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Lembo Again Seeks The Legislature’s Help in Monitoring Economic Incentives

by | Feb 21, 2017 6:30am () Comments | Commenting has expired | Share
Posted to: Business, Economic Development, Jobs, Transparency

ctnewsjunkie file photo He was able to convince the legislature, but State Comptroller Kevin Lembo was unable to convince Democratic Gov. Dannel P. Malloy last year to sign a bill that would allow for the examination of certain business tax credits and economic incentives.

This year he’s trying again.

Lembo said he’s going to make sure someone other than the executive branch is evaluating the hundreds of millions of dollars the state spends every year on businesses and economic development incentives.

“Rule number one is to let data drive our decisions – especially concerning our state economy,” Lembo said. “When hundreds of millions of dollars and resources are at stake, the state must have the ability to best evaluate whether these investments are actually promoting economic development and growing the kind of jobs essential to our state.”

Lembo’s proposal would authorize the state Auditors of Public Accounts to establish a professional advisory committee to evaluate economic incentives. The proposal would also expand the current scope of evaluation to include all business incentive programs, including tax credits, tax abatement, loans, grants, and any other business assistance meant to encourage economic development.

Lembo is also proposing that the evaluations occur every year, rather than every three years, and that each year the evaluation addresses one-third of the incentives, so that in any one year resources can be focused on those incentives.

And finally, the legislation would require a public hearing early in the legislative session to allow the evaluating committee to present its report and recommendations to the legislature and to the public.

“A public hearing will ensure an open and inclusive process that provides an opportunity for the public and all businesses, including those receiving assistance – and those hoping to receive assistance – to be heard,” Lembo said.

Current law places the state Department of Economic and Community Development in charge of evaluating the programs that they administer and publicly promote, Lembo said. Connecticut is one of only two states that charge its economic development agency with evaluating the programs that they administer.

DECD would continue to provide the data and economic modeling required by the advisory committee to complete the report.

Last year, Malloy viewed the proposal as an attempt to undermine the ability of the executive branch to do its job.

In his veto message, Malloy called the change in the monitoring of the tax incentive program “unnecessary and unwarranted.”

He said the last report on the incentives in 2014 was 169 pages and used modified and updated methodology in its recommendations on how to achieve the maximum benefit from incentives offered.

He said the DECD and DRS have the “subject matter expertise to provide independent actionable analysis.”

The next report is due to the legislature in 2017.

Senate Republicans have also introduced legislation that would require the Department of Economic and Community Development to report to the legislature’s Commerce Committee regarding programs funded through the First Five program. That program, which has been expanded to include up to 15 companies, requires companies to create more than 200 jobs over a certain period of time in order to receive state funding. Another piece of Republican legislation would require the legislature to vote on projects exceeding $20 million under the urban and industrial site reinvestment program.

Meanwhile, the Auditors of Public Accounts released a report last week that found DECD inadequately monitored the Small Business Express program and missed deadlines for a certain number of businesses.

The program allows $10,000 to $100,000 in grants and revolving loans for small businesses and up to $300,000 for deferrable or forgivable loans.

From the program’s inception in April 2012 through June 30, 2015, the state Bond Commission has allocated a total of $200 million in funding for the program, according to the audit report. 

Five out of 10 projects audited submitted their information to the agency late, which resulted in the state forgiving up to $50,000 of the principal loan balance for at least two companies before the information was submitted.

“Program requirements and expenditures are not being properly applied and monitored,” the auditors wrote. “This has resulted in potential overpayments, penalties, or loan forgiveness credits related to employment obligations not being applied properly or in a timely manner, and overstatements of interest accruals.”

DECD didn’t disagree with the finding and said it was due to a “backlog.” The staff that audits that information has been reduced from three to two employees and the budget situation has hindered the agency’s ability to refill the vacancy.

“In lieu of being able to fill the position, the team has developed a plan to work through the backlog using more effective processes and part-time resources,” the DECD said in response to auditors.

Also DECD said three years ago it concluded that it should change the reporting requirement for companies receiving assistance under the Manufacturing Assistance Act from annual reports to “upon the Commissioner’s request.”

The danger of not monitoring these programs, according to the auditors, is that the “department may not identify and recover excess disbursements made, nor apply penalties or loan forgiveness credits related to employment obligations in a timely manner.”

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