Long overdue check on economic data

Connecticut needs to do a better job of monitoring the effectiveness of its various economic incentive programs, that’s the takeaway from a new audit report conducted by the state Auditors of Public Accounts.

While free-market purists may criticize any government incentive programs as corporate welfare, the reality is that if Connecticut wants to compete with other states and grow its economy it will at times have to offer various inducements in the form of tax credits, loan forgiveness programs and grants.

But if the state is going to be a business partner, it needs to make sure it is investing wisely, encouraging the creation of good jobs and, over the long run, increased tax revenues for the state. To do this effectively, the state has to take an honest look to determine which incentive programs were successful and which are failures. Only in that way can the state make informed decisions going forward concerning which approaches to accelerate and which to abandon.

Unfortunately, the new report found that the data necessary to reach such conclusions is in many instances inaccurate. A new law passed last year required the auditing arm of state government to take a hard look at the figures recorded by the state Department of Economic and Community Development in its annual report.

The 2016 report claims the creation of 18,246 jobs and retention of 85,229. But the auditors said the retention numbers are “likely overstated” because companies that received multiple incentives likely had the jobs tied to those incentives counted multiple times.

“It is unclear how many jobs DECD may have overstated,” the report states.

The portfolio of companies assisted through the Manufacturing Assistance Act failed to include 297 inactive projects that received $242 million of financial assistance. DECD considers such projects inactive if the company has gone out of business, moved, or had its agreement with the state expire. But the result is to include in performance calculations the good-news data from active projects and exclude the bad-news data from failed investments.

The state’s Small Business Express program, which leveraged state grants with private loans to assist small companies struggling in the post-recession environment, overstated the amount of assistance provided by lending partners by $2.8 million, or 8 percent.

The DECD also understated the amount of assistance provided the Small Business Express program by $16.5 million, a 7 percent miss, because it left out 80 business projects, auditors found.

And so it went. The bottom line is that bad data in means bad data out when it comes to analyzing the best practices for providing prudent state assistance in generating job growth.

Credit goes to state Comptroller Kevin Lembo who pushed the legislature to require an independent analysis of the DECD data, an idea that faced opposition and, at one juncture, a veto from Gov. Dannel P. Malloy. Both are Democrats. The Day editorially supported Lembo’s efforts.

“(The) report finally gives the legislature independent and actionable information so that Connecticut can make informed decisions about its economic future,” said Lembo in a statement after the release of the report. “Connecticut provides hundreds of millions of dollars in economic incentive programs to businesses every year … but has failed to independently and accurately analyze which ones are working and which ones are not.”

The legislation requires an annual audit.

This is only a start. A legislative hearing to further parse the audit’s findings is in order. Corrective action to assure solid numbers is necessary, perhaps girded by a legislative mandate.

The ultimate goal is to produce data which the governor and legislature can confidently use to set policy when it comes to economic incentive programs.

The bottom line is that bad data in means bad data out when it comes to analyzing the best practices for providing prudent state assistance in generating job growth. “As states ... face mounting deaths caused by drug addiction ... we need to spend our resources wisely by targeting the areas with the highest number of deaths.” Rep. Joe Courtney, D-2nd District