Pew: CT leads most states in ensuring good return on business incentives

Between grants, low-interest loans and tax breaks, Connecticut provides hundreds of millions of dollars annually in incentives to help businesses survive — and sometimes to expand — in a high-cost state.

And while these incentives remain a perpetual source of debate, a national think-tank says Connecticut at least does better than most other states at ensuring it gets a good return on its investments.

The Pew Charitable Trusts recently analyzed all states and the District of Columbia on their ability to evaluate their incentives, ranking them as “trailing,” “making progress” or “leading.”

Connecticut was one of 16 states in the top group, due largely to new legislation adopted just two years ago.

“Connecticut is leading other states because it has a well-designed plan to regularly evaluate tax incentives, experience producing quality evaluations that rigorously measure economic impact, and a process for informing policy choices,” Pew analysts wrote.

In recent years, legislatures here have bonded more than $100 million annually for economic development initiatives in municipalities, brownfield remediation and small business assistance.

The state also provides credits, exemptions and other breaks through its taxes on corporations, insurance companies and public service utilities that total more than $500 million per year.

Connecticut was one of the first states to begin producing regular evaluations of its incentives. Lawmakers first enacted a measure in 2010 requiring Department of Economic and Community Development reports every three years showing whether jobs were created as promised, or whether other positive economic impacts resulted. 

But as late as May 2017, though, Pew analysts found “the studies have had little effect on incentive policy” adding that Connecticut “lacks a strong connection” between the evaluations and policymakers.

In other words, legislators either weren’t reading the reports, or the analyses lacked information the lawmakers wanted.

Legislators passed a bill in 2016 to require the two branches of government to work more closely, but then-Gov. Dannel P. Malloy vetoed it, saying a statute wasn’t needed for cooperation.

Supporters in the legislature and other advocates, including Comptroller Kevin P. Lembo, renewed their push and were successful one year later.

The new system requires legislators to hold public hearings on the analyses, which now must be produced each year. It also drew the state auditors into the process, requiring them to review the reports and submit findings to key legislative panels.

“Connecticut should be making its policy decisions and investment decisions on the back of good information and data,” Lembo said. “That is the absolute essential goal of the economic evaluation law that I advocated for – ensuring that state government is transparently and thoughtfully reviewing whether the hundreds of millions of dollars invested in economic development and job growth each year are fulfilling their intended purpose.”

The spokesman for Gov. Ned Lamont’s budget office, Chris McClure, said “It is an honor to be recognized by Pew as a national leader on this issue. It is a reflection of the hard work and safeguards our state has put in place to evaluate our tax incentive programs. We are continuing to build on this progress through Governor Lamont’s new JobsCT legislation, which creates a transparent, earn-as-you-grow tax rebate to assist employers who are expanding and fueling the next generation of economic growth in Connecticut. This approach minimizes risk and is good for businesses and taxpayers alike.”

Lamont, who took office in January 2019, also has stressed Connecticut must be more selective in the incentives if offers — and more focused on ensuring it gets the results it wants.

“We need to be mindful that Connecticut taxpayers are on the other side of these incentives,” David Lehman, Lamont’s economic development commissioner, said in late January when the governor unveiled two economic incentive efforts.

Lehman estimates that during the last three years of Malloy’s tenure, Connecticut paid about $16,000 in incentives for each job it helped to create. The new administration is sticking closer to a range of $5,000 to $10,000.