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Tax Credit Bill Sets Off Confusion

WHO GETS THE MONEY?

By MARA LEE

March 25, 2010

Fred V. Carstensen didn't hold back when he implored lawmakers to move ahead with a jobs plan that he said would speed the state's economic recovery dramatically.

The University of Connecticut professor, one of the state's most prominent economic policy analysts, was animated and passionate in support of using research and development tax credits to pay for new buildings.

"For a relatively small investment, we've got an enormous payback," he told the legislature's tax-writing finance committee this week, saying corporations would build offices, factories and laboratories over the next 30 months because, as a group, they would get $1 billion in incentives.

The only problem was that Carstensen's testimony didn't match the tax-credit bill the committee is considering. Carstensen had not read the bill before starting his analysis — and, in fact, he does not support it now that he has.

As thousands of would-be laws pass through the state Capitol, the episode illustrates the confusion that can result when special interests shape legislation — an everyday occurrence.

Under the bill, corporations that invest in research and development in Connecticut, earning R&D tax credits, could put up new buildings and redeem credits to pay for them. They also could sell the credits to developers.

Rep. Henry Genga, D- East Hartford, whose district includes Rentschler Field, came up with the idea. Then Dan Matos, lead developer at Rentschler Field, rewrote it. Matos hired Carstensen, who heads the Connecticut Center for Economic Analysis at UConn, to predict the economic impact of a scenario, Carstensen said. But Carstensen said his research, based on conversations with Matos, assumed that the incentives were only for biotech, pharmaceutical, insurance and high-tech manufacturing, and were to be given out before 2013.

During the testimony, Sen. Gary LeBeau, D-East Hartford, wondered whether the bill was limited in the way Carstensen described it.

In fact, the bill has no such limits. It says the state Department of Economic and Community Development can honor the credits through the end of 2020 for "any commercial or residential real estate development project that is newly constructed or undergoing major expansion or renovation, as determined by the commissioner, located in an enterprise zone."

That doesn't work, in Carstensen's view. "What worries me about this bill is lack of urgency, too long a timeline and no real clarity about what we're trying to achieve. We need to focus on these high-quality jobs," he said. "That is not what we contemplated when we put together this scenario."

Carstensen, a longtime advocate of stronger data and analysis in state economic policy, said, "I would not give DECD the discretion that is implied in the bill."

Matos said he ran the legislation by DECD Deputy Commissioner Ron Angelo, who warned against too much specific direction. "My personal view is that is the right answer. We're not talking strip malls," Matos said.

But Angelo said through a spokesman that he had not been consulted.

Genga said his bill was taken by Matos' staff "and was revised into their language." He said he asked The Matos Group: "Are we doing the same thing? Dan Matos and his people told me yes."

Genga acknowledged "there's some broad strokes here," but said, "There's enough checks and balances in the system" to make sure the incentives go to the right projects.

Rep. Cam Staples, D- New Haven, co-chairman of the finance committee, said he is skeptical of the tax credit idea in any form.

"He did seem excited about it," Staples said of Carstensen. "We're actually looking at scaling back tax credits right now to cover our deficit."