Victim of Its Own Success?
Record uptake for tax credit risks funding crisis
The Malloy administration has made an explicit effort to change Connecticut’s reputation as a state that’s unfriendly to business. To that end, 2011’s Jobs Bill offered loans and tax incentives to companies already hard at work in the state. One of those programs might be about to become a victim of its own success. As WNPR’s Harriet Jones reports, the Job Expansion Tax Credit might have more takers than the state has dollars.
“...thanks everyone and stick around and use those resources on specific issues, and thank you again very much for being here this morning...”
Catherine Smith, the Commissioner of the Department of Economic and Community Development invested lots of time last year in promoting the agency to Connecticut businesses. She toured the state urging companies to sign up for loans, tax credits and grants approved in a bipartisan effort to stimulate the economy.
“Catherine has made a world of difference. She’s really become proactive. I didn’t even know who the commissioner was before her.”
Susan Baum runs human resources for Orange Research, a 45-employee manufacturing company in Milford. Her business is the happy, recent recipient of $10,000 in tax credits as part of the JET program. JET stand for Job Expansion Tax credit, and its intended to incentivize hiring. Baum registered her interest in the program early in 2012, hired three new workers last year and then last month asked for her cash.
“I sent it in January 8th, and I got my letter back January 23rd - that’s miraculous to me for the state to turn things around that quickly.”
And here’s the thing - Orange Research is just one of 890 companies who applied for the program last year. Each of those companies that made a qualifying hire can claim at least $500 a month for that employee for the next three years - up to $900 if they employed a veteran or someone who was unemployed long-term. DECD Commissioner Catherine Smith says the startling level of uptake - more than for any similar credit the department has offered - validates DECD’s marketing blitz.
“In total, if you look at the 900 companies that have signed up, it’s about 18,000 jobs we’re talking about that say they’re going to create, which again will be a fantastic thing for our economy.”
But here’s the problem -- Smith’s math may not work out. The $500 a month tax credit per employee works out to a theoretical $6,000 a year. If all 18,000 hires were to qualify for a full year, that would put the state on the hook for $108 million. But the JET program is backed by only $20 million of state funding for the first year of its operation.
“We’ve been very clear with all applicants, it’s right in big bold letters on our website, that says this is a first come first serve program. Because if we do run out of funding that will be what happens, the people at the end of the queue might not get the funding.”
Because companies had to register and hire last year, but begin to claim the credit now at tax time, DECD is at a very beginning stages of approving applicants. So far claims from only 68 businesses have been processed, averaging about $10,000 per company. That rate would bring the program in under budget, but Smith says they ARE prepared for the alternative -- that it could run out of funding.
“It could, and actually that would be a great kind of a problem to have from where I sit.”
“That sends a really bad message, to say the least.”
David Lewis runs Operations Inc, a human resources consulting company, with many small and mid-size client businesses around Connecticut. He’s also applied for JET, for five hires, and says he’s very concerned about the program’s implementation.
“If they go out in an effort to send a message that this is a good place to do business, and then go ahead and tell one business, let alone 20 or 200, I’m sorry, I know you hired more people, I know we told you you’d be eligible for tax credits if you did that, but we have no money to pay you, then instead of improving the situation, they’re validating the perception.”
There may also be lingering questions over whether such a credit actually works to lower unemployment and create new jobs. Companies could apply for the program for jobs that expanded their workforce, but they could also apply for hires that merely replaced workers who were moving on. Smith has said she’s prepared to go to the legislature to ask for more funding, and Lewis also says he’s received assurances privately that the administration and the legislature will make sure the program is adequately backed. He’s not entirely reassured.
“How exactly will the state house and senate receive a request for more funds for this type of a program in particular, when you’re also going to have to look at the results this program has offered, see that unemployment hasn’t moved all that much, and that to me means that the likelihood of getting the funds to make sure everybody gets their tax credits is very low.”
The Malloy administration has made spending public money to stimulate activity in the private sector one of its key economic development tools. In a small way, the trajectory of the JET program may offer clues to it’s ultimate commitment to that path.