State’s policy on business incentives still work in progress
As Gov. Ned Lamont works with the General Assembly to find ways of fixing a projected $1.5 billion deficit for the coming fiscal year, he has yet to offer details on his initial plan for a significant area of spending.
That would be incentives awarded to businesses, whether of the corporate or Main Street variety.
Speaking last month before the Appropriations Committee, Lamont’s new budget chief Melissa McCaw described the plan as a “pro-growth” budget that strips out spending in a number of areas, but still increases overall expenditures, though below the pace of inflation.
Many of those spending increases are contractually fixed, whether in commitments to municipalities and the schools they run; state workers and retirees for promised compensation and benefits — or to pay down bonded debt the state has taken on in past years prior to Lamont’s pledge of a “debt diet” slashing future bond commitments by 40 percent.
“This is one of the challenges that we collectively face — that the fixed costs are growing at a rate that exceeds the growth in revenues,” said McCaw, Lamont’s new secretary of the Office of Policy and Management, during a hearing in Hartford. “The governor’s approach was to take a look at these major cost drivers and identify structural reforms or changes that could slow down that rate of growth.”
Under former Gov. Dannel P. Malloy, the state Department of Economic and Community Development disbursed nearly $200 million annually on average in the form of incentives to businesses, while operating on an annual budget of about $30 million. That included distributing money from the state General Fund to support tourist attractions and other institutions deemed deserving of support.
‘Capital for good ideas’
In the Appropriations Committee’s meeting with McCaw last month, Rep. Gail Lavielle, R-Wilton, asked the secretary on plans for expenditures in support of economic development. McCaw responded that was still a work in progress and deferred questions to David Lehman, Lamont’s choice as commissioner of the Department of Economic and Community Development.
Among more than 700 letters of testimony filed since late February to the legislature on Lamont’s budget proposal, Lehman weighed in to state the budget includes “sufficient resources” for DECD to carry out its charge of increasing employment, revitalizing neighborhoods and promoting the arts and
tourism. All while maintaining existing commitments.
Lamont and lawmakers are working to close a projected $1.5 billion shortfall of revenue to cover expenditures, while maintaining a target “rainy day” fund of about $2.8 billion to draw from in the event of any unanticipated fiscal emergencies.
With Lamont having pledged not to strip away safety nets for struggling residents, that leaves a smorgasbord of economic development programs pushed through by Malloy among the early candidates for erasure, as Lamont shifts the state’s focus away from providing individual incentives to specific companies.
DECD plans to lean in part on a rekindled partnership with the nonprofit Connecticut Economic Resource Center, which has a staff of less than 20 people and an annual budget of less than $4 million.
But Lehman described it as “revitalized” under new board co-chair and Greenwich resident Indra Nooyi, the former CEO of PepsiCo who Fortune has ranked routinely among the
most powerful woman executives in the world.
Asked at a confirmation hearing last month in Hartford about his policies to help business owners prosper in Connecticut, Lehman did not indicate any intent to erase the Small Business Express Program.
The program committed about $300 million in grants and loans during the Malloy years, with DECD data showing about a third of recipients failed to hit promised job targets. Lehman told Hearst Connecticut Media last week that private sector lending is at a healthy level in Connecticut.
“I plan on giving a more fulsome look at that program and what’s been working there,” Lehman said at his confirmation hearing. “Making sure that there is adequate capital for good ideas in this state for small business — I view that as part of the mandate.”
Return on investment
Lehman articulated as well his belief in a central theme Lamont reiterated during the fall campaign — his preference for a level playing field for all businesses, rather than tailoring incentives for some.
The question becomes at what cost — under Malloy, the state was able to bring to Stamford the headquarters of Charter Communications and NBC Sports, and Jackson Laboratory’s genomics research facility to Farmington.
Lehman described as “a net positive impact to the state” the incentive programs put in place by Malloy and any that the former governor inherited, and that they will continue to do so for the coming few decades. At the same time, he promised to vet all of them to determine the return on those investments to the state and any fresh priorities his office can put in place.
“I think my perspective is if you have the right broad policies in place that work for everyone — all residents, small businesses, large business, that incentivize growth and the job creation that we want — that is by far the best policy,” Lehman said. “I don’t like using the phrase ‘pick a winner,’ but there is a subsidy from others that are providing that incentive — i.e., the taxpayers — to that company, whether it’s to retain jobs or stay in the state, or come to the state.”