Connecticut Innovations (CI), the state’s quasi-public investment arm, failed to adequately track compliance, measure outcomes and align incentives while administering the state’s Angel Investor Tax Credit Program, according to a new audit released Thursday by the state Auditors of Public Accounts.
CI partially agreed with some of the report’s findings, but disputed portions of it.
The performance audit, covering fiscal years 2022 and 2023, found that CI did not ensure it complied with a statutory requirement limiting how much of the tax credit could be reserved for investments in emerging technology companies. State law caps those reservations at 75% before April 1 of each fiscal year, but auditors said the agency did not track the threshold, increasing the risk of noncompliance.
Auditors also criticized the agency’s annual reports on the tax credit for failing to provide lawmakers and the public with a comprehensive picture of the program’s economic impact. While CI reported information required by statute, auditors said it omitted key data routinely included for similar programs in other states, such as job creation, geographic distribution of investments, industry classifications and the economic return on investment.
The audit also found the statute that created the tax credit lacks a clearly defined purpose, objectives or performance measures, making it difficult to evaluate whether the program is achieving its intended goals. Other states, including Maine and Colorado, embed policy objectives and benchmarks directly into their angel investor tax credit laws, the auditors said.
Connecticut’s incentive structure was also found to be poorly aligned with the state’s location-based economic development priorities. From 2010 through 2023, only limited shares of angel investments flowed to rural, distressed or opportunity-zone communities, despite state efforts to target growth in those areas.
In addition, auditors said the agency’s website lacked basic information needed by investors and businesses, including application forms, credit guidelines, instructions on transferring credits and frequently asked questions. Survey respondents reported confusion about how the program works, particularly when selling or transferring credits, the audit noted.
It also concluded that the state’s program is less competitive than those offered in many other states. Connecticut offers a 25% credit with a $5 million annual cap and a five-year carryforward period, while several states provide higher percentages, refundable credits, larger caps or longer carryforward periods, potentially discouraging investment in Connecticut.
CI’s response is included in the report, with the agency partially agreeing with several findings.
In an emailed statement to Hartford Business Journal, a spokesperson said CI has administered the Angel Investor Tax Credit program for the past 15 years and has “completed all reporting requirements in accordance with the enabling legislation, which was acknowledged in the performance audit.”
The agency also said it is “always open to feedback from legislators and stakeholders on additional ways the program can be strengthened or improved to better support Connecticut’s innovation economy.”
It added that it will work with the state General Assembly and “evaluate the recommendations to ensure the program continues to operate in the best interest of investors and companies in our state.”
The auditors recommended that lawmakers review the program’s structure and consider statutory updates before the credit’s scheduled expiration in 2028.
