With a merger nearing completion between the industrial gas giants Praxair and Linde, a litmus test of sorts exists for the appeal of the United States in a new era of lower corporate income taxes.
The outcome? Possibly neutral, with Praxair’s home office in Danbury winning out as the operational hub, but with the company considering Ireland as its titular headquarters with a tax domicile in the United Kingdom, according to a Reuters report in May citing Linde’s CEO. But neutral beats the acidic rhetoric of recent years by businesses deeming Connecticut a lost cause for investment.
Foreign companies tripled their investments in Connecticut in 2017 to $13.5 billion, according to estimates this week by the U.S. Bureau of Economic Analysis, trailing only Massachusetts in the eastern United States in drawing foreign dollars to the table, whether via acquisitions or major new direct investments in operations here.
Connecticut’s boom year occurred even as overall foreign investment in U.S. businesses dropped a second consecutive year from a 2015 peak, off 32 percent last year to $260 billion according to BEA.
It has been an unexpected bright spot for a state that was hurt by the defection of General Electric to Boston in 2016, and Aetna’s stated intent to skip Hartford for New York City before CVS Health canceled those plans in its $66 billion acquisition of Aetna. At the time, the GE-Aetna double whammy effectively popped any notions of Connecticut as a sought-after Northeast address by corporations, insurers and hedge funds, which have helped the state mitigate manufacturing job losses to other states and countries the past few decades.
But since then, Connecticut has been able to prop up its image with some significant wins, including after a major acquisition that could have resulted in jobs lost to other jurisdictions. After Henkel spent $3.6 billion in October 2016 to buy the laundry detergent company Sun Products, the German company made Stamford the headquarters for its U.S. consumer products operations, bringing more than 300 Arizona jobs to Stamford coupled with 160 Sun Products executives who had been based in Wilton.
“For a company to choose Connecticut over Arizona — that was huge,” said David Kooris, a Stamford resident and former Bridgeport economic development chief who earlier this year was named a deputy commissioner of the state Department of Economic and Community Development.
Connecticut has made fitful attempts over the years to recruit international companies to weigh the state as an expansion option, most notably in its annual aerospace industry trade mission to the weeklong Farnborough Air Show that kicks off Monday in the United Kingdom, along with the Paris Air Show that alternates with Farnborough every other year.
Under Gov. Dannel P. Malloy, the state has tried gimmicky recruiting efforts as well, most notably the VentureClash competition that debuted in 2016 under the purview of the CTNext initiative of DECD, dangling a top prize of a $1.5 million equity investment by the Connecticut Innovations venture fund for the winning company if they establish operations here.
Eight of the 11 finalists in the inaugural VentureClash were from outside the United States, with Toronto-based Dream Payments judged the top entry by a panel of judges that included representatives of venture firms Canaan Partners in Westport, Oak HC/FT in Greenwich and Point72 Ventures in Stamford. Dream Payments set up shop in Stamford as it continued development of a cloud-based platform to process payments; last week it abruptly ended that service, while continuing with a payment processing engine for insurance claims.
Friss, which won the second VentureClash last year, turned down the equity investment prize in favor of establishing a U.S. office in Chicago, with runner-up Scadafence likewise choosing not to take Connecticut up on a $1 million investment offer.
Still, as calculated by BEA international, companies spent more than $400 million last year establishing “greenfield” operations in Connecticut, accounting for roughly 10 percent of the total in the 28 states in which it recorded significant investments last year. And in the past few weeks, Malloy has announced two more significant deals, with Beijing-based Seven Stars Cloud Group and India-based Infosys announcing new innovation centers in Connecticut — the latter producing 1,000 jobs if Infosys hires at the pace required to secure state incentives.
Past the midway point of 2018, the big question is whether larger numbers could come into play by foreign companies, after the U.S. corporate tax rate was cut to 21 percent of profits, from 35 percent; and as President Donald Trump amps up rhetoric in July promising tariffs on imports from China and other countries across product categories he deems U.S. companies suffering from unfair trade practices.
In an April response to a U.S. Senate inquiry on the impact for investors of the 2017 tax law, the Congressional Budget Office estimated that in a decade’s time if individual income tax cuts expire as scheduled in the law, foreign investors will accrue 71 cents on every dollar produced in additional economic output in the United States.
Count Connecticut among the jurisdictions lobbying foreign companies to make them aware of money to be made in its business corridors.
“I think one of the biggest changes we’ve seen over the past couple of years is a much more focused approach to individual companies, in places like Israel (and) China,” DECD’s Kooris said. “We’re seeing a lot of potential for that ramping up, rather than a scattershot approach in which we are looking all over the globe and trying to advertise Connecticut to everybody and anybody. We are trying to find those niche investors who are most closely aligned already with the opportunities here.”
Alex.Soule@scni.com; 203-842-2545; @casoulman