Malloy seeks tax relief to trigger $500M expansion for UTC

United Technologies Corp. would launch a major $500 million investment in its research, training and corporate facilities later this year in exchange for $400 million in tax relief over the next two decades under a deal Gov. Dannel P. Malloy announced Wednesday.

The agreement, which requires legislative approval, also requires UTC to keep the corporate headquarters of its two main subsidiaries – East Hartford-based Pratt & Whitney and Sikorsky Aircraft of Stratford – for 15 and 5 years, respectively.

And while it came days after Sikorsky announced 600 manufacturing layoffs, Malloy hailed the deal as the best chance to preserve the aerospace giant’s knowledge base and grow jobs in this field in Connecticut in the future.

“Connecticut has long led the world when it comes to the aerospace industry,” said Malloy, who announced the deal at Pratt’s Museum Hangar. “We will ensure that we remain a leader for years to come. This is a once-in-a-generation opportunity, one that will make sure we are keeping and creating good-paying jobs with good benefits – not just in the UTC companies, but also in the hundreds of aerospace supply chain companies throughout the state and the region.”

Starting later this year and running through 2018, UTC would invest a total of $500 million in four projects:

• A new, 425,000-square-foot world headquarters and engineering facility on the Pratt campus in East Hartford;
• 100,000 square feet of new and refurbished lab and office space at the United Technologies Research Center in East Hartford;
• A new, 500,000-square-foot customer training center and engineering lab at the UTC Aerospace Systems facility in Windsor Locks;
• And upgrades to the advanced engineering lab and other facilities at Sikorsky.

These investments, coupled with UTC’s commitments to maintain a corporate presence in Connecticut for years to come, are crucial to keeping its aerospace knowledge base here, the governor said after the announcement. That, in turn, gives Connecticut its best chance to preserve and grow jobs in a climate of tightened federal defense spending.

“If we have the engineers, the rest will follow,” Malloy said. “Winning this battle, having engineers remain here … that’s the win.”

‘Transformational’

UTC Chairman and CEO Louis Chenevert called the agreement “truly transformational” for Connecticut, as well as for its largest employer.

UTC’s chief engineering research facility in East Hartford was built 52 years ago, and company officials said much of its campus is roughly the same age.

“People will look back a decade or two from now and say, ‘Whoa, this was the day, this was the moment,” Chenevert said, predicting the expansion would allow UTC to “maintain those best-in-class jobs” in Connecticut.

‘Stranded tax credits’

In exchange for that investment, the state effectively would waive no more than $400 million in corporation and sales taxes owed by UTC over the next 20 years.

The deal specifically mobilizes what are commonly referred to as “stranded tax credits.”

Like many large corporations, UTC qualifies for various credits to reduce its corporate income tax bill. But regardless of how much in total credit values it has amassed, it cannot reduce its annual tax liability by more than 70 percent.

The unused credits don’t expire, but the company qualifies for more each year. And when it cannot foresee a time in the reasonable future when it ever will be able to cash in certain credits, they are considered “stranded.”

Malloy will ask the legislature to reassign the value of those credits, enabling the company to use up to an extra $20 million per year for the next two decades.

UTC must maintain certain employment, and payroll levels to claim the full value of those stranded credits. If it falls below those levels, the credits still are available, but their value is reduced.

For example, it currently employs about 4,900 engineers and 14,100 individuals in total in East Hartford, with a gross payroll topping $1.53 billion.

The value of credits would fall steadily – and be eliminated entirely – if engineering employment falls below 4,350, total employment falls below 12,450, or gross payroll falls below $1.37 billion.

Malloy said the deal would impact more than 75,000 jobs in Connecticut, considering the thousands of subcontractors and suppliers who work in the aerospace industry.

Construction work associated with the planned investments is projected to create about 1,500 jobs, according to the governor’s office.

The deal also was hailed by University of Connecticut President Susan Herbst, who said it would strongly complement Next Generation CT, the $1.5 billion expansion of the university’s engineering and related technology programs on its main campus in Storrs.