The most remarkable thing about Gov. Dannel P. Malloy’s plan to provide $400 million in tax breaks to United Technologies Corp. might be the cautious responses it has provoked.
Despite the immensity of that proposed investment – which would trigger a $500 million expansion by UTC – neither labor nor business has offered rousing applause or strong condemnation.
And the Democratic governor’s Republican rivals also were cautious, offering more questions than criticisms.
Is it OK to offer big tax relief to a corporation that retains the option to cut thousands of jobs in the years to come?
What happens to Connecticut’s engineering base, and its aerospace industry, if the deal isn’t done?
And was the final price tag larger because 2014 is a gubernatorial election year?
“We’re thrilled that UTC appears to be making more of a commitment to Connecticut,” said Lori Pelletier, the top leader of the Connecticut AFL-CIO. “But we wish they had said a little more, been a little firmer in their commitment to the bargaining units.”
The tentative deal Malloy is sending before the legislature would require UTC to launch several capital projects, including a new headquarters and engineering facility at Pratt & Whitney in East Hartford and to upgrade its engineering lab at Sikorsky Aircraft in Stratford.
The company would promise to maintain its Pratt headquarters in East Hartford for 15 years and its Sikorsky headquarters in Stratford for another five.
But perhaps the most controversial aspect of the deal allows UTC to significantly reduce employment in East Hartford and still receive huge tax relief.
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, preserving an engineering knowledge base essential not only to UTC, but also to thousands of small subcontractors and suppliers.
Pelletier, a former machinist for Pratt, agreed it’s important to preserve this base – but quickly added that base also includes thousands of highly skilled manufacturing workers.
“If you lose those people, that is not something … we can just develop (again) overnight,” she said, adding that she hopes to discuss this with the administration. “For now we are taking this as a really positive thing.”
Positive might be an understatement when describing how the governor and UTC officials categorized the deal last week, repeatedly pitching it as “transformative” for Connecticut’s aerospace industry – as well as for its economic future.
“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,” Malloy said.
The state’s chief business lobby in recent years has pressed for Connecticut to preserve and grow its engineering base. And Joseph F. Brennan, senior vice president of the Connecticut Business & Industry Association, said this deal, coupled with Malloy’s 2013 initiative to dramatically expand engineering programs at The University of Connecticut, could have a big impact.
“The most important thing is having a pipeline of world-class engineers,” Brennan said.
But he also conceded that the governor’s plan to finance the UTC investment could lead to disappointment among other businesses.
Stranded tax credits
Malloy wants to provide $400 million by allowing UTC to tap what are known 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 bill 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.”
But UTC isn’t the only company with a stake in the nearly $3 billion worth of stranded credits in the state tax system, and businesses have been clamoring for relief in this area for years.
Could a tax break for UTC – even as it sheds jobs – increase the pressure for more corporate relief?
“That certainly may happen,” Brennan said, adding that any broad-based loosening of credits is unlikely now given the deficit projected for the first state budget after the election.
Republican leaders in the legislature also have been cautious in their comments.
House Minority Leader Lawrence F. Cafero of Norwalk, said, “I applaud the governor for trying to come up with something,” adding that it’s particularly important to protect the many small businesses that work with UTC in the aerospace industry.
“But is it worthwhile and beneficial for the state to redirect $400 million worth of our resources for what we are getting in return?” Cafero added. “I’m not sure.”
While administration officials said negotiations had begun well in advance of the deal announced Wednesday, UTC announced 600 layoffs at Sikorsky – with most job cuts in Connecticut — just five days earlier.
Layoffs of that size are problematic any time, but certainly so in a year when Malloy is expected to seek re-election.
So were the Feb. 21 layoffs the spark that produced the Feb. 26 agreement between Malloy and UTC? And if so, did the need to counter the bad news of those layoffs influence the state’s bottom line?
“It’s too early for me to make a commitment in favor of, or against, the proposal,” said Senate Minority Leader John P. McKinney, R-Fairfield, who is running for governor. “There are a lot of questions that need to be answered. I am obviously surprised at the size of the numbers.
“It’s surprising to me that the company would be getting so much money without the promise of creating new jobs.”