There is no escaping the debate over economic development subsidies. Even as Gov. Ned Lamont has enacted a turnaround of policies that showered millions of dollars on companies that were thinking of coming to or staying in Connecticut under his predecessor, Dannel Malloy, the question of how to best lure businesses to the state remains central to our economic future.
A recently released audit of the state Department of Economic and Community Development’s handling of loans and grants during Malloy’s tenure ought to prompt a serious rethinking of such policies.
The auditors questioned the forgiveness of some $23 million in loans. They raised issues with interpretations of rules regarding job creation requirements. They showed that companies may have received more in aid that they should have been eligible to see.
None of this reflects on the Lamont administration. The audit covers the 2015 and 2016 fiscal years and includes $112 million in grants and $324.5 million in loans to 576 companies. DECD’s strategy has changed under Lamont and his economic development commissioner, David Lehman, who have said policies that provide large subsidies to companies for their location decisions are counterproductive and their success is difficult to quantify.
But it’s a debate the state can’t fully leave behind. As long as other states are in the business of offering tax breaks, loan forgiveness and other perks, Connecticut can’t turn its back completely on the process. As the competition for a second Amazon headquarters in 2018 showed, every jurisdiction in America, Connecticut included, is willing to roll out the red carpet under the right circumstances.
DECD officials said the audit was an important step in establishing a new system. “I think this kind of underscores the point it’s time to move to something simpler and more transparent,” Lehman told the CT Mirror.
Despite its middling job-creation record since the end of the Great Recession, Connecticut has had some successes in the competition for major employers over the years. The move from Arizona to Stamford of Henkel, a German manufacturer of soaps and other products, was a major win. Keeping Sikorsky Aircraft in Stratford was perhaps the most vital job-creation victory for the state in the past decade.
But the overall numbers don’t lie. Despite a robust subsidies regime under Malloy, Connecticut has barely reached prerecession levels in the private sector, and has yet to reach pre-2008 levels overall due to a decline in public-sector jobs. Connecticut simply cannot compete on cost with much of the country, leaving most subsidies as a money-losing gesture to companies that make decisions on other factors altogether.
Connecticut has many selling points, including a highly educated workforce and excellent quality-of-life rankings. It will never be inexpensive to do business here. State leaders need to understand what makes Connecticut desirable and focus on those factors, not obsess over measures where we can’t compete.
The Lamont administration, to its credit, appears to understand that. The path to a better economic future for Connecticut is not through subsidies and loan forgiveness.