Connecticut steps away from big-ticket incentives
Connecticut reflexively reached out when Amazon dropped plans to bring 25,000 jobs to a planned campus in Queens, just in case the giant economic disrupter still was set on a locale with mass-transit access to Manhattan. But when it comes to economic development, Gov. Ned Lamont says that the state is largely out of the business of big-game hunting.
The state is rebooting its efforts to attract and promote economic growth, a decision made by a governor who arrived at the State Capitol in January with an M.B.A. and business background and David Lehman, the former Goldman Sachs partner Lamont chose to oversee an overhaul that the administration has yet to roll out.
The fight over tolls and the budget dominate the daily coverage of Lamont and the State Capitol, but long-term success or failure for the first businessman to be elected governor in 60 years most likely will turn on whether Connecticut can score successive quarters of economic growth and shake off a reputation as hostile to business.
No governor can afford to completely swear off big-ticket incentives — “unilaterally disarm,” in Lamont’s words — but Lamont and Lehman say they intend to minimize them by nurturing what is already here. They point to an advanced manufacturing sector fueled by defense and aerospace spending, financial services, investment management and hedge funds, and life sciences and biomedical.
“You want to know where the growth comes from? It comes from guys who are already here, thinking about whether to expand here or expand somewhere else.”
Gov. Ned Lamont
“Those are four of the key industries where I think the state has a real edge, and I think we can make some compelling cases to others looking to grow,” Lehman said. “In those fields, Connecticut should be on the list of five [places to expand] if not that list of one or two.”
“You want to know where the growth comes from? It comes from guys who are already here, thinking about whether to expand here or expand somewhere else,” Lamont said. “So we’re going to get our best leads and initial growth, I think, right here. So rather than shooting that elephant from out of state, hoping to lure them in, let’s start with the folks who are already part of our family.”
And that means Lehman, who lives in Greenwich and eschewed automotive travel during his time at Goldman Sachs, is spending a lot of time at the wheel, taking the temperature of a $280 billion state economy that long has struggled to generate net job growth, even before the Great Recession of 2008.
“This guy has hit the ground running. He’s visited over 70 companies. I’ve visited a lot of other ones. Everybody knows who he is,” Lamont said. “I love the fact that wherever I go, some business guy says, ‘I just met David Lehman.’ And he is not just doing the four big cities or the five big companies. He’s everywhere.”
It’s not entirely clear what will emerge from these visits, other than to step away from expensive and individually tailored incentive packages, such as the ones that lured NBC Sports to Stamford and convinced Jackson Laboratory to build a genomic research facility near the UConn Health Center in Farmington during the administration of Lamont’s predecessor, Gov. Dannel P. Malloy.
“There is no overarching ‘This is how you do it,’ because candidly, it’s not clear to me that any one has quote-unquote ‘got it right.’ I think certain states are maybe more effective than others,” Lehman said. He added, “I want to get as much data as possible.”
Two former corporate CEOs and chairs, Indra Nooyi of PepsiCo and Jim Smith of Webster Bank, are helping with recruiting, leading the non-profit Connecticut Economic Resource Center in a new public-private partnership with DECD.
“There is no overarching ‘This is how you do it,’ because candidly, it’s not clear to me that any one has quote-unquote ‘got it right.’ I think certain states are maybe more effective than others.”
DECD Commissioner David Lehman
Under Malloy, the state spent big and bet big, usually with borrowed money to provide forgivable loans and grants pegged to job creation. Lamont is insisting the state go on a debt diet.
Some of those big investments by Malloy were in keeping with Lamont’s approach — building on what’s here. In 2016, Malloy won broad and bipartisan support for $220 million in incentives for Lockheed Martin to keep its Sikorsky Aircraft subsidiary and production of its next generation of helicopters in Connecticut.
Republicans said Malloy had largely eliminated the risks in the Sikorsky deal by pegging grants and tax breaks to benchmarks for hiring, payroll, capital investments and purchases from Connecticut suppliers.
Lehman, who has the title of economic adviser to the governor, as well as commissioner of DECD, said he is focusing on incentives that are heavy on tax breaks, not upfront loans and guarantees.
“The benefit of that type of structure, and I think that’s ultimately where we want to go, are one, there is no initial outlay of money that needs to be bonded and, secondly, there is no ongoing counter party risk,” Lehman said.
By ongoing risk, Lehman means companies can fail, leaving states with no recourse if they provide upfront incentives.
