Measuring success for business incentive programs isn’t easy or clear, according to audit

The Department of Economic and Community Development offers loans, grants and business tax credits to qualifying businesses under a variety of program intended to boost economic activity and jobs in the state.

But according to the most recent audit of the department’s 2018 and 2019 annual report, measuring the effectiveness and cost of those business incentives is an inexact science, complicated by inter-department data that sometimes isn’t available or complete. 

According to the auditors, the DECD understated and overstated costs, interest payments, job creation and investments for incentives awarded through the Small Business Express program, Manufacturing Assistance Act and the Film, Television and Digital Media tax credits.

The auditors found DECD’s annual report understated the principle and interest payments received for loans administered through the MAA and SBE by $6.4 million and $3 million respectively, meaning the department took in more money than reported.

They also found the report understated direct net revenue to the state generated by the incentive programs by nearly $12 million.

However, the number of jobs created or retained – and the amount paid per job – was often overstated. 

Jobs created or retained through the Minority Business Initiative were inflated by 23 percent, or 101 jobs, and job numbers for the MAA were overstated by 1 percent, or 652 jobs. 

DECD said the mistake in the Minority Business Initiative was due to accidently double-counting but agreed with the critique of the jobs created or retained by the MAA.

The auditors also found that jobs created or retained through Connecticut Innovations – a quasi-public agency that leverages state funds to invest in technology companies – are not verified by the agency.

The DECD said that Connecticut Innovations conducts its own internal audit of jobs created or retained through the program and that they have no reason to question their numbers. However, DECD also indicated it is seeking a legislative exemption from having to report incentive numbers for agencies outside the DECD.

The DECD noted that many of the reported problems in the audit were corrected in their 2019 report.

Although, the DECD has been charged with administering these loans, grants and tax credits for decades, their annual report was not subject to review by auditors until 2017, when State Comptroller Kevin Lembo led a push backed by ideologically diverse policy and lobbying groups to require the department’s annual reports to be audited.

The first audit in 2018 was a bit of a bombshell, finding the reports overstated the number of jobs created or retained along with the economic impact of the programs.

Previous reports found the department failed to do its due diligence on vetting companies, doubled down on loans to companies that did not meet job creation requirements or awarded second loans to companies that were not making their payments.

An audit of the DECD during years under the Gov. Dannel Malloy administration released this year found the department also awarded millions in excessive loans and loan forgiveness to companies who did not meet the job growth requirements.

Since DECD Commissioner David Lehman has taken over under Gov. Ned Lamont’s administration, the department has pulled back on offering grants and restructured their loan process to ensure requirements are met before the company receives the full incentive package.

Economic incentives were a lynchpin of Malloy’s administration in an effort to draw companies to Connecticut and increase job creation between 2010 and 2018.

Between 2011 and 2017, Connecticut invested nearly $1.8 billion in various economic development initiatives through the DECD but the state’s economy actually shrank by 1.6 percent and job growth was the slowest in the nation.

Marc E. Fitch

Marc E. Fitch

Marc E. Fitch is the author of several books and novels including Shmexperts: How Power Politics and Ideology are Disguised as Science and Paranormal Nation: Why America Needs Ghosts, UFOs and Bigfoot. Marc was a 2014 Robert Novak Journalism Fellow and his work has appeared in The Federalist, American Thinker, The Skeptical Inquirer, World Net Daily and Real Clear Policy. Marc has a Master of Fine Arts degree from Western Connecticut State University. Marc can be reached at Marc@YankeeInstitute.org

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