Earlier this week, Dealbreaker wrote a snark piece about how UBS Stamford’s trading floor transformation into “Connecticut’s largest laser tag arena” was “nearly complete.”
Connecticut taxpayers might recall that in October 2014, Gov. Dannel P. Malloy announced an extension of the original deal with UBS, “incenting UBS to remain in the state until 2021 with no further financial outlay on the part of the state.”
Under the terms of the original loan from the Department of Economic and Community Development (DECD), UBS received a $20 million loan, which was fully forgivable if the company maintained 2,000 jobs for five years. In the extended agreement announced in October 2014, the same $20 million had the potential to be fully forgivable if the company continued to retain 2,000 jobs, with loan forgiveness based on the number of jobs retained in the state each year through 2021:
“At the end of each year between now and 2021, a job audit will determine the level of employment from which DECD will determine what percentage of forgiveness will be earned that year. If the company fails to meet the minimum employment obligation in any year, the related loan portion amount will be due and payable along with penalty of 7.5 percent.”
As at June 30, 2015, according to the last available DECD annual report, UBS had fewer than 2,000 employees. Judging by the Dealbreaker report, that number may be even smaller now, and taxpayers should be expecting some return. A deal is a deal.
“DECD’s contracts with companies are performance-based and include clawback provisions that ensure taxpayer dollars are protected,” according to Jim Watson, DECD spokesman.
Last week, GoodJobsFirst.org released a timely report which should be mandatory reading for Connecticut legislators: Smart Skills versus Mindless Megadeals: Cost-Effective Workforce Development versus Costly “Buffalo Hunting,” with Proven Policy Solutions.
As Good Jobs First Executive Director Greg LeRoy points out in the report’s introduction: “Instead of learning the lesson that ‘putting lots of eggs in only a few baskets is inherently risky,’ states and localities seem intent on pouring ever greater amounts of taxpayer money into fewer deals. But the list of closures and layoffs at ‘megadeal’ facilities continues to grow, often at the same time as many state and federal workforce development programs have suffered budget cuts.”
We asked the DECD for comment about the UBS situation, in light of the Good Jobs First report. DECD spokesman Jim Watson said this:
“The competition for jobs is fierce. That’s why the department feels that successful incentive programs like First Five Plus are needed to attract large-scale economic development projects — and the jobs and new capital investment that come with them — to our state. But the focus on larger companies is just one part of our broader approach to supporting business growth and boosting the competitiveness of Connecticut companies (large and small). We agree with the report’s authors about the importance of workforce development programs. In fact our state continues to make large investments in job training, STEM, apprenticeship programs, etc. that are ensuring we have a highly-skilled pipeline of talent, both now and in the future.”
But there’s another very troubling aspect of how our economic incentives are being distributed. We already know that Connecticut’s racial wealth gap is one of the highest in the nation. We also know, from the recently released report by the U.S. Census Bureau, what percentages of Connecticut businesses of different age spans are owned by women and minorities, but our analysis shows both of these groups have been receiving a disproportionately lower percentage of incentives, both in terms of dollars and number of businesses served.
For instance, whereas the percentage of women-owned businesses ranges from 7.9 percent at age 16+ years in business to 24.7 percent for less than 2 years in business, and the percentage of minority-owned businesses ranges from 0.527 percent at age 16+ to 26.1 percent for less than 2 years in business, the highest percentage of assistance that DECD has awarded to women/minority owned businesses since Malloy took office was 2.9 percent in the first six months of 2015. In his first term, the percentage was less than 1 percent.
The competition for jobs is, indeed, fierce. But is borrowing money to spend ever larger sums to bribe large corporations to keep jobs here the way to go? And we are doing this in such a way as to increase the very wealth gap we purport to be attempting to solve.
Thomas Cafcas, co-author of the Good Jobs First study, was taken aback by the news of Malloy’s veto of the bill calling for enhanced analysis of economic incentives.
“There is a movement among many states to better evaluate the effectiveness of their state economic incentives,” Cafcas said. “At one point it seemed like Connecticut was ahead of the curve relative to other states, which is more a condemnation of other states, than necessarily an endorsement of Connecticut, but given what you’re telling me and knowing what I do about the DECD annual reports, I’m not convinced they’re on the cutting edge of what other states are doing to evaluate whether these programs are effective and working.”
Cafcas recommends looking at Washington state’s Joint Legislative and Audit Review Commission (JLARC) as an example of good oversight. “As an independent commission they evaluate the returns for these programs, do some impact modeling and give a formal recommendation to the state legislature. It’s not perfect, but certainly they’re going in and digging deep into these programs and trying to determine what’s the return on the state’s spending. That’s a critical piece of making economic development accountable and effective; if you don’t have anyone watching the store you’re going to fall short.”
So, legislators … who is going to mind the store for the Connecticut taxpayer?
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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