nothing was ever signed,” he said. Regardless, the matter illustrates some of the challenges of regional poaching agreements, which are rare to nonexistent in the U.S. The early 1990s are far from ancient history, and politics hasn't evolved much, Bennett argues. “Trust me, you're going down the same road you've been down before,” he said. “It's just too easy to play games.”