OP-ED | Let Them Eat Cake - A Wake-up Call to Scrutinize Our Economic Incentive Policies
Just weeks after passing an austerity budget, in a stunning display of “let them eat cakery” the State Bonding Commission is set to vote on a $22 million grant to Bridgewater Associates, one of the world’s largest hedge funds run by Ray Dalio, who is ranked 29th on the Forbes 400 and ninth in the Forbes 2016 list of highest earning hedge fund managers.
The grant is to assist Bridgewater with the “expansion of its facilities in Westport, Wilton, and Norwalk.” The company will receive a 10-year loan at an interest rate of 1 percent, but must retain 1,402 jobs and create a minimum of 200 and maximum of 750 new jobs through the end of 2021. If those conditions are achieved, the loan will be forgiven. Bridgewater will also receive a $2 million grant to assist with training and a $3 million grant to install alternative energy systems. The company is also eligible to earn an additional $30 million in tax credits over a 10-year period.
Should our state be borrowing money to subsidize a loan for the world’s largest hedge fund, where principals pay a significantly lower effective tax rate than the rest of us thanks to the “carried interest loophole”?
Jim Watson at the Department of Economic and Community Development points out that in return for this package, Bridgewater is investing $505.5 million in the state, and will be providing high paying jobs. He kindly provided me with data — Next Five Company summaries — which we’ve rearranged into a spreadsheet citing some key figures:
Based on the data, thus far we’re seeing a wide range of costs per job depending upon which company you look at, and how far along each company is in its hiring process. The companies that haven’t yet hit their minimum number of new hires have bigger cost-per-job averages at the moment. Others that have met or surpassed the minimum number of new hires are at the lower end with respect to average cost per job.
It’s a bit simplistic to look at the business incentives of the First Five program this way. The DECD apparently does a much more complex model factoring in the revenue and sales tax implications. But although the DECD’s last triennial report dated September 2014 provides the modeling assumptions of the other incentive programs, First Five is left out for some curious reason.
Could that be because a thorough analysis have come to the same conclusion that many others have reached, that this program doesn’t appear to be giving us much of a bang for our taxpayer buck but given that it was one of Gov. Dannel P. Malloy’s signature initiatives it is impolitic for anyone in his administration to say so?
Fortunately, our transparency-minded comptroller, Kevin Lembo, is on the case, and a bill requiring that the triennial evaluation of state economic incentives be performed by a state agency other than the one administering the program is now on Gov. Malloy’s desk awaiting his signature. Let’s hope he signs it.
The bill also would require the legislature’s Appropriations and Finance Committees to hold a public hearing following the release of each triennial report to consider the report’s analysis and recommendations.
“Requiring a public hearing will ensure the analysis and recommendations included in the report are fully considered by the legislature,” Lembo said. “Tax credits and abatements reduce tax revenue at both the state and local level. It is essential that the committees that oversee the state’s tax and spending policy fully review their impact and make informed decisions about the continuation, expansion, or elimination of each program.”
At a time of fiscal cutbacks, it’s even more imperative that we ensure we’re spending what money we do have in a way that will truly encourage growth — not just bribing large existing companies to keep them here for another year or two.
Good Jobs First, a national policy resource center promoting corporate and government accountability in economic development and smart growth for working families, has produced some interesting research on the use of economic incentives. What they’ve found in a series of surveys and multiple studies is that although the political rhetoric is inevitably about encouraging entrepreneurial growth, in practice, incentive money is overwhelmingly targeted at larger companies with much easier access to capital. Companies, like Bridgewater Associates, for example.
Asked about the breakdown of big business versus small business in the distribution of Connecticut’s economic incentive packages, the DECD’s Jim Watson responded by email saying the department did a review of all the companies assisted since 2012, and 97 percent of the companies assisted in DECD’s portfolio had fewer than 100 employees. He added that this “does not relate to dollars provided.”
But given the dollar figures in both the previous triennial review of incentives and the First Five data provided, looking at just the percentage of companies assisted doesn’t really tell us much. I’ve asked for the breakdown of related dollar amounts provided to each company and will provide an update if we receive the data.
With scarce resources, it’s all the more imperative that we make the best use of the money we have, and constantly weigh our priorities. We can’t do that without transparency. Sign the bill, Gov. Malloy.
Sarah Darer Littman is an award-winning columnist and novelist of books for teens. A former securities analyst, she’s now an adjunct in the MFA program at WCSU, and enjoys helping young people discover the power of finding their voice as an instructor at the Writopia Lab.
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