Report urges use of $1 billion in tax credits to help economy

With the state's economy adrift, a University of Connecticut report released today suggests making $1 billion in unused tax credits available to stimulate investment, including more than $100 million for New London County.

The tax-credit plan, included in a gloomy quarterly analysis of the state's economy, would lead to "major investments that will dramatically strengthen Connecticut's economic future," according to the Connecticut Center of Economic Analysis at UConn.

The tax credits, which would be used by major corporations already doing business in the state, could help Pfizer Inc. build new, state-of-the art facilities in Groton as it consolidates scientists from its New London campus and brings others from legacy Wyeth Pharmaceuticals laboratories in New Jersey, suggested Fred Carstensen, director of the center, in a phone interview Tuesday.

He said the credits also might be used to convert Pfizer's New London site for some other use - perhaps offices for a major technology company such as Cisco, Sun Microsystems or Apple. Pfizer has announced that it intends to vacate its New London campus by the end of 2011, and it currently has the office complex on the market.

Carstensen said allowing corporations to use tax credits they already have accumulated would add nearly 40,000 jobs - about 4,000 in New London County - in a state that has the worst record of creating jobs in the United States over the past two decades. But the best part, he said, is that the proposal would not have any upfront costs - companies wouldn't start cashing in the credits until they had already built or retooled their facilities and had new employees in place.

"Connecticut has at hand a powerful tool to drive short-term recovery in jobs and income - more than $1 billion in earned research-and-development tax credits," according to the economic forecast titled "Drifting Down," authored by UConn senior research fellow Peter E. Gunther.

The credits already have been earned, but Connecticut has made it difficult for large companies to use them, according to the report. Carstensen explained that large companies must use the credits to offset tax liabilities, but corporations haven't reported large profits of late.

Carstensen said his organization isn't in the habit of "egging on public policy," but in this case its economic analysis had provided strong reason to believe using accumulated tax credits could have an immediate and long-lasting effect on the state's balance sheet. The state is currently looking at a budget shortfall of $3.5 billion to $4 billion in 2012, he added.

"We were looking to see what arrows do we have in our quiver," he said. "It turns out we didn't have just an arrow; we had a javelin."

Carstensen said encouraging companies to stay in state costs one-fifth the amount of attracting new businesses to Connecticut. And seeing high-end corporations expand in the state would reverse a long-term trend of lower-wage, lower-skill jobs dominating the economy, he said.

"We have a systematic erosion of the quality of the job base and a systematic erosion to the revenue base," he said. "We need to take control of our own future."

The UConn report showed the difficulty in forecasting economic recovery any time soon. In fact, the report projected continuing erosion of employment and essentially flat income in the state over the next several months.

The report was equally downcast regarding the state housing market, which it said had an overhang of high-end and mid-range homes on the market. The large inventory of homes "does not bode well for construction recovery," the report added.

Carstensen said the state needs to engage in a serious debate about the report's tax-credit plan, and he already has broached the subject with gubernatorial candidates who seem to be taking it seriously. He brought the idea to the state legislature during its last session, but the bill went nowhere, he added.

"The legislature doesn't seem to really understand the depth of the economic crisis we're facing in Connecticut," he said.

Legislators focused on the cost of the tax credits, he said, but Carstensen's analysis shows the idea would bring in $1.5 billion a year in new revenue. Analysis cites benefits of $2.50 for every $1 in credits offered, he said.

"Let's stop the constant erosion in terms of the employment base in Connecticut," Carstensen said. "Let's give companies a huge reason to expand their presence here."

Carstensen said the tax-credit plan would primarily be aimed at three corporations: Pfizer, which has one of its major research centers in Groton; United Technologies Corp., the military contractor based in Hartford; and General Electric Co., the electronic equipment and home appliance manufacturer based in Fairfield. Others, such as Stamford-based software and hardware manufacturer Pitney Bowes Inc., also would be eligible.

With some companies complaining about the business environment in Connecticut, Carstensen said he hopes the tax-credit plan will help turn around the state's image.

"We've really got to have a game-changer," he said.