INCENTIVES

reimbursed an amount equal to 25 percent of the state income tax paid by the added employees. These paymentswould start at the beginning of the third year and extend to year 7, or perhaps two years longer.

That’s a dramatic change from the state’s habit of paying for job creation up front, then having to “claw back” the money if the jobs don’t last a certain amount of time. And the set formula contrasts with the adhoc dealmaking that Connecticut and most states conduct.

To be eligible, jobswould 1 need to rise above a certain pay threshold. The amount is not yet determined. The statewide median for all jobs, just under $ 60,000, is one level that might make sense.

Businesses in any of the 1 state’s 72 designated “opportunity zones,” mostly in lowincome census tracts in cities, would be eligible for rebates of 50 percent of the added income tax collection.

Businesses in the follow1 ing sectors and industries would be eligible: Financial services; manufacturing, notably aerospace and defense; bioscience; health care; digital media and entertainment; corporate headquarters ( yes, that’s an industry in its own right in Connecticut); renewable energy; and distribution facilities.

Anarrower focus

The idea, Lehman said, is not to pick winners and losers but to pick industries that are the most productive — meaning they generate high revenue per job and therefore are likely to grow — or businesses that typically bring in revenue from out of Connecticut. That’s what drives any region’s economy.

Retail and restaurants are notably absent from the list because they’re largely subject towhat economists call the substitution effect. If Andy’s Restaurant closes, customers will most likely go to Betty’s across the street and the economy won’t feelmuch pain.

What about all the flexibility the old system gave the governor and economic development officials? This system functions more like an entitlement— you do X, you get Y— but it will give the commissioner more discretion than entitlement programs. For example, a business not on the list of sectors and industries

could participate if it’s dynamic, like, say, a hot educational consulting firm.

Why only higherpaying jobs? “We shouldn’t be giving, inmy opinion, incentives for folks to bring minimumwage jobs here,” Lehman said.

Lehman has talked broadly about the philosophy behind the plan almost from the time he started in February.

“He’s hit the nail on the head,” said Sen. Len Fasano, RNorthHaven, the Senate Republican leader, speaking about the broad ideas, not the specifics. “You’re rewarding good behavior. … He’s been very tough and he’s been fiscally prudent about howhe gives money out.”

Howitwillwork

Beforewe look at the pluses and minuses, let’s go through some numbers.

Say theAcmeWidget Co. plans to add 30 jobs in the next couple of years at an average salary of $ 100,000 each. At the start of the third year, sure enough those jobs are in place. They pay a total of $ 180,000 in state income taxes at the 6 percent rate. ( Actual tax receiptswould be less because of averaging of jobs that pay less than $ 100,000, but let’s keep it simple.)

The statewould then pay Acme $ 45,000 a year in years 3 through 7 as long as those jobswere still in place. That’s $ 225,000, or $ 7,500 per job. It could rise to $ 10,500 per job in this example if the state paid for nine years instead of seven.

That’s not a bad payoff, but it’s far less than many dealswe’ve seen. Each one is different and they can be hard to calculate, but $ 15,000 to $ 20,000 per job has been typical. And until now, companies often have had to maintain the jobs for five years or even less, not seven or nine years.

What’s more, the overall payments will probably be capped, so that could limit the payouts.

The first concern is whether this will be enough sweetener to shake Connecticut out of the job creation doldrums. In the four years ending Sept. 30, the state’s economy added 28,000 private sector jobs, or about onehalf of 1 percent per year— not a great total.

“I do feel pretty strongly that the market has moved,” Lehman said, meaning that states, seeing the futility of paying vast sums per job in an unwinnable competition, have come down off the highs in the last fewyears.

Ultimately, with all the factors that go into a decision to hire and locate jobs, will a company go to a different state that’s offering $ 18,000 per job instead of, say, $ 9,000? “I have a hard time believing that,” Lehman said.

“Ifwe’re successful in doing this, youwould not need borrowing,” Lehman said.

Not leading with incentives

We’removing from a negotiated freeforall— whatever deals a company can cut under three main state programs— to a specific formula. That’s fine when itworks and it’s certainly more fair. Iworry that companies are unique and may need some bending of the rules to suit their circumstances.

ESPN, for example, spent $ 190 million on a newdigital studio building and added a fewhundred jobs in 2012. The state gave the sports network $ 10 million for a guarantee itwould keep nearly 4,000 jobs in Connecticut. By any measure, thatwas a great deal by former Gov. Dannel Malloy.

Under this system, ESPN would haul in maybe $ 2.5 million or less.

Aswe see in the ESPN example, this proposed system could undervalue construction. Deals in the Malloy era generally came with a jobs figure and an investment figure, how much each companywas putting in the ground. Rewarding that— the biggest example being Pratt & Whitney, with its engineering center in EastHartford — helps make sure the company stays put for decades.

Construction is also not in the list of favored sectors and industries. And, a threshold of adding 25 jobs leaves a lot of small businesses out of the gravy train.

Fasano suggested starting strict and thinking about targeted exceptions after that. Lehman pointed out that the state has other incentives, for brownfields, historic districts, the opportunity zones and so forth.

“Leading with incentives is not theway to growthe economy,” Lehman said, repeating the mantra of his boss, Gov. Ned Lamont.

Besides, he said, sustained economic growth is built on three factors: Bestinclass education, good infrastructure and longterm tax certainty. Sweeteners are just that— sweeteners to the main three courses.

OK, we’ve got one of three so far. We havework to do on those, but at least the incentives plan is likely to win quick approval and if the problems arise, we can fix them.