Connecticut stays the course with First Five Plus
Updated 1:23 pm, Sunday, January 14, 2018
A new year will not bring a new corporate recruitment strategy to Connecticut.
Launched seven years ago, First Five Plus continues to be the marquee state-funded program for attracting and retaining multinational corporations. The state has allocated several hundred million dollars in subsidies for the participating companies. Some question the strategy’s sustainability, but state economic development officials and a number of experts point to a new report as the latest proof of First Five warranting the substantial investment.
“States compete like crazy and take jobs from each other — that’s the reality of the world,” said David Noble, director of the Peter J. Werth Institute for Entrepreneurship & Innovation at the University of Connecticut. “Without a program like this, the economic effects in this state would be much worse. We would have lost a number of these companies, and we would not have picked up several of them.”
First Five Plus started in 2011 in Gov. Dannel P. Malloy’s first year in office. Since then, the state has allocated about $322 million in grants and loans and another $160 million in tax credits to the 16 companies that have participated in the program, according to the report by the state Department of Economic and Community Development. In comparison, the companies have cumulatively committed to investing about $1.74 billion of their own money in Connecticut operations.
Those firms have created about 4,700 jobs and retained more than 17,000 positions, according to the report. Between 2012 and 2021, those same businesses are expected to produce a minimum of about $343 million in income, sales and use tax revenues, according to state projections.
“I’m very pleased with the return on investment,” said Catherine Smith, the state’s economic development commissioner. “We try to be conservative with spending taxpayers’ dollars while still getting a great return.”
But not everyone is comfortable with the size of the program’s outlays.
“Many of the forgivable loans to these companies are at a completely unprecedented level and could prove very costly to the state long-term,” said state Sen. L. Scott Frantz, R-Greenwich, who is also co-chairman of the state Legislature’s Commerce Committee.
Some critics have also questioned why companies like Westport-based Bridgewater Associates, the world’s largest hedge fund, need state assistance. But supporters of the program counter Connecticut would risk losing the likes of Bridgewater if they did not give them incentives.
“Companies like Bridgewater create some of the best-paying jobs in the state,” said UConn’s Noble. “If you know it’s competitive to keep them, it would be a complete breach of what you’re doing to not try as hard as you can to retain them.”
At the same time, the program tends to be praised by lawmakers and others with First Five Plus-backed companies doing business in their communities.
Stamford is the most represented city in the program, with seven of the participants maintaining headquarters or regional offices there. The roster includes Charter Communications, Deloitte, Henkel, Navigators Group, NBC Sports Group, Pitney Bowes and Synchrony Financial.
DECD officials and a number of legislators attribute Stamford’s prominence in the initiative to its abundance of young workers, proliferation of new housing and proximity to New York City.
“I’ve always viewed Stamford as the business capital of Connecticut, and this new report confirms Stamford’s strengths and our attractiveness to new and expanding businesses in Connecticut,” state Sen. Carlo Leone, D-Stamford, said in a statement.
State development officials have tightened their criteria for First Five Plus’ investments. The program mainly draws its funding from bonding.
In the program’s first deal, Cigna secured terms that allowed the health-insurance giant to earn up to $71 million in state grants, tax credits and loans after relocating its corporate headquarters to Bloomfield from Philadelphia. Because the company fell short of creating 600 jobs, the state forgave only $10 million of the $15 million loan in its incentives package. Cigna repaid the state $5 million last February.
In comparison, the state has intentionally offered less generous incentives to the more recent additions. Synchrony could earn a $20 million grant to create 400 jobs at its Stamford headquarters. Henkel would receive a $20 million forgivable loan for raising its Connecticut headcount by 266 after last year relocating its North American consumer-goods headquarters from Scottsdale, Ariz., to Stamford.
State officials said they also have safeguards to protect the state’s finances should a First Five Plus company leave the state. Biotech firm Alexion Pharmaceuticals announced last year it would move its headquarters to Boston from New Haven. It then left First Five Plus, but it repaid the state about $28 million to cover its loan and grant, with a penalty and outstanding interest.
“If the company doesn’t perform, then they won’t get all the money they would have been eligible for,” Smith said.
The state could add up to five more companies to First Five Plus, with a June 2019 deadline to fill those slots.
“Under Gov. Malloy’s leadership, I’d like to fill out the program,” Smith said. “I can’t guarantee that, but that would be my aspiration.”
After Malloy leaves office in January 2019, some, such as Frantz, advocate for taking a different approach with corporate recruitment.
“I believe the next administration will have a lot of cleaning up to do and would be wise to be much more careful in its approach to economic development using a more traditional approach of offering low-interest loans with the obligation of having to service the debt and pay back the principal,” Frantz said.
In the meantime, lawmakers have sought more accountability from the program. The Legislature passed a bill last year that established annual reviews of First Five Plus’ performance by the Commerce, Finance and Appropriations committees.
“We need to continue to monitor the program and ensure that the state is getting the greatest return on investment possible, and that when companies get support from the state, that they commit to staying here and continuing to create jobs,” said state Rep. Caroline Simmons, D-Stamford, who is also co-chairwoman of the Commerce Committee.
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