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Can Connecticut Afford to Hand Out $860 Million in Tax Incentives to Businesses Each Year?

The Big Giveaway

By Gregory B. Hladky

December 11, 2012

A new analysis by the New York Times puts the national tab at more than $80 billion a year in state and local taxpayer handouts to businesses. Those include tax breaks, low-interest loans and outright cash giveaways to encourage companies to locate in a particular area or expand there.

The NYT estimates Connecticut's share of this "gigantic bill for taxpayers" at a shocking $860 million annually. The real stunner may be how inept and reluctant this state's political leaders have been about trying to rein in all these business freebies, especially in an era of massive budget deficits and tax increases.

Now, none of this is really a surprise to Connecticut's political leaders. After all, they were the Sugar Daddies and Mommas who approved all these bribes to corporations.

Nearly seven years ago, some lawmakers were so worried about how much the state was losing in revenue because of all these tax credits and exemptions (by one estimate it amounted to something like $5.3 billion in all) that they set up a special committee to look into the mess and weed out some of these giveaways.

A big part of the problem was that no one was really sure how much was being given away and to whom. Former state Rep. Cameron Staples, who was involved in setting up that panel, calls some of those taxpayer-funded deals "purely political carve-outs for some industry because they had good lobbyists."

Unfortunately, as an Advocate story detailed last January, that legislative panel met once and then went into a political coma.

State Comptroller Kevin Lembo tried at the beginning of 2012 to get that committee revved up for action. He says it actually managed to meet for a second time, but then swiftly went back into hibernation once again.

That's because Gov. Dannel Malloy decided to appoint his own task force to evaluate Connecticut's entire system of business tax credits and economic development loans and grants. His creation of the new task force happened "almost simultaneously" with the effort to revive the old legislative panel, Lembo says.

Malloy has been a great fan of using taxpayer handouts to all sorts of corporations and businesses to get them to come to Connecticut, stay here or expand their workforce. This state's record of job creation has sucked for years and, like governors before him and in lots of other states, Malloy sees corporate bribery as a key way to get a moribund economy jump-started.

Jackson Laboratory is getting a package worth $291 million in return for coming to Farmington. Cigna Health and Life Insurance pulled in $21 million for its Bloomfield expansion plans. NBC Sports Network is enjoying $20 million in taxpayer support to create a new operation in Stamford. ESPN will receive a tidy $18.7 million for additions to its Bristol campus, and UBS AG is another $20 million beneficiary (for not taking jobs out of Stamford) of the Malloy administration's programs.

Malloy's new task force has made a series of recommendations, including ways of reporting on which companies are getting these handouts and tax breaks and how they are being used.

Nowhere, however, does the task force report suggest that any of these business tax credits or exemptions be eliminated. The closest it gets to that is proposing the legislature put a "sunset" time limit on "no-use and low-use tax credits" so they will eventually expire.

Among the panel's other recommendations are phasing out the surcharge on corporate income taxes; making sure business tax credits are "better aligned with the state's overall economic strategy"; reducing sales taxes; and trying to "clarify the current definition of 'engaging in business.'"

Lembo (who's not in great favor with the governor at the moment because his estimate of the current deficit problem is higher than Malloy's) calls the workings of the task force "an interesting process."

He also says the panel's suggestions for reform may not go far enough.

One key area, according to Lembo, is that companies who get some of these tax credits and exemptions only have to report them on their state tax forms. The trouble with that system is that Connecticut law makes everything and anything reported on a tax return totally confidential, which means even lawmakers can't find out who is getting these tax-break goodies. (The aid totals cited above are based on direct state loan/grant programs, which are public.) "We don't know what we don't know," says Lembo, "and that's not good."

"There are other states that have figured out how to bring greater transparency to this whole process and still encourage economic development," Lembo adds. "We have a lot to learn from them."