Make sure state incentives create jobs

If the state is going to dole out hundreds of millions of dollars in economic incentives to attract businesses and grow employment, it needs do a better a job of honestly assessing if those investments are having the desired results. That is the gist of a new report, "Connecticut Economic Development Subsidies: Costly and Blunt" by the organization Good Jobs First, a national policy resource center that promotes corporate and government accountability on the use of taxpayer incentives.

We concur with the report's message. In some cases Connecticut is doing little or nothing to determine if the incentives it provides are creating the well-paying jobs promised. In other cases assessments are not sufficiently in-depth.

Connecticut uses a combination of grants, tax credits and loans (that businesses often do not have to repay if job-creation targets are met) to lure businesses or convince others to remain. The Day recognizes the unfortunate reality that Connecticut has to play this game in order to compete with other states. But it has to play the game smart, targeting those

incentives toward businesses with a high chance of success and that produce well-paying jobs with benefits. And these programs must help small businesses, collectively the largest job creators.

To make those judgments requires good data. In its report, Good Jobs First makes a strong case that data is lacking.

In fiscal year 2010, two-thirds of the state's economic development dollars, $173 million, were spent outside the purview of the Department of Economic and Community Development. Many of these incentives are provided in the form of tax breaks - research and development tax credits, the electronic data processing equipment property credit, film industry tax credit, and the fixed capital investment credit are some examples cited in the report. The state awards the tax credits to any company meeting eligibility requirements, with no assessment of whether the businesses that benefit need the incentives to remain competitive and are creating jobs.

Even while raising taxes on everyone, Connecticut is providing tax breaks to selected

industries. Revenue lost to corporate tax credits has grown from $5 million in 1987 to $228 million projected for the current fiscal year. Given the state's persistently high unemployment it does not appear the strategy is working.

Department of Economic and Community Development spokesman Jim Watson said Commissioner Catherine Smith recognizes the need to better evaluate the effectiveness of tax credits and that the department is assessing the best way to do so. The department can start by requiring companies that take advantage of tax credits to disclose whether they created or cut jobs, the level of pay and benefits provided and to make a case for why the credits are necessary to remain viable and competitive.

Tax credits should not be forever. The state should target them to help industries get established and allow them to sunset after a reasonable time.

The state does a better job of monitoring grant and loan incentives provided directly through DECD. Good Jobs First rated Connecticut sixth best in the country in terms of

economic development transparency. Its annual report states that of the 63 companies actively benefiting from DECD incentives, 34 have met job-creation goals, exceeding their obligation by 16 percent. Companies falling short reached 91 percent of goal. Overall, the companies produced 5 percent more jobs than their contracts called for.

Yet the analysis could be better. There is no disclosure as to whether companies failing to meet job goals repaid subsidies. Assessments do not disclose wages and benefits paid. And DECD does not assess how many of the jobs are Connecticut jobs. Anecdotal evidence suggests many employees working for companies lured across state borders commute.

Commissioner Smith has only been on the job a few months. Her statements show she recognizes the need for better evaluation, particularly when it comes to tax credits. We welcome her efforts.

Connecticut cannot ignore the need to compete for jobs, but neither can it afford to blindly award economic aid, not if it truly wants to be competitive.