BY ALEXANDER SOULE AND DIRK PERREFORT
Hearst Connecticut Media
By Connecticut standards, it was a titanic relocation in 2012 when Starwood Hotels & Resorts Worldwide checked into 333 Ludlow Ave. in Stamford — now dubbed One StarPoint. Then last year it jacked up its state aid package to in excess of $100 million with an eye on employing 1,300 people at its headquarters in its adopted state.
Somewhat lost amid the eye-popping dollar and employment figures was another number: 2034.
That is the year when Starwood Hotels will fulfill the terms of its lease, a suddenly distant date amid agitation at some of Connecticut’s largest corporations after the state Legislature voted to hike taxes, including a new “unitary combined reporting” levy that would allow Connecticut to tax a portion of any profits companies assign to subsidiaries elsewhere. It’s an income stream that has been out of bounds to the state Department of Revenue Services.
In response to corporate complaints, Gov. Dannel P. Malloy on Friday proposed the state delay enacting unitary reporting until January.
It may be an extreme example, but Starwood Hotels is not alone in being handcuffed to an extended lease in Connecticut, for better or worse. Starting in October 2009 with Berkshire Hathaway subsidiary General Reinsurance’s decision to relocate within Stamford to its current Long Ridge Road headquarters, over the next five-plus years, many of Fairfield County’s largest employers committed to lengthy new lease terms extending to 2020 and beyond.
There have been a few notable exceptions, like Praxair, which abruptly scotched plans for a new headquarters in Danbury prior to the state budget’s passage; and Sikorsky Aircraft, which committed only to a five-year assistance package as part of a larger deal for its corporate parent United Technologies.
Praxair, a Danbury-based Fortune 250 company, had announced plans for a new headquarters in October during a press conference with Malloy in attendance. Despite the $30 million incentive package offered by the state, those with knowledge of the situation said the project — originally slated to cost about $60 million — ballooned to more than $100 million and was too costly for the company to move forward.
Officials with Praxair have not officially commented on their plans, or whether the state’s new unitary tax was taken under consideration when the plans for the headquarters were scrapped.
The company has about two years left on its lease with the Matrix Corporate Center and is in negotiations with the center’s owners about whether to renew the lease. When the company announced its intentions to build a new headquarters in the fall, CEO Steven Angel said a location in Texas, where the company already has a significant presence, was also considered.
A decade on
For the most part, larger employers reached lease deals or financing packages extending 10 years or more, cognizant of the state’s precarious fiscal state if not aware of tax hikes on the immediate horizon.
“We have been in contact with the governor’s office and with members of the Legislature to make our concerns known about a number of features in the budget bill,” said Ken Siegel, chief administrative officer and general counsel at Starwood. “Clearly, we would have taken the new tax initiatives, including the unitary tax, into account in making a decision to move to Stamford and they will be consideration in determining whether to further expand our headquarters operations in Connecticut. We are still assessing the effect of the tax provisions on our bottom line and on our employees.”
Malloy has stated he has been in contact with General Electric after the Fairfield-based conglomerate threatened publicly to move its headquarters out of Connecticut, with an email from CEO Jeffrey Immelt subsequently surfacing steeling employees for the possibility of having to relocate.
Malloy did not say with whom he spoke at GE, but said those executives took issue with sales taxes and the loss of “carry forwards” allowing corporations to bank tax credits for future tax years. More attention has been focused on Connecticut’s introduction of a unitary tax, which is on the books in every other Northeast state save New Jersey, which is considering enacting a version. Malloy has not ruled out vetoing the budget in the face of corporate criticism, but termed that option “unlikely” during a June 4 press conference.
“The unitary tax is part of the package,” Malloy said at the time. “To the extent that there may be some misunderstanding about how that works in Connecticut versus elsewhere, I think there’s now an opportunity to clarify that. Unitary tax is not the same in every state. … If you look at what’s happened in the last few years, there’s a gigantic movement to unitary — that’s the reality.”
For most, it remains a mystery exactly how the unitary tax would function, whether for companies with headquarters in Connecticut or subsidiaries with their main offices here that feed income into their corporate parents. One major example locally on the latter front is Realogy, a Parsippany, N.J.-based real estate giant that is among the largest employers locally thanks to its Coldwell Banker Residential Brokerage — by definition a local business — and Cartus, which helps employees undergoing transfers sell their houses and find homes in their new communities. Cartus chose to stay in Danbury last year, committing to adding up to 200 employees to its existing workforce of 1,275 people at the time in exchange for state incentives over five years.
For the most part, many of the most ballyhooed lease deals of the past few years are locked into longer terms: Gen Re took a 20-year lease on its Long Ridge Road headquarters in Stamford, while Deloitte and Gartner disclosed 15-year terms in Stamford (as a partnership, Deloitte would not be subject to a corporate tax). Only late last year, GE Capital reached a lease renewal on more than 300,000 square feet of space in Norwalk, liabilities that would presumably transfer to any corporations acquiring parts of the financier in GE’s ongoing auction of the subsidiary. And Synchrony Financial is leasing more than 300,000 square feet up Long Ridge Road from Gen Re, having yet to disclose the terms.
Those contracts may represent a security blanket of sorts for Fairfield County, following General Electric’s announced intention to explore other states for its headquarters office in Fairfield, and its ongoing auction of GE Capital.
Perhaps most vexingly for GE, even as it eyes the Connecticut exit sign, the company is on the cusp of adding more than 1,000 new employees in its home state via its planned acquisition of Alstom’s power business, which in July 2013 took $3.5 million in state aid to support a $25 million modernization of its U.S. headquarters in Bloomfield and a research and development facility in Windsor, the terms of that deal stretching 10 years. GE has yet to complete the acquisition, at $13 billion its largest ever, with analysts questioning its appetite to do so amid intense regulatory scrutiny in Europe, where Alstom has its headquarters outside Paris.
A lease does not always keep a company in place. Long after International Paper’s 2005 headquarters relocation from Stamford to Memphis, Tenn., IP will only be clearing its books this year of its lease obligations at 400 Atlantic St. in Stamford.
Back at One StarPoint in Stamford, for the first time in several years Starwood Hotels scotched its annual June pilgrimage to establish temporary headquarters operations overseas, as the company considers a potential sale under interim CEO Adam Aron.
A lot of changes could be in the offing in the years leading up to 2034, the current scheduled expiration of Starwood’s lease in Stamford.
“I suppose the best way to say it is it’s not over until it’s over, right?” Malloy said. “Things in the Capitol change minute by minute, hour by hour, day by day, week by week.”
Hearst Connecticut Media includes four daily newspapers: Connecticut Post, Greenwich Time, The Advocate (Stamford) and The News-Times (Danbury). See stamfordadvocate.com and newstimes.com for more from these reporters.