Among the government initiatives that will see less funding in the years ahead is the state’s Small Business Express program, which was created in 2011 to provide capital to smaller companies in exchange for their commitments to retain or create jobs.
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Among the government initiatives that will see less funding in the years ahead is the state's Small Business Express program, which was created in 2011 to provide capital to smaller companies in exchange for their commitments to retain or create jobs.
As part of the bipartisan state budget deal, lawmakers have cut the program's funds by $5 million this fiscal year and eliminated funding entirely in fiscal 2019.
That's a good thing. While the state does need to do more to help small businesses, it's time for policymakers to end the small business lending program, which has distributed more than $250 million since it was created six years ago.
The program, which feeds low-interest (sometimes forgivable) loans and grants to firms with 100 or fewer employees that agree to retain or add jobs or invest in equipment or infrastructure, was a key part of Gov. Dannel P. Malloy's economic development efforts following the Great Recession. It was originally conceived as a two-year program but has been extended several times.
The express program was developed at a time when there was a significant credit crunch that restrained small businesses lending. But the lending environment has since improved.
Yes, Connecticut's economic recovery has been painfully slow, but it's now been nearly a decade since the 2008 financial crisis, making it hard to argue that state government still must be a banker of last resort.
As Connecticut's fiscal crisis forces policymakers to re-think the role and scope of state government, the state should wind down its role as a small business lender.
Connecticut banks have plenty of capital and are eager to invest in creditworthy borrowers.
That's not to say the state should totally exit the economic incentives business. Connecticut companies operate in national and global economies and are constantly being wooed by other states. We must have some tools available, like certain tax credit programs, to remain competitive.
Malloy's economic development strategy, however, has relied too heavily on providing loans and grants to businesses. Through June 30, for example, the state Department of Economic and Community Development (DECD) completed over 1,600 Small Business Express deals worth around $254 million in loans and grants. Both numbers have only increased since that time.
Meanwhile, we should all be wary of government's role in picking private-sector winners and losers. That's not just a nod to free market capitalism ethos, but to good and ethical governance.
One option the state could consider is converting Small Business Express into a loan guarantee program, akin to the U.S. Small Business Administration. It would be less costly to taxpayers and will get private banks involved.
Need for tighter oversight
Hartford Business Journal also recently found weaknesses in DECD's Small Business Express program vetting process that ought to be fixed.
In a Nov. 6 story (“CT-backed med-tech investor faces fraud allegations”) HBJ reported that DECD provided $400,000 in loans and grants to a New York City-based medical technology investment firm, Cliniflow Technologies LLC, whose founder was facing various fraud allegations, mainly in New York.
A DECD official said the agency was unaware of Cliniflow CEO David Wagner's legal troubles, even though information on several civil lawsuits filed in federal court against Wagner and companies he's associated with was available online via the federal court system's PACER database.
As stewards of taxpayer money, DECD must do more to vet state-aid recipients. The agency should start by running through state and federal court system databases every business and/or executive seeking an incentive package. Criminal background checks should also be part of the process. If these oversight methods are too costly, then the state shouldn't be in the business of doling out government aid to companies in the first place.
