Lawmakers: stop job subsidies to corporations

Lawmakers: stop job subsidies to corporations

By Don Michak, Journal Inquirer

December 29, 2004

HARTFORD -- Two members of the General Assembly's powerful finance committee, a Repub-lican and a Democrat, say they're asking their respective political caucuses to have the state stop subsidizing companies so they can create or retain jobs.

The lawmakers say the costly incentives don't work, that the process probably has been corrupted, and that the money could be put to better use -- especially as the state faces a potentially crippling budget deficit.

Sen. Tony Guglielmo, R-Stafford, and Rep. Demetrios S. Giannaros, D-Farmington, said Tuesday that at the very least, the economic development agencies that have handed out hundreds of millions of dollars in grants and low-interest loans must be held more accountable, along with the companies that benefited.

Both criticized the "candy store" aspect of the subsidy process, suggesting the companies with the most political clout have reaped the biggest rewards.

They also said there is ample evidence that the state Department of Economic and Community Development and the Connecticut Development Authority don't hold companies to their contractually obligated job targets and never impose strict penalties for missing them.

"We need true accountability,'' Guglielmo, a former bank chairman, said. "If companies are going to access this money, it almost seems like when they go into it they know they're not going to be held accountable."

"The 'penalties' are all influenced by political pressure, and we all know what happened in the last administration," Giannaros, an economist, said, referring to the corruption scandal that led last week to the federal conviction of former Gov. John G. Rowland.

"God forbid if we dig deep enough on how those loans were made, we may find even more criminal violations, because you're leaving it up to political figures to influence the outcome of who should have waived interest on a loan."

Guglielmo and Giannaros were responding to a Journal Inquirer report last week that focused on information the DECD provided the legislature last month.

That data, some of which was never before made public, showed that more than a third of the companies that got millions of dollars in taxpayer money had not met their employment goals by last summer.

Of 183 job audits conducted at companies that had received state loans or grants over the last decade, 68 audits, or 37 percent, showed companies had not met their job goals as of June 30.

Moreover, a survey conducted by the DECD's accounting firm revealed that 23 businesses had yet to create any jobs by the same date, despite contracts requiring them to create about 1,000 new positions.

The survey also found that 41 companies, including 19 of those that had created no jobs, failed to retain the 3,400 full-time positions they were supposed to keep under their contracts with the state.

The 41 companies had received more than $86 million in states loans and grants since 1994.

The state auditors, meanwhile, reported in September that the DECD either didn't record or improperly recorded loans it made to companies and was slow to collect money owed by those that got state grants.

The auditors also questioned how the DECD enforced the terms of its grant and loan agreements, saying it had established no procedure to ensure companies were billed for financial penalties imposed for violating those agreements.

Agency officials last year admitted they had doled out incentives to companies that were supposed to create jobs without checking some to ensure they had, and had allowed others to alter their unmet employment goals.

But they insisted complaints by the state auditors about that practice no longer applied, especially since legislation passed in 2002 that mandated penalties for any company that received more than $1 million in state aid and failed to meet its job goals.

Guglielmo and Giannaros, meanwhile, both said they were not surprised last month by the DECD's report to the legislature.

Guglielmo noted that in 2001 a Massachusetts research group had reported that nearly two-thirds of 1,132 companies awarded $695 million in Connecticut incentives since 1985 had failed to create as many jobs as they had promised to justify the subsidies.

He said that when he confronted top DECD officials about that study during a legislative hearing, "they kind of blew it off, saying it was a biased report commissioned by people with special interests.

"I said these are numbers, either they're right or not, and I didn't care who commissioned the study," he said. "If it's wrong, I told him I'd like to see how, and I got a left-handed promise that I would see some data. I never did, and this is the first that I have seen from them.

"You have to go back to what the mission is," Guglielmo said, referring to the DECD. "It's not just to lend money, but to create jobs. When a deal is good, when it makes business sense, you have plenty of lenders who will step up to the plate because that's their business. The mission of this was to create jobs, and if they're not doing that and all they're doing is competing with banks and basically with taxpayer dollars, that's an unfair advantage."

Guglielmo said he wants the state subsidy issue on the table in part because budget officials are "talking about either a massive tax increase or big cuts in services.''

He cited the state's foot-dragging in paying for essential services for "people with physical and mental problems," saying that "when we don't step up to the plate to do that because we're spending money on these failed programs, it doesn't make any sense to me."

Giannaros noted that he had been a longtime critic of "these special arrangements that state government is making to support specific businesses, rather than creating incentives across the whole state and the spectrum of businesses.

"You're asking people with perhaps some limited background to make a decision as to how a specific business is going to become profitable and create jobs or perhaps be a loser," he said. "Forecasting such an event, even the stock market can't sometimes do it, and I don't see how bureaucrats can do it.

"Mistakes have been made all around with some exceptions, but for the most part the state should not be in the business of being a banker," he said. "I'm going to push along with a number of others for us to go back and review this issue one more time, the giveaways.

"Some of these were intended to be short-term incentives and, in some cases, they turned out to be 20-year loans and they're still going -- we're talking about hundreds of millions of dollars that are not collected. We could use that not only to close the deficit, but to create a broader business incentive to make the whole state better."