Lamont’s “earn-as-you-go” incentive strategy bears watching

Photo | Associated Press/Jessica Hill Gov. Ned Lamont at his inauguration ceremony in Jan. 2019.

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Connecticut’s use of economic incentives to stir job growth has been controversial in recent years.

The Hartford Business Journal and other media outlets have written about a number of deals that backfired on the state, costing taxpayers money as companies that received state aid — in the form of loans or grants — went out of business or didn’t live up to their jobs’ or investment promises.

Greg Bordonaro, Editor

However, there are success stories that ought to get attention. For example, HBJ’s Sept. 16 issue spotlighted the growth of Italian jet-engine compressor blades maker Pietro Rosa in Farmington.

Pietro Rosa was lured to Farmington by the Malloy administration in 2016 with the help of $5 million in state loans. The company has since purchased and expanded the remnants of Farmington’s New England Airfoil Products (NEAP)and added more than 100 jobs in the town.

The Malloy administration first met Pietro Rosa executives at the Paris Air Show several years ago, when the company was considering a U.S. base in South Carolina. It chose Connecticut instead.

Ironically, Pietro Rosa’s state-aid package may have never come to fruition under the Lamont administration, which is migrating to a new “earn-as-you-go” incentives strategy — where companies must create jobs before receiving assistance.

That raises the question: What is the best way to incentivize economic development in a high-cost state that has long been deemed unfriendly to business?

Personally, I think the Lamont administration’s new strategy, which hasn’t been fully fleshed out, at least publicly, is the way to go because it lessens the risk to taxpayers.

The Malloy administration transformed the state’s jobs strategy, aggressively ramping up corporate incentives — to the tune of more than $650 million in loans and grants — to entice companies to retain and add jobs here.

Some of that aid was in the form of grant money or forgivable loans that companies benefited from up front, before they created jobs or made certain investments.

That required the state to borrow money in order to provide those incentives, which were panned as corporate welfare by some.

The Lamont administration’s earn-as-you-go system means employers won’t reap state incentives until they’ve created a certain number of jobs, or made a certain level of investment. The administration is also focusing more on tax breaks rather than grants, mitigating the need to borrow money.

What’s unclear, however, is whether Lamont’s incentives strategy will be more effective in retaining and luring companies to Connecticut.

For example, would Pietro Rosa be adding jobs in South Carolina right now instead of Connecticut, if it weren’t for the Malloy administration’s upfront funding? They answer might be yes.

This is something the state must track closely, although there was never a clear analysis done to determine if Malloy’s incentive strategy was a good or effective use of taxpayer dollars.

Overall, I don’t think it was, though I understand the use of economic incentives is here to stay as long as states compete for jobs and employers.

Department of Economic and Community Development Commissioner David Lehman declined to be interviewed for this column, but his spokesman said the agency is still in the early stages of implementing the earn-as-you-go model and doesn’t have any concrete numbers/observations to report yet.

However, Lehman is working on new legislation related to this for the upcoming session, the spokesman said.

Of course, the best economic-development program the state could implement would be providing a more competitive business climate in the form of lower taxes, less regulation, lower energy costs, etc.

However, we’ve seen little progress in that regard under the previous and current administrations.