After collapse of Bridgewater relocation deal, state development programs scrutinized
Published 6:48 am, Sunday, July 6, 2014
Millions of dollars of forgivable loans, tax credits and job-training grants -- centerpieces of Gov. Dannel P. Malloy's economic development strategy -- have come under a high-powered microscope after the world's largest hedge fund recently backed out of a deal to move from Westport to Stamford.
In the same week the agreement with Bridgewater Associates collapsed, retailer Vineyard Vines received a $6 million incentive to expand, and a third recipient of the state's largesse -- ESPN -- debuted swanky new studios that were funded, in part, with tax credits. ESPN's flagship program, SportsCenter broadcast June 22 from a new $178 million digital center at the network's Bristol campus.
ESPN, an anchor company in Malloy's First Five job creation program, must create and maintain 200 full-time jobs in exchange for up to $10 million in tax credits, according to memorandum of understanding obtained by Hearst Connecticut Media.
Some are questioning whether the state's investment is worth the cost.
"They probably would have done it anyway," Republican Tom Foley, who is seeking a rematch with Malloy, said of the network's construction of its new digital center. "He's having to bribe people to stay here because he's making it so difficult to do business here."
State Senate Minority Leader John McKinney, R-Fairfield, said Malloy's administration should have steered ESPN to the state's existing and highly successful tax credits program for digital media.
"Look, I think it's a great company," McKinney said of ESPN. "I think the fact that we have the film and digital media tax credits has helped them. But they're not going anywhere else."
Aides to Malloy, a Democrat who is up for re-election in November and cut the ribbon at the state-of-the-art facility in May, say that Connecticut had fierce competition.
"ESPN made it clear that they were being aggressively courted by Texas and California," said Andrew Doba, Malloy's Capitol spokesman.
The company could have expanded in one of its other locations, ESPN spokesman Mike Soltys said
"Our overall preference has always been to grow in Connecticut," he said.
ESPN went through a round of layoffs last spring, but said it has since added back more positions than it cut. The network, which employs 4,000 people in Connecticut, declined to say how many layoffs took place.
"We have more employees today than we did when we committed to First Five," Soltys said. "We have not been shedding positions in any area."
Framing the debate over economic incentives is an arms race between states, as Connecticut, New York and New Jersey look to add jobs and grow their corporate tax base.
Connecticut has been on both ends of the equation, with Malloy's administration offering $5 million in incentives last July as part of a successful effort to lure Fifth Street Finance Corp. from White Plains, N.Y., to Greenwich.
In May, Connecticut agreed to give Starwood Hotels & Resorts a forgivable loan of up to $5 million and $20 million in tax credits to expand its workforce at its Stamford headquarters from 980 to 1,320 employees. Malloy's predecessor, M. Jodi Rell, orchestrated the hotel giant's move to Stamford from White Plains.
At the same time, Connecticut has also fallen prey to job poaching, with Greenwich hedge fund ESL Investments leaving for Miami in 2012 and firearms manufacturer PTR Industries fleeing Bristol for South Carolina following the Newtown school shooting and passage of the state's new gun laws.
Both McKinney and Foley said they would change course on offering economic incentives to companies, especially those already based in Connecticut, and instead focus on reducing taxes, red tape and unfunded pension and health care liabilities.
"It's a complete waste of taxpayer money," said Foley, the former U.S. ambassador to Ireland under President George W. Bush and a private equity manager from Greenwich.
Malloy's defenders say Republicans are trying to have it both ways.
"In 2013, Connecticut ranked 27th on a state competitiveness index compiled by the Beacon Hill Institute at Suffolk University in Boston. North Dakota and Massachusetts topped the list. The research arm of the university's economics department docked Connecticut points for taxes per capita, workers compensation premium rates, high electricity costs and travel time.
"Connecticut needs to improve," said Frank Conte, manager of the indexing project.
While many states have economic incentive programs like the First Five and Next Five initiatives in Connecticut, Conte said, they often yield mixed results and are politically motivated.
"That's not to say that some states don't get lucky," Conte said. "I think state government ought to do the things it does best."
In perhaps the boldest bet of his first term, Malloy dangled $115 million in incentives to try to get Bridgewater Associates to move from Westport to Stamford, where Malloy presided over a financial services renaissance as mayor from 1995 to 2009.
Conceived between the governor and billionaire hedge fund manager Ray Dalio during an economic summit in Davos, Switzerland, the deal called for the firm to add 1,000 jobs to existing workforce of 1,200 employees.
But facing opposition over the displacement of a local boatyard, the firm scuttled the deal June 27 and decided to stay in Westport -- at least for now -- with taxpayers shouldering $16 million in cleanup costs and site improvements in Stamford that the state will not get back.
The day before the setback for Malloy, his administration announced it had reached an incentive package deal with Vineyard Vines as part of a planned expansion and move to a new headquarters within Stamford.
In return for a forgivable loan of up to $6 million, the preppy clothier is planning to create 200 new jobs and retain another 150 jobs over the next five years as part of the $15.6 million expansion.
McKinney panned the deal.
"Why would you do Vineyard Vines?" he said. "If you're going to do Vineyard Vines, then you're going to have to do the next company that raises their hand and the next one. Vineyard Vines is a great success story, but they weren't leaving Connecticut, and, if they were, the reason they were was because Connecticut is uncompetitive. Giving them money does nothing to change the competitiveness of Connecticut."
Brothers Shep and Ian Murray, who left their jobs on Wall Street to start the popular lifestyle brand, credited Malloy in a statement for his retention efforts.
"In our search for a new headquarters, we seriously considered viable options throughout both Westchester and Fairfield counties," they said. "Our priority from the start was to find a space that would support our growth and allow us to continue to make Vineyard Vines a great place to work.
"Our partnership with Gov. Malloy's office and the Connecticut (Department of Economic and Community Development) will allow us to do both those things and was an important factor in our decision to remain in Stamford."