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OP-ED | Malloy’s ‘First Five’: Money for Nothin’, Loans For Free

by | Aug 25, 2011 9:21pm
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Posted to: Opinion

Crony capitalism. We’ve all heard the phrase before. Indeed, it’s been used recently to describe Gov. Malloy’s First Five initiative providing incentives to corporations that promise to create jobs in the state.

But what does it really mean? Is crony capitalism as bad as it sounds or does it actually work well in practice? As is often the case in such matters, it depends on whom you talk to. Let it be said here and now that I’m uncomfortable having the government decide, in a market-based economy, who wins and who loses, as the Obama administration did two years ago, for example, when it bailed out General Motors and assumed a significant ownership stake in the company. And the practice of handing out cash and tax incentives to lure companies or persuade them to make investments and stay put is little more than institutional bribery.

On the other hand — there’s always an other hand — there are practical considerations when government officials are faced with the reality of losing jobs during an economic downturn. The situation becomes infinitely more complicated when states try to compete with one another for the most favorable business climate. And the competition can become especially intense in the Northeast, where states are typically small and the ability of corporations to easily relocate lets them play all the governors like a fiddle.

It is a reality that Connecticut has the worst record in the nation for creating new jobs over the last two decades. To his credit, Gov. Malloy is trying to change that. And in signing the largest tax increase in state history, he’s decided to ignore the claim of Republicans and the CBIA, now largely debunked, that the state punishes our business community with excessively high taxes.

So Malloy has approached the matter of job creation and retention with a combination of tax incentives, grants and loans to five select companies that agree to create hundreds of jobs. A sixth, UBS, will receive $20 million in incentives but won’t be a part of the First Five since the company hasn’t actually pledged to create jobs in the state, but merely to refrain from slashing them.

To be sure, this is a cringe-worthy moment. Hundreds of millions will be doled out to wealthy corporations such as Disney and CIGNA to entice them not to leave the state in the hope that their continued presence will stanch the bleeding.

As repulsive as this spectacle is, it could get even worse. What kinds of assurances does Malloy have from ESPN, TicketNetwork and UBS that they won’t take the money and run anyway? I’m sure Malloy is acutely aware of what happened to his Democratic colleague in Massachusetts, Gov. Deval Patrick, who watched in horror as Fidelity Investments blindsided him earlier this year with the announcement that it was moving 1,000 jobs out of the Bay State to locations just over the border in New Hampshire and Rhode Island. This after Fidelity benefited from a tax break that the state granted to mutual fund companies in 1996 that was estimated to save Fidelity about $20 million a year.

Then there is the matter of Evergreen Solar, on which Patrick bestowed $58 million in direct subsidies and tax breaks on the condition that the company build a plant in Massachusetts. Earlier this year, scarcely four years after the handout, Evergreen closed the Devens, Mass., plant and fired 800 workers. Company officials claimed Evergreen could not compete with solar panel companies in China, where the government is far more generous with its subsidies than those penny-pinching American states. Earlier this month, Evergreen filed for Chapter 11 bankruptcy, pissing away tens of millions of taxpayer dollars.

And there is the comical case of former Gov. John G. Rowland. In the late 1990s, he got the General Assembly to dangle financing for a new stadium in Hartford before New England Patriots owner Robert Kraft, who in turn used it as leverage to shame the Massachusetts legislature into giving him site improvement funds for a new stadium in Foxborough. Kraft cleverly used Connecticut to extort … er, extract … more money out of the Bay State and make Rowland look like a jilted bride at the altar. That episode should serve as a cautionary tale for both states.

I know. It’s easy for me to say because I’m not responsible for the economic well being of 3.5 million Nutmeggers. But rather than bribe corporations to stay in Connecticut and create a few hundred jobs here and there, I’d rather nurture an environment that says we’re open for business. And I’m not just talking about taxes since those seem to be competitive with nearby states.

How about reducing the regulatory burden on businesses? The recently passed paid sick-leave legislation — the only one of its kind in the nation — is but one example of a clumsy mandate that can send businesses looking for alternative locations. And I like Sen. Minority Leader John McKinney’s idea of common-sense unemployment insurance reform and of a “manufacturing reinvestment account which would be funded with money the state takes off the tax rolls for these companies, put it in a community bank, and allowed companies to borrow from it to invest in their businesses.”

And there’s more. The state has “the worst permitting regime in the country,” as Fred Carstensen, director of the Connecticut Center for Economic Analysis at UConn, told attendees at a forum earlier this week at Manchester Community College:

It took one Fortune 500 company in Connecticut an unfathomable 497 days to get a permit to paint its headquarters. An Ansonia-based company filed for a water permit in 2002. Nine years later, the company is still waiting on the permit.

Companies avoid Connecticut because they have no idea how long it will take them to get permits. Instead they move to states more responsive to their needs, Carstensen said.

Government foot-dragging, regulatory zeal and inconsistency create a climate of uncertainty — the one thing businesses hate more than high taxes. If your business doesn’t know what to expect from the government month to month or year to year, then even a boatload of crony capital won’t persuade you to stay and invest in your state’s economy.

Terry Cowgill blogs at terrycowgill.blogspot.com and was an award-winning editor and senior writer for The Lakeville Journal Company. He is host of Conversations with Terry Cowgill, an hour-long monthly interview program on CATV6 on Comcast’s northwest Connecticut system.

