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Earn As You Go: CT’s Chief Economic Development Officer Proposes New Tool

Earn As You Go: CT’s Chief Economic Development Officer Proposes New Tool

CT Post, Octobert 7, 2019

By Christine Stuart

David Lehman has been on the job as Connecticut’s economic development commissioner for seven months and he has big plans to change the state’s approach to growing jobs and the economy.

No longer will the state lead with upfront grants or loans to businesses who want to come to Connecticut or expand in the state. Lehman’s new “Earn As You Go” program will require companies to create the jobs first in order to receive in return a percentage of the “net new income tax” from that job.

The percentage that businesses get back by creating a job will be greater in Opportunity Zones, which were designated as part of the 2017 Tax Cuts

Opportunity Zones are lower-income areas around the country that were selected to encourage private investment. Connecticut has Opportunity Zone sites in 27 towns, including the largest cities like Hartford, New Haven, and Waterbury as well as medium to small communities like Meriden, Windham, and Putnam.

“The more jobs you create there, and the more residential development, which will be a key component of what we do on the Opportunity Zone side, you’re going to create a bigger city, a more vibrant city with people who are both living there and working there,” Lehman added.
 

Lehman said the “Earn As You Go” program won’t be for all industries in the state, but for targeted industries like manufacturing, life sciences, aerospace, and health care to name a few of Connecticut’s “core industries.”

“We’re going to be reducing risk for taxpayers by putting less money upfront so that’s an important distinction,” Lehman said. “Secondly, we’re going to be focused on clusters that have a real comparative advantage.”
 

Sen. Joan Hartley, D-Waterbury, who co-chairs the legislature’s Commerce Committee, said the “Earn As You Go” program is “laudable.”

She said it “builds in firewalls” for Connecticut. 

Requires job creation back to top

Rep. Caroline Simmons, D-Stamford, the other co-chair of the Commerce Committee, which has jurisdiction over the Department of Economic and Community Development, said she likes the proposal because it requires companies to create the job first and its protects taxpayer dollars.

She said other incentive packages loaned the money to the company first and waited for them to create the job, which sometimes didn’t happen.

“This holds them accountable for these loans and grants,” Simmons said.

At the same time, Hartley said the state has to recognize that incentives are a plank in every economic development strategy.

Progressives and conservatives seem to agree tax incentives are not worth it, but it’s viewed these days by government officials as the cost of doing business.

“You need to have an incentive these days,” Lehman said. “We’re just structuring the incentive in a way that’s going to be less risky for taxpayers and I think in a way that will be less costly as well.”

Since Gov. Ned Lamont took office there have been no large economic development deals for the state to announce, mostly because the borrowing the state does to offer the incentives has been pared back.

Connecticut expanded its economic development incentives in 2011 during Gov. Dannel P. Malloy’s administration, and since then the state has borrowed nearly $1.8 billion to fund those incentives.

Earlier this year, Lamont put the state on what he called a “debt diet,” and has been negotiating with lawmakers over his insistence that transportation be put at the top of the state’s list of areas in need of funding.

Since the beginning of the year, the state has bonded about $1.22 billion for capital projects, which is far less than the $1.97 billion borrowed in 2018 under Malloy.

Of that $1.22 billion, the state has borrowed about $5 million for the Manufacturing Innovation Fund, $5.7 million for manufacturing development, $10 million for the Apprenticeship Connecticut initiative, and $6 million for the minority business revolving loan fund.

But Lamont has yet to announce a bond package for 2020.

Lehman said they are close to announcing two deals with companies, but have not finalized them so he’s unable to share any details. However, Lehman said the incentive structure will be closer to the “Earn As You Go” model than previous incentive packages.

“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 said. “They’re still getting an incentive from the state for the jobs, but they’re just not getting it upfront.”

He said that even without incentives, companies are expanding in Connecticut.

Lehman said Amazon has been expanding significantly in the state, “but other companies have grown jobs in the state without incentives over the past 12 months.”

“In an ideal world you have that stability and tax certainty, which is probably the most important thing we as a government can provide to businesses,” Lehman said.

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

“We need to be thoughtful about how much we pay for that investment,” he added.