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Cracking Down on Corporate Welfare With Interstate Compact

Cracking Down on Corporate Welfare With Interstate Compact

CT News Junkie, January 29, 2020

By Christine Stuart

Connecticut lawmakers are looking to team up with other states to end the business of luring companies across state lines with economic incentives

There are currently seven states, including Connecticut, considering this legislation which would have states agree to end the practice of offering tax breaks to entice an employer to move.

“We know these subsidies aren’t necessary,” Rep. Josh Elliott, D-Hamden, said Tuesday. “They’re a race to the bottom and there’s no net gain.”

He pointed to Amazon, which sought large incentives from New York City for its HQ2, and after the deal was canceled Amazon ended up locating its offices there anyway adding 1,500 jobs and 335,000 square feet of office space.

Rep. Jason Rojas, D-East Hartford, said they don’t want to act unilaterally because it would put Connecticut at a disadvantage against other states they are using these incentives.

“That’s why the compact is the best model,” Rojas said.

The compact would not apply to companies looking to relocate within the state and would not have applied to deals that state did in the past with United Technologies Corporation and Sikorsky.

He said the state is already moving in this direction under Department of Economic and Community Development Commissioner David Lehman who is implementing a new policy which pays companies back 25% of the income tax revenue generated by the new jobs they create.

“The dollars are not coming up front, but they’re earned over the course of seven to 10 years as the companies grow the jobs,” Lehman has said. “They’re still getting an incentive from the state for the jobs, but they’re just not getting it upfront.”

Rojas said companies have to prove they are growing the workforce before they get the incentives. 

Incentives on credit card back to top

Under Lehman’s proposal, the rebate would be twice as large for companies located in an opportunity zone.

Lehman said they need to ensure that the incentives the administration puts in place have a long-term return for Connecticut taxpayers.

Under the previous administration, a large number of incentives for companies was put on the state’s credit card.

Elliott, Rojas, and Rep. Susan Johnson believe this legislation fits the bill and will receive bipartisan support.

A recent study by from Columbia Business School economist Cailin Slattery and Princeton University economist Owen Zidar found state and local governments across the U.S. spend at least $30 billion a year to attract and keep companies, but the biggest deals generate little in the way of economic benefits in return.

Further, the study found about a quarter of all business tax incentives are channeled to a very small collection of firms.

Elliott said that at the moment they are just trying to “amass interest” in the compact.

He pointed to Missouri and Kansas to show this can be done.

In 2019, Kansas and Missouri came to a truce and decided not to offer tax incentives to firms moving from the other side of the border in Kansas City.