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Comments

(11) Archived Comments

posted by: Barrayaran | August 27, 2011  10:22am

I find little substance in this column. 

Yes, Carstensen claimed CT has a dreadful permitting process, but he offered no data, only anecdotes —the same ones you do, bare of context or detail. 

Yes, the sick-leave legislation is the first of it kind—but so were the first child-labor laws; even if one accepts the claim that the law poses an insurmountable burden for business, that should never be the sole consideration in weighing a law’s value. 

I’m confused also how having the state lend money to businesses would be any different from these wholesale grants.  Unethical businesses could still extort money from the government by threatening to relocate jobs if their loans aren’t forgiven, and failed businesses wouldn’t be able to pay at all.

posted by: SocialButterfly | August 27, 2011  9:06pm

Barrayaran: Businesses do not have to extort money from the State of Connecticut. Gov. Malloy is passing out money—to questionably qualified state business—like it’s going out of style!

Malloy keeps proving that he is a politician—but definately not a businessman! Our blundering Governor is not an answer to our heavy—increasing fiscal problems, at his direction.

posted by: logical1 | August 28, 2011  6:19am

But what did Stadium effort actually cost us out of pocket ? Both Govs Malloy and Rowland do deserve some leeway; you are blamed if you do something, blamed if you do nothing. It is a fact that other communities visit our companies weekly trying to lure them away. They offer offsets to our expensive regulatory climate.

posted by: GoatBoyPHD | August 28, 2011  7:59am

GoatBoyPHD

I agree with trying to make CT more business friendly. I always have a dim prospect of government picking winners and losers in the marketplace.

I do like CT Innovations and the new UConn Technical Park. Both are proven concepts elsewhere   to get new ideas to the market quickly.

http://www.ctinnovations.com/about/annual.php

If Malloy wants to fund jobs he should consider putting 500 non-union software developers under one roof and accept proposals for productivity apps including social networking and develop several hundred applications each year. I’s labor intensive and turn attracts other companies to mooch off the intellectual capital.

Start ups would begin popping up all over CT once critical mass was reached. The State of CT takes a healthy equity stake and waits for the big payback.

posted by: GoatBoyPHD | August 28, 2011  8:03am

GoatBoyPHD

Crony Capitalism in CT doesn’t touch crony unionism and crony pension scams.

That’s the problem. CT found a ‘good old boys’  patronage system that makes crony capitalism look good!

posted by: ALD | August 28, 2011  8:33am

Barrayaran writes:

“Yes, the sick-leave legislation is the first of it kind—but so were the first child-labor laws; even if one accepts the claim that the law poses an insurmountable burden for business, that should never be the sole consideration in weighing a law’s value.”

Very true, However in a state where job creation has been dead for years while good jobs continue to flee as well one should at least also take into some consideration what impact such laws, no matter how well intended, really do have on business.
  Simply claiming CT is open for business is in no way any indication that our Governors,or our General Assembly have even the slightest clue what it will take to turn around the mess they themselves have mostly created.

posted by: SocialButterfly | August 28, 2011  3:34pm

ALD:  You “hit the ball on the nose” when you said our Governor, or our General Assembly have even the slightest clue what it will take tp turn around the mess they themselves have mostly created.

“We are in bad shape, when we have the blind—leading the blind, which reflects on our poor voting judgement—in electing these politicians—to destroy, our once great State of Connecticut.”
 
WE did it to ourselves.

posted by: GoatBoyPHD | August 28, 2011  5:27pm

GoatBoyPHD

For more perspective,  Malloy proposed laying off 1,000 prison guards and closing 2 minimum security prisons.

In CT, ask yourself which proposal below has a better chance of approval?

A) Diverting those savings from the prison closures to employing 500 software developers in two buildings with the state taking equity stakes in the projects;

or

B) Protecting and perserving those 1,000 prison jobs and those two buildings (by canceling the Enfield closure and reopening Bergin by court order or facilitated riot)? 

To me there is a difference between a state run by crony unionism and one devoted to creating and fermenting business dynamic and sustainable job growth which increases the tax base.

Malloy rode the tide of public sector union cronyism to power.

posted by: SocialButterfly | August 29, 2011  10:14am

GoatBoyPHD:  I agree with your analogy, but it’s too late, unfortunately—“after the wolf broke into the barn, and destroyed the chickens!
We are now paying the price for making poor election-voter-choices—last Election Day!

posted by: Lawrence | August 29, 2011  8:18pm

Terry, do you think we should require a drug test for the employees and CEOs of those companies that receive tens of millions in state assitance?

You know—kinda like what GOP Senator Rob Kane proposed for cash assistance recipients in CT ?

‘Cause I know the GOP is wicked, wicked concerned about who gets our precious tax dollars. Not drug users!

So.. drug tests for corporate officers and employees of First Five and other state business aid? What say you??

posted by: SocialButterfly | August 30, 2011  9:08am

Lawrence:  You don’t have to suggest another way to waste taxpayer money—as the Gov. Dannel P. Malloy administration—is in process of “writing a book on wasteful spending!”

Malloy, the lifetime politician, is elated with his current power in being able to waste money on a much greater scale than he could get away with as the former Mayor of Stamford, by spending the State of Connecticut - to oblivion!