Assuring state business incentive programs work

Both the governor and the state’s comptroller agree that the state needs to analyze the economic incentives it provides, determining which programs are effective. So far they disagree about who should be doing the analyzing. Comptroller Kevin P. Lembo has the better plan.

Lembo, who is likely to run for governor, has proposed legislation, now working its way through the legislature, which would authorize the Auditors of Public Accounts to establish a review committee to evaluate economic incentives. The review would analyze a program’s fiscal impact to the state, whether the incentive program met its goals and proved effective, and provide recommendations on continuing, modifying or repealing the program.

The comptroller, now serving his second four-year term, was successful in persuading the legislature to raise a similar bill last year. It fell just short of becoming law. That 2016 version designated the Office of Program Review and Investigations to conduct the assessments. That agency, however, was eliminated this past January due to budget cuts.

In a meeting with the Editorial Board last week, Lembo said the Auditors of Public Accounts has the resources and staffing to conduct the proposed reviews.

The 2016 legislation won unanimous legislative approval, but Gov. Dannel P. Malloy vetoed it. Malloy noted in his veto message that incentive deals are now subject to review by the Department of Economic and Community Development or the Department of Revenue Services, depending on the nature of the incentives.

More monitoring is unnecessary, stated the governor.

Lembo, however, makes a good point that it can create conflicts when an agency, such as the DECD, “evaluates the programs it promotes and administers.”

The latest legislation pushed by Lembo is extensive in scope, calling for review of tax credits, abatements, loans, grants, and other forms of state-backed business assistance.

Evaluations would occur annually and would include a public hearing at which the evaluating committee would present its report and recommendations, while fielding public comments and questions. Done right, that would be an effective tool to help the legislature make informed decisions on whether to continue, expand, eliminate or add incentive programs.

Despite Lembo’s assurances, our concern focuses on the ability of the APA to handle the load required by the legislation without expanding the bureaucracy. The legislature should explore that issue before acting on the bill.

The politics involving the Democratic governor and the Democratic comptroller are intriguing. Any independent audit is bound to uncover ineffective programs, something no governor likes to hear.

A standard auditors’ report by the same agency, not the comprehensive review pushed by Lembo, for example, found problems with the Small Business Express program. Politically attractive, it has been a favorite of the Malloy administration, and is administered by the DECD. Begun in 2012, it provides state assistance in grants and loans up to $100,000, and up to $300,000 in deferrable or forgivable loans, with the intent of growing small businesses and creating jobs. DECD ties job-creation goals to the incentives.

Between the April 2012 through June 30, 2015 period included in the audit review, the state Bond Commission allotted $200 million in funding for Business Express.

The audit released Feb. 16 found some businesses failed to file reports on the use of the state’s investment in the time period specified.

“Program requirements and expenditures are not being properly applied and monitored” resulting in “potential overpayments, penalties, or loan forgiveness credits related to employment obligations not being applied properly …,” it states.

Auditors also concluded, “Unreasonable and excessive administrative fees were being paid” to the financial institutions hired to administer the program.

Last May, Lembo focused some unwanted attention on the Malloy administration’s controversial deal to provide $22 million in grants and loans to Bridgewater, the world's largest hedge fund. In return for the state incentives, Bridgewater agreed to create 750 new jobs, as well as retaining the 1,402 positions it currently has in the state. Malloy called the investment worth it to save and create high-paying jobs.

The Bond Commission approved the deal on a 7-2 vote, with Lembo joining a Republican in voting against the allocation.

“Rather than narrowly target state resources to such businesses, the state should focus on collaborating with these companies to identify sound tax policies and investments that benefit them and all state businesses,” said Lembo in a rebuke of the governor.

During his recent visit, Lembo told the board he is "95 percent sure" he will make a run for governor in 2018, even if it means confronting Malloy for the Democratic nomination. Is there some political calculation behind his call to toughen accountability? Perhaps. But it is good policy, nonetheless.

The editorial board is composed of the publisher and four journalists of varied editing and reporting backgrounds. The board's discussions and information gained from its meetings with political, civic, and business leaders drive the institutional voice of The Day, as expressed in its editorials. The editorial department operates separately from the newsroom.

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