“Fundamentally, I like the way he is changing the pitch,” Lamont said. “I mean, don’t lead with incentives. Don’t lead with a bribe. Lead with transportation. Lead with getting your fiscal house in order. Lead with workforce development. Lead with the reasons Connecticut is a place you want to be.”
Connecticut would be bucking a trend.
“Fundamentally, I like the way he is changing the pitch. I mean, don’t lead with incentives. Don’t lead with a bribe. Lead with transportation. Lead with getting your fiscal house in order. Lead with workforce development. Lead with the reasons Connecticut is a place you want to be.”
Gov. Ned Lamont
Costs of incentives offered by government to businesses have tripled since 1990, reaching $45 billion per year, according to a recent study by Timothy J. Bartik of the W.E. Upjohn Institute. The incentives, he said, are about what state governments take in from corporate income taxes.
It’s unclear whether Amazon’s experience in New York will change that dynamic. The company withdrew from its deal to build a campus in Long Island City, Queens in the face of opposition to the $3 billion in incentives the city and state were offering. Wisconsin offered a similar package to Foxconn to build a flat-screen television factory.
Lehman is one of the government outsiders in the Lamont administration: The governor tapped other business executives to run the Department of Motor Vehicles and the Department of Administrative Services, which is responsible for hiring and overseeing an information technology network that does not always allow one state agency to communicate with another.
His arrival sparked headlines, not all welcome.
On the plus side, Lamont fairly gushed at announcing the appointment of Lehman, a 41-year-old managing director and partner at the Wall Street powerhouse, Goldman Sachs. Lehman took a mid-career sabbatical to work without salary as the governor’s economic advisor and commissioner of DECD, the Department of Economic and Community Development.
The other side of the balance sheet were questions about whether Lehman’s history as a Goldman Sachs partner during the financial collapse of 2008 should disqualify him from public service. Two months after his nomination, the Senate voted 28-8 to confirm, saving the governor from embarrassing political defeat.
Lehman sees an upside to the confirmation process: He had face-to-face meetings with 35 of the 36 state senators, building relationships he hopes will help when the administration seeks legislation Lamont says will be necessary to make all the changes under consideration at DECD.
His office in a recently renovated state office complex in downtown Hartford offers a sweeping view of the Connecticut River to the north. To the east, he can see the Holiday Inn in East Hartford where he stays two nights a week, walking across the Founders Bridge. “I’m not a car guy.”
He worked in Manhattan for more than a decade, taking the train from Greenwich. He was part of a group that occasionally would make the 40-mile trip by bicycle. On the mornings he now makes the drive to Hartford, he sees the southbound traffic crawling on I-95, one of the detriments to companies expanding in Connecticut.
The governor told CT Mirror he was considering calling a special session later this year on economic development, but he now is thinking of making it an element of a session that could be necessary if Lamont is to prevail on winning authorization to pursue a comprehensive system of highway tolls with the Federal Highway Administration.
Lehman says he still is gathering data about what he wants the new DECD to look like.
He says his listening tour yields two constant issues — transportation and talent. Everyone wants a better commute and more reliable access to New York and, a lesser degree, to Boston. And they want to be confident of access to the next generation of workers
“These are not quick fixes,” he said.
Improving transportation infrastructure, whether financed by tolls or other means, obviously will take time. But the recruitment of talent has its own issues.
Connecticut ranks highly in every national survey in the quality of its education system and the productivity of its workers, but millennials are turning away from suburban life — and that’s a potential problem for a state where urban life is defined by Bridgeport, Stamford, New Haven and Hartford, all with populations of less than 140,000.
Some officials in those cities wonder if Lamont’s “debt diet” will undermine gains made in recent years, such as the downtown housing developed in Hartford, much of it constructed with gap financing from the quasi-public Connecticut Region Development Authority.
The early reviews on Lehman are good, if tentative.
“I’m still in more of a wait and see approach,” said Rep. Chris Davis, R-Ellington, the ranking Republican on the Finance, Revenue and Bonding Committee. “The administration is talking a better game than I think the Malloy administration did.” He said he appreciates the emphasis on trying to improve the overall business climate, rather than strike individual deals.
Comptroller Kevin Lembo, a Democrat who sometimes criticized the Malloy administration on economic incentives, said, “I think that’s a shift, and that’s a good one.”
Sign up for CT Mirror's free daily news summary.
Free to Read. Not Free to Produce.
The Connecticut Mirror is a nonprofit newsroom. 90% of our revenue comes from people like you. If you value our reporting please consider making a donation. You'll enjoy reading CT Mirror even more knowing you helped make it happen.YES, I'LL DONATE TODAY