Cigna Quietly Moves Jobs To India, But Not Enough To Jeopardize Tax Incentives

by Christine Stuart | Dec 28, 2011 4:38pm
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There was no major announcement just a newspaper article about how Cigna Corp. plans on laying off an undisclosed number of employees starting in May as it shifts some of its accounting functions to India.

On Tuesday a company official confirmed that some number of accounting jobs will be moved to India over the next three years. However, the company official pointed out that it has far more job openings—about 330 in Connecticut and 320 in Pennsylvania— than the number of jobs it will be outsourcing to a subcontractor in New Delhi.

Cigna Corp. was the first company to participate in Gov. Dannel P. Malloy’s “First Five” economic incentive program and will receive between $50 million to $71 million in tax incentives over the next few years to help it create between 200 and 800 new jobs.

The news that some of its accounting functions will be outsourced to India doesn’t impact the tax incentives as long as the company creates more than 200 jobs over the next two years. An additional 200 jobs would bring the company’s state payroll to more than 4,000.

“While this is certainly not welcomed news, this announcement is by no means a unique one,” Andrew Doba, Malloy’s spokesman said Wednesday.

“There are countless stories from around country of companies moving jobs overseas. But let’s be clear on one point – this decision does nothing to diminish the commitment that Cigna made when they became the first of the First Five Initiative,“ Doba said. “We are going to hold them to the benchmarks they pledged to meet under the agreement – benchmarks that will create a minimum of 200 new jobs and possibly up to 800, and help spur the overall economy.” 

Cigna Corp. CEO David Cordani estimated in July that its Connecticut operation already generates about $500 million in income tax revenue for the state and returns about $250 million to the surrounding community in economic activity.

Under its “First Five” agreement with the state, the insurance company will receive a $15 million loan which it will have to pay back at 0 percent interest over 10 years if it creates anywhere between 200 to 800 jobs.

Then if it creates 200 jobs it will have access to $30 million in Urban and Industrial Reinvestment Tax Credits and if it creates 800 that number jumps to $50 million. However, it can only access 10 percent of the credits starting in the fourth year of the 10 year deal and 20 percent in the 8th, 9th and 10th year of the deal. Also it will receive a job training grant of $2 million if it creates 200 jobs, and $6 million if it creates 800 jobs.

Cigna Corp. has between 3,800 and 3,900 employees in Connecticut. About 3,250 of those employees work at the Bloomfield campus. The company also employs about 3,700 in Pennsylvania, including about 1,100 in Philadelphia. The company moved its headquarters back to Connecticut during the announcement of the tax incentives back in July.

In July at the ceremonial bill signing Cordani promised an investment in Connecticut of more than $100 million in technology and real estate infrastructure in addition to the creation of more than 200 new jobs it will create.

Critics of the “First Five” initiative say it creates few jobs at the expense of taxpayer dollars and there are few if any consequences if the company fails to uphold its end of the bargain.

Tom Cafcas, a research analyst at Good Jobs First, a D.C.-based government watchdog group, said the First Five initiative may not do much for Connecticut’s economy.

“Lots of research shows tax subsidies aren’t the best bang for the buck for taxpayers,” he said back in July when the Cigna deal was announced.

Typically taxes make up only about 1 percent of a company’s total expense structure and subsidies have relatively little impact on the entire operation, he said.

A report Cafcas prepared for the Working Families Party in October found the state already does a poor job of monitoring the tax incentives it has already doled out to companies.

Of the 70 companies that received assistance from Department of Economic and Community Development, the report found that 39 have fulfilled their job creation obligations, while 31 have not.

“The state does not clarify whether companies that failed their job audits underwent clawbacks or contract modifications,” Cafcas’ report found. “The 31 business subsidy contracts that failed to meet contractual job requirements received nearly $86 million in assistance.”

The 39 that did fulfill their obligations exceeded them by 3,832 jobs because they pledged to create 18,119 jobs and retained or created 21,951 jobs.

Diageo, Lowe’s Home Centers, AT&T, Carla’s Pasta, and Innovative Arc Tubes Corp, are just a handful of the companies that failed to meet their obligations under their contracts with the state, but the report found that DECD does not publicly report its use of clawbacks.

“The agency reported penalizing Diageo and FactSet in 2009 and 2007, respectively, for failing to meet job commitments,” the report says. “The type and amount of the penalties is unknown.”

Four Senators and 26 state Representatives voted against the “First Five” legislation passed during the regular legislative session. The House of Representatives passed the legislation at 2:24 a.m. in the morning on the last day of the legislative session without debate and the Senate passed it June 3.

During the Senate debate, Sen. Minority Leader John McKinney, R-Fairfield, said he would vote in favor of the legislation, but was concerned it took away legislative authority to approve these deals and removed a 50 percent cap on total financial assistance the projects would be able to receive.

“We can’t tell with certainty whether a company who is in Connecticut says, ‘Hey, we’re thinking about leaving; give us some money to stay’, if they’re really serious about leaving,“ McKinney said during the debate. “We have to trust the economic development professionals we have to know what’s happening in that industry, with that company, with the place they might go, what the reality is.”

He also thought it was ironic that when he was Mayor of Stamford, Malloy decried the lack of legislative oversight when the state gave incentives under a Republican governor to a liquor distributor to help it move from Stamford to Norwalk.

“So here we have his first major economic development initiative, and he takes away all that legislative oversight. It’s ironic. It’s perhaps hypocritical,” McKinney said before voting in favor of the proposal.

House Minority Leader Lawrence Cafero, R-Norwalk, voted against the proposal.

In a phone interview Wednesday he said he thought Malloy wanted to go out and woo companies into the state, but all he’s done is reward companies like Cigna that are already here.

“Where are they going? Why give them money to create jobs when they’re already here?,” Cafero said.

He said the fact that fewer than 100 jobs will be going to India is making people scratch their heads. He also criticized the fact that Malloy gave $20 million to UBS to retain 2,000 jobs in Stamford when there are 3,500 workers there currently. He said that gives them permission to downsize 1,500 jobs.

“How does that make sense?” Cafero asked.

“Governor Malloy remains committed not only to job creation, but also job retention, and this project accomplishes both,” Doba said. 

Tags: CIGNA, tax incentives, first five, Bloomfield, Gov. Dannel P. Malloy, India, outsource

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