On the eve of accepting a job to become New York”™s transportation commissioner, Joan McDonald released an assessment of Connecticut”™s business tax credits under the state Department of Economic and Community Development she has led since 2007.
On Jan. 14, New York Gov. Andrew Cuomo announced the appointment of McDonald to become commissioner of the New York State Department of Transportation (see story on page 1); at deadline, new Connecticut Gov. Dannel P. Malloy had yet to detail plans for finding her replacement to lead DECD.
In a meeting with the commerce committee of the Connecticut General Assembly just days before Cuomo”™s announcement, McDonald said Connecticut”™s tax and economic incentives are competitive with those from any state ”“ presumably to include New York with which Connecticut competes for jobs, and which last year deferred payment of some tax credits it had awarded in previous years.
“As far as programs that we have on the books ”¦ the (Connecticut) programs are almost second to none,” McDonald said. “We have great programs here in the state. The one area where we could invest more dollars is in marketing the state ”¦ But I read a lot about what other states are doing, and a lot of them are going through retooling and looking at what their economic-development programs are.”
Overall DECD provided $33 million last year in direct financial assistance, which leveraged another $318 million in private industry investment to create or save nearly 5,000 jobs in Connecticut.
“I think that”™s a pretty good return on investment,” McDonald said.
Using data from the Connecticut Department of Revenue Services, the DECD report analyzed tax credits in effect between 1995 and 2007, and so provides little insight on perhaps Connecticut”™s best-known tax credit during that period ”“ the tax credit on 30 percent of movie and TV production expenses generated in the state. That program has spurred a secondary market, with producers selling the tax credits at an up-front discount to bring in cash for their projects, and corporations buying the tax credits to lower their tax liability in a future year.
In 2010, the film tax credit helped maintain approximately 2,200 jobs in Connecticut, McDonald told the legislative committee.
“It is something that we continue to look at, to see the value that that industry brings to the state,” McDonald said. “It is looked at very closely both within this state regarding the costs and benefits, and it”™s also looked at on the national level ”¦ The credits that are on the books right now have put us in a position to be very competitive with other states.”
Connecticut awarded corporate tax credits totaling $109 million in 2007, slightly above the average annual total of $106 million for the period studied by DECD. The extremes occurred during the boom-bust period of 2001 and 2002, when claims plummeted from $139 million to $84 million.
For all tax credit programs, the amount of revenue “forgone” in DECD”™s words totaled more than $1.6 billion during the period studied. What is unknown is how much money Connecticut businesses have left on the table, among those that have qualified for a tax credit but have not taken it either due to no knowledge they exist or to the credits being insufficient to be worth the effort.
The DECD study discloses data on some of those little-used programs ”“ for instance, one that covers Small Business Administration loan guaranty fees generated just a half-dozen claims for just over $3,000. A hiring incentive tax credit has seen claims decline from 25 in 1999 to just one in 2007. And use of a tax credit reserved for financial institutions has dropped from 15 claims in 2003 to about four annually.
McDonald said only 10 small businesses have stepped forward to take advantage of a change last year to allow small-business owners who file their taxes using personal forms to take a tax credit for jobs they add.
“We believe that many of those companies were waiting to see what happened on the federal level with the extension of the federal tax relief for two years,” McDonald said. “We think that businesses now have a degree of predictability and certainty on their federal taxes.”
At present, nearly 20 companies have qualified under the new angel investment tax credit, and four have received funding under the law for an aggregate of $900,000. The law provides a 25 percent credit against personal income taxes to investors who take stakes in startup companies in certain high-tech industries, up to $100,000.
“We have great wealth here in this state, but the investments were being made outside of the state where states had a more favorable angel investor tax credit,” McDonald said. “We are anticipating a significant amount of more investment in 2011 and 2012.”
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