Curious taxpayers finally got a look at the state Department of Economic and Community Development’s long-awaited analysis of the First Five Plus economic incentive program on Tuesday. The document raises as many questions as it purports to answer.
Alexion,the pharmaceutical company at whose headquarters the announcement was held, received $25 million in tax credits, a $20 million forgivable loan, and $6 million in grants. The company invested $77 million to stay in Connecticut.
But just like GE, Alexion is another corporate tax avoider. In 2014, they utilized the strategy of inversion by moving their technical operations to Ireland to lower their tax rate. So the state of Connecticut is borrowing money at a debt service rate of 3.23 percent to give a forgivable loan at 2 percent to a company that avoids paying corporate taxes. Makes for great optics when the state is privatizing group homes for the intellectually disabled, doesn’t it?
The DECD report was delayed for months because they were waiting to update with the May 2016 employment numbers. We noticed that both ESPN and Bridgewater Associates numbers were from 2015, and inquired as to why.
Jim Watson of DECD told us: “In an effort to both gather the most up-to-date employment information and ensure data consistency across companies, DECD asked each of the 13 First Five Plus participants to complete a brief Employment Information Request Form. 11 of the 13 companies responded to the request.”
The use of 2015 data for Bridgewater is particularly disturbing given news of large hedge fund withdrawals. Not only that, almost immediately following approval of the bonding — for which we are paying debt service costs of 3.23 percent — to give the world’s largest hedge fund a $17 million forgivable loan at 2 percent came reports that Bridgewater was slowing hiring. We thought Ray Dalio, Bridgewater’s founder, President, and CIO, was a believer in “radical transparency.” If he is being given subsidized loans with our taxpayer dollars yet is too secretive to respond to requests for information regarding that loan, one has to wonder if state economic incentives would be better spent on a more constructive partner.
We also asked DECD if the “new income taxes from new hires” figures in their analyses for past years (2011-2015) are based on actual revenue received.
The response: “No, they are estimates using the average salary data provided by the companies, and assuming an array of tax rates.”
So, if we’re not able to look at the actual return to the state Department of Revenue Services for the jobs that were created, what is this report actually telling us? Looking at actual receipts versus budgeted is a common methodology for evaluating success of program. Yes, the program might have saved some jobs and added some — at a substantial cost to the taxpayer — but given the state of our budget, is the First Five Plus program really the best use of our economic incentive resources?
The answer is that despite this report we still don’t actually know, because we aren’t looking at real data.
Which brings us back to Gov. Dannel P. Malloy’s veto of Comptroller Kevin Lembo’s bill, passed by the General Assembly, which would have transferred reporting requirements on these programs to the Legislative Program Review and Investigations Committee (PRI), and also would have required legislative committees to hold hearings to discuss the results of the evaluations and to receive input from stakeholders.
Lembo’s bill would have given the PRI committee the primary responsibility for “authoring the report, including evaluating the efficiency and effectiveness with which the programs are being administered, recommending whether each tax credit and abatement should be continued or expanded, and providing recommendations on improving the effectiveness or efficiency of administration.”
This veto is particularly disturbing in light of the news we received following our last column regarding the charging of excessive fees by lenders in the state’s Small Business Express program. While the fees weren’t technically prohibited under the contracts, it appears the contracts were poorly written such that the state could be charged fees completely disproportionate to the value of the loan.
According to State Auditor Robert M. Ward, in the audit report that will be coming in the next month, “We will have a finding with regard to excessive fees that were paid to some of the lenders under this program. The agreements were inadequate to protect the state from paying excessive fees against the value of the loan.”
We understand that we need to spend money on incentives to stay competitive. But at a time when the state is cutting services to our most vulnerable residents, we have an obligation to spend that money in the smartest way we can, verify that programs work, and that they are being administered legally and ethically.
Sarah Darer Littman is an award-winning columnist and novelist of books for teens. A former securities analyst, she’s now an adjunct in the MFA program at WCSU (and as such is an AAUP member), and enjoys helping young people discover the power of finding their voice as an instructor at the Writopia Lab.
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