Connecticut moved one step closer Thursday toward providing up to $400 million in tax breaks to United Technologies Corp. to trigger a major UTC investment in its research, training and corporate facilities.
The state House of Representatives overwhelmingly approved a bill to implement the deal, which was negotiated by Gov. Dannel P. Malloy’s administration and hailed as an essential move to preserve Connecticut’s aerospace and engineering knowledge base.
And while the measure, which passed 134-4, drew broad support from both parties, minority Republicans cited the hefty cost to the state as a sign that Connecticut’s business climate – and particularly its tax structure – has become very unfriendly.
“The purpose of this bill is to be a jobs-retention bill,” said Rep. Patricia Widlitz, D-Guilford, co-chairwoman of the tax-writing Finance, Revenue and Bonding Committee.
The deal’s impact will reverberate throughout the region and affects far more than the 15,000 workers at UTC, Widlitz said. Considering the hundreds of small subcontractors and supply companies that work with the aerospace giant, the deal will invigorate an economic sector that employs more than 75,000 people, she said.
“UTC is the catalyst of this initiative, but the investments called for in this bill go well beyond one company,” Malloy wrote in a statement released shortly after the 2½ hour debate ended late Thursday afternoon. “The agreement will have a direct impact on employment in almost every city and town in Connecticut, not just at the UTC companies, but also in the hundreds of aerospace supply chain companies throughout the state and the region.”
The Democratic governor added, “UTC shares our faith in Connecticut’s talented workforce, commitment to innovation, and determination to build a world-class business climate. We could not ask for a better partner and look forward to working together to send the message that Connecticut is committed to continuing its role as a world leader in the aerospace industry.”
The bill now heads to the Senate, where it is expected to pass.
If so, UTC would be required – starting later this year and running through 2018 – to 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.
The company must maintain its Pratt headquarters in East Hartford for 15 more years and its Sikorsky headquarters in Stratford for another five.
In exchange for UTC’s investment, the state effectively would waive no more than $400 million in corporation and sales taxes owed 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.”
The agreement enables the company to gradually tap those stranded credits over the next 14 years.
Perhaps the most controversial aspect of the deal allows UTC to significantly reduce employment and still receive huge tax relief.
For example, it currently employs about 4,900 engineers and 14,100 individuals in total at its aerospace and propulsion system operations in Connecticut, 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.
The UTC deal quickly won endorsements from the state’s largest business and labor groups, including the Connecticut Business & Industry Association and the state chapter of the AFL-CIO.
Still, House Minority Leader Lawrence F. Cafero, R-Norwalk, said Thursday, “This is not a direct jobs bill.”
Cafero, who voted for the measure, noted the high cost Connecticut must pay just to mitigate job losses in the engineering sector.
Rep. Terrie Wood, R-Darien, one of four Republicans to cast a ballot against the bill, said afterward that “it was more of a protest vote,” citing an objection similar to Cafero’s.
Wood said that while she appreciates the need to preserve Connecticut’s engineering base, the state cannot continue to ignore its burdensome tax structure and a budget plagued with deficit projections.
Nonpartisan analysts say state finances are on pace to run $1 billion in the red in the first new budget after this November’s elections.
“It is time to create a more economically sustainable business model in Connecticut,” Wood said.