The Senate overwhelmingly granted final approval Thursday to a landmark deal that authorizes $400 million in tax breaks to United Technologies Corp. to trigger a major expansion designed to preserve Connecticut’s aerospace and engineering base.
Gov. Dannel P. Malloy, who negotiated the deal with one of Connecticut’s largest employers and is expected to sign the tax relief bill, hailed its approval as a major victory for the state’s economy.
“This agreement will bolster the state’s aerospace sector, encourage business growth and investment and, most importantly, foster the retention and creation of thousands of good-paying jobs with good benefits for Connecticut residents,” Malloy wrote in a statement shortly after the Senate voted 34-2 to approve the measure. “ … 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 House of Representatives adopted the measure 134-4 one week ago.
“This proposal gives hope,” particularly for young engineering students hoping to find employment in Connecticut, said Sen. John Fonfara, D-Hartford, co-chairman of the legislature’s Finance, Revenue and Bonding Committee. “To me this is a bet on the future.”
Sen. Gary D. LeBeau, D-East Hartford, co-chairman of the Commerce Committee, said the agreement is important to more than just his home community, home to UTC’s Pratt & Whitney division.
The deal will affect more than just UTC’s 15,000 workers across Pratt, Sikorsky Aircraft in Stratford and other company facilities, LeBeau continued. It will benefit the hundreds of small subcontractors and supply companies that work with the aerospace giant, invigorating an economic sector that employs more than 75,000 people.
The agreement will translate not only into engineering and other high-tech jobs that will attract some of the most talented workers in the world to Connecticut, but also into high-quality manufacturing jobs crucial to the state’s economic future, he said.
“These are the kinds of jobs that we want,” LeBeau added, “jobs that will be created all over Connecticut.”
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 Aircraft.
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.
And while several minority Republicans in the Senate backed the Democratic governor’s deal Thursday – they echoed the comments of their GOP House colleagues from one week ago, tempering their praise with criticism of the overall state economy.
Sen. L. Scott Frantz of Greenwich, ranking GOP senator on the finance committee, said UTC has an excellent track record and the tax breaks were the right investment needed to safeguard a crucial component of the state’s economy.
“I do think it’s a great bet,” Frantz said. But, “Why are we having to do a deal like this, to consider a deal like this in the first place? … We need to do a lot of work in the state of Connecticut to improve our business environment.”
GOP Sens. Tony Guglielmo of Stafford and Joseph Markley of Southington cast the only opposition votes Thursday, both arguing that state government should not single out one company to receive huge public assistance.
“If it’s going to spur them and help the economy,” Markley asked, “why not expand this (tax relief) as broadly as possible?”
To keep UTC centered on Connecticut, the deal approved Thursday 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.