An unusual plan involving repurposing stranded tax credits may address the shortfall of qualified workers for open positions in various industries around Connecticut.
Under current state law, businesses that have a capital project that can be demonstrated to increase employment, expand the business or generate substantial returns to the state economy can use their stranded tax credits to their own benefit.
Introduced in 2018, that program”™s aim was to address the significant tax credits, particularly in R&D, that had been accumulated by some companies but which they were unable to use ”” thus the term “stranded,” or unused, tax credits. Such credits were stranded because they exceeded their relative corporate income tax liability. The state imposed limits on how much of a tax liability a given business can offset with tax credits.
To be considered for the program, the business must have more than $500,000 of Connecticut R&D tax credits on its balance sheet without the ability to utilize them in the next two years.
The business must be located in Connecticut, employ more than 10 people and submit an application to the Department of Economic and Community Development showing how the project will generate at least 50 new jobs in the state and/or require capital expenditures of $5 million or greater.
But a bill being drafted by the Legislative Commissioners”™ Office of the Connecticut General Assembly on behalf of state Rep. Caroline Simmons (D-Stamford) would further expand that program to repurpose those R&D tax credits to pay for workforce training and development programs.
“I believe this can solve problems in a lot of industry sectors ”” health care, bioscience, manufacturing ”” that have a need for talent and skilled workers to fill jobs they”™re now having difficulties filling for the next 10 years,” Simmons told the Business Journal.
MANUFACTURING IS A CONCERN
The 2019 Connecticut Manufacturing Report, released by the Connecticut Business and Industry Association and its CONNSTEP affiliate in October, found 60% of poll respondents identifying “workforce” as their most significant need.
According to a fourth-quarter 2019 National Association of Manufacturers survey, more than 60% of respondents said a skills gap was their top concern and 63.8% of respondents said they had open positions they were struggling to fill. In the group”™s third-quarter survey, about one-third of respondents said they had been forced to turn down business opportunities due to their inability to find sufficient talent.
A 2018 study by Deloitte and The Manufacturing Institute found that, while manufacturers nationwide will need to hire 4.6 million workers by 2028, 2.4 million of those jobs could go unfilled if action isn”™t taken.
Manufacturers are set to spend $26.2 billion on internal and external training initiatives for new and existing employees this year to combat the shortage of available skilled workers, The Manufacturing Institute reported.
Last September, Connecticut”™s Department of Labor announced it was expanding its number of manufacturing workforce pipeline job placements with the help of $10 million in funding unanimously approved by the State Bond Commission.
That was followed a month later by Gov. Ned Lamont”™s appointment of Colin Cooper as Connecticut”™s first-ever chief manufacturing officer, responsible not only for launching and monitoring various pro-manufacturing initiatives, but also for consulting with the state”™s manufacturing community to define goals and objectives for advancing manufacturing growth.
In its consideration of priorities for 2020 earlier this year, the 12-member Business Council of Fairfield County (BCFC) Tax Policy Roundtable, which consists of corporate and professional firms”™ leaders, decried the fact that Connecticut”™s R&D tax credits are applied only to C-corporations, which pay taxes on their income, while its owners and employees also pay a separate income tax.
“But most companies are formed as ”˜pass-throughs,”™ ” or S corporations, said BCFC Vice President, Public Policy and Programs Joe McGee. The owners of those businesses, typically much smaller concerns, report company revenue as personal income.
“Those are very generous R&D credits,” McGee said, “but they”™re not available to most of the companies in the state. We feel that they could stimulate a lot of development for smaller, more innovative companies.”
McGee noted that one of the Roundtable”™s member companies had gone to Austin, Texas, to fill 200 digital engineering jobs when efforts to find those workers here failed.
“Another company said their workers”™ skills were not up to speed,” McGee added. “They said they offered some training, but what they needed was beyond their means.”
With so many companies unable to use their stranded tax credits under current guidelines, the BCFC came up with the idea of repurposing them for “upskilling,” the process of retraining current employees to make them more valuable and marketable.
The BCFC passed its theory on to Simmons, who said she jumped at the chance to get involved.
The bill would essentially split the cost of upskilling between the employer and the state, with the employer taking on the brunt of the work and the state providing matching funds for the training.
“This isn”™t corporate welfare,” McGee said. “The company needs to have skin in the game. It”™s you who”™s training or retraining your workers so that they can continue working at your company or at another company.”
Simmons said she”™s received positive feedback on the initiative from colleagues, including State Sen. Joan Hartley (D-Waterbury, Middlebury and Naugatuck), who chairs the Commerce Committee, as well as members of the Governor”™s Workforce Council, established last October by Lamont. McGee said the Workforce Council”™s chair, Garrett Moran, has taken an interest in the proposal.
