Legislators Want More Openness in Cost-Benefit Analyses For Large State Incentive Packages

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Every time the state offers grants to businesses for adding workers, it has to borrow the money to pay for it.

A bill progressing through the state legislature would require the State Bond Commission to verify that when the state gives incentives to businesses, those deals show an increase in state revenue – or the deal must be rejected.

The bill, which requires the bond commission to look at the additional state revenue that would come from the promised jobs and any spillover growth to the state, would only apply to projects that cost the state more than $15 million. Those projects are negotiated by the Department of Economic and Community Development.

The bill was voted unanimously out of the Commerce Committee earlier this month and has been referred to the Finance Committee, which would also have to approve it before it receives a vote on a floor.

The state already makes these estimates in its economic models, using software called REMI, though its standard is that projects have to break even by the end of 10 years. None of the economic incentives packages last longer than 10 years, though some of the money borrowed to pay for them is paid back over 20 years. The models do take into account the cost of the interest payments on the borrowing.

Because the companies give an average wage and a number of jobs promised, the state income tax is easy to estimate. DECD Economist Nandika Prakash said they even determine how many of the employees are likely to live in New York or Massachusetts, because there will be a smaller spillover effect for those workers.

Several of the incentives packages in recent years — — have been for companies that moved jobs from New York to Fairfield County.

But the agency does not show its work, as your math teacher used to say. If the project would begin to add to state coffers in the fifth, sixth or seventh years, that’s not disclosed. How much additional revenue might come in during the 10-year period is also not reported.

Rep. Gail Lavielle, R-Wilton, the original sponsor of the bill, said it would be useful for the bond commission to see that kind of detail.

She doesn’t think the standard should be break-even in 10 years, but rather, make a profit for the state by the end of the period.

She said of the ‘First Five’ large incentive packages: “In any portfolio, you want to see it staggered, because some are going to fail, and some you want to bear fruit earlier. I have seen no data like that for Bridgewater or Cigna or ESPN or any of those things.”

Commissioner Catherine Smith responded to the bill by writing, “DECD understands the motives behind this legislation but urges the committee to proceed cautiously. Currently DECD conducts a REMI on all major projects, but conducts the analysis in a manner that protects proprietary information.”

Lavielle says that the bond commission could see that data without it becoming public.

Andy Markowski, the director of the state’s chapter of the National Federation of Independent Business, thinks the bill should become law. “This is a common sense approach that not only provides for additional transparency in the legislative process, but also can ultimately result in better-administered economic development programs and state investments,” he wrote.

While the administration opposes the bill, Gian-Carl Casa, undersecretary for legislative affairs, said: “It’s too early in the legislative process to issue veto threats. The bills have a long way to go before they get to the Governor’s desk.”

 

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