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First Five Plus Return on investment questioned

September 24, 2018

Seven years after its launch, the state’s marquee program to support big businesses continues to spark debate.

First Five Plus has helped to create several thousand jobs and retain tens of thousands of jobs in Connecticut, according to a new report from the state Department of Economic and Community Development. While the program counts a number of supporters in the state Legislature, other incumbents and candidates question whether the hundreds of millions of dollars in subsidies distributed through First Five Plus have been well-invested in a state still struggling to recover from its last recession.

“I think it’s doing what it’s supposed doing what it’s supposed to do,” Catherine Smith, the state’s economic development commissioner, said in an interview. “It’s helped to get Connecticut back on the map for economic development, made us more competitive, and given reasonable incentives for companies to plant the flag or grow their presence here.”

Creating jobs

and revenues

First Five Plus kicked off in 2011, in Gov. Dannel P. Malloy’s first year in office. Since then, the state has allocated loans worth about $248 million, grants totaling $129 million and another $141 million in tax credits to the 19 companies participating in the program, according to DECD. Those funds are contingent upon participating firms meeting certain job targets.

At the same time, the companies have cumulatively committed to investing about $2.87 billion of their own money in Connecticut operations.

First Five Plus firms have created about 4,900 jobs and retained about 30,000 positions, according to the report. Between 2012 and 2021, those same businesses are expected to generate about $409 million in income tax and sales and use tax revenues, according to state projections.

“The First Five Plus program has helped create job growth in Connecticut ... at a time when our state is still struggling to regain jobs lost in the recession,” said state Rep. Caroline Simmons, D-Stamford, who is co-chairwoman of the state Legislature’s Commerce Committee.

Others are more skeptical.

“This is an extraordinary amount of funding to have been allocated to these companies for this number of new jobs,” said state Sen. L. Scott Frantz, R-Greenwich, who is co-chairman of the Commerce Committee. “It is questionable as to how many jobs were actually saved as a result of First Five, as I believe many companies intended to stay and most likely invest in their businesses but took advantage of a liberal investment program.”

Higher standards

State development officials have tightened their criteria for First Five Plus investments. The program mainly takes 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. But the company fell short of creating 600 jobs, so the state forgave only $10 million of the $15 million loan in its incentives package. Cigna repaid the state $5 million last year.

The state has intentionally offered less generous incentives to the more recent additions. Henkel, which last year relocated its North American consumer-goods headquarters from Scottsdale, Ariz., to downtown Stamford, qualified for a $20 million loan and up to $5 million in tax credits. The consumer-goods powerhouse has already met the state-set goal of creating 266 jobs with its First Five Plus funding.

State officials said they have also created mechanisms 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 dropped out of First Five Plus, but it repaid the state about $28 million to cover its loan and grant, with a penalty and outstanding interest.

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.

Long-term questions

The state could add one more company to First Five Plus, with a June deadline to fill the last slot — some five months after the next governor takes office. Legislators would decide whether to push back the cutoff date.

“I think it is worth extending, but only for high job-growth opportunities that provide the greatest return on investment possible for the state, and as long as we continue to strengthen oversight and accountability measures,” Simmons said. “There is always room for more oversight, which is why we pushed for passage of (last year’s) legislation.”

Messages left for Barry Michelson, Simmons’ Republican challenger in the Nov. 6 election for the state House of Representatives’ 144th District seat , were not returned.

Some, such as Frantz, advocate for taking a different approach with corporate recruitment.

“I do not believe the First Five Plus Program should be extended,” Frantz said. “We simply do not have the resources, nor do we have solid enough evidence that there is an acceptable rate of return on the program.”

Frantz’s opponents for the state Senate’s 36th District seat, are also lukewarm about the program.

Green Party nominee Megan Cassano described any benefits as “short-lived” and questioned the number of employees that First Five Plus firms would relocate from other states.

“Because of corporate tax breaks (or) abatements, hosting residents end up shouldering the burden while the economy increasingly caters more to higher-ticket corporate customers, causing more residents to pursue affordable housing and work elsewhere,” Cassano said. “What happens to luxury housing developments when employees of these companies leave, as well?”

Democratic Party nominee Alex Bergstein said First Five Plus “needs consistent metrics and better oversight before it can be deemed a great return on investment to taxpayers. Companies should meet or exceed their job creation targets and increase their investment in our state over time.”

To achieve long-term economic growth, the state would also need to focus on creating a “21st century transportation system,” focus on public-private partnerships between employers and educational institutions and lower its corporate-tax rate to make it fairer and more transparent, Bergstein said.

First Five Plus’ future is further clouded by the state’s long, fitful economic recovery. Despite the program’s gains, the state has only recovered about 89 percent of the jobs it lost in its 2008-2010 recession.

“I agree that this is not the speed of recovery that any of us wanted,” Smith said. “But if we didn’t have programs like First Five Plus, it might have taken even longer, and we might not have the same level of private-sector growth.”

pschott@scni.com; 203-964-2236; Twitter: @paulschott

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