Since it began in 2011 Gov. Dannel Malloy’s controversial First Five program has awarded $381.6 million in grants and tax credits to major Connecticut companies and it has done so with virtually no public oversight.
But that might change if a bill backed by state Comptroller Kevin Lembo is able to jump the legislative hurdles and get Malloy’s signature.
An Act Concerning Evaluation of Business Assistance and Incentive Programs would require the state auditors to conduct performance audits and evaluations of the various business assistance programs administered by the Department of Economic and Community Development.
It would also require the findings of those audits to be discussed by the appropriations, commerce and finance committees.
The DECD administers a number of different programs which award grants, low-interest loans and tax credits to businesses in Connecticut. The programs are intended to help businesses grow and hire more employees.
The Small Business Express program, which gives grants and loans to smaller to medium sized businesses, has awarded $267 million in loans and grants to 1,687 companies since 2012, according to the DECD’s annual report.
Since the inception of the business assistance programs there has been little public oversight, with the DECD only required to submit its annual report to the governor and the general assembly and is exempted from public audits.
The DECD was essentially tasked with policing itself and evaluating the effectiveness of the program through its annual reports. The reports tout the department's accomplishments for the year by measuring jobs created, jobs retained and how much private investment has been leveraged through the DECD’s assistance.
But these figures are never independently checked or verified and the "jobs created" figures rely on the promises of the companies receiving the incentives. If a company reaches the target figures for job creation the loans are often forgiven by the state. If not, they continue making the low-interest payments on the loan.
The DECD claims that programs like First Five and Small Business Express have “leveraged” $3.1 billion in private investment by Connecticut companies and created 18,246 jobs.
But awarding companies with hundreds of millions of taxpayer dollars while the state is cutting services to deal with deficits has not proven popular with the public or with public-sector unions who have been supportive of Malloy in the past.
Among the 13 companies that received assistance through the First Five program is Bridgewater Associates, one of the largest and most successful hedge funds in the world, received $22 million in 2016.
Other companies have included ESPN, Charter Communications, NBC Sports and the insurance company Cigna.
In some instances, the funds have been used to move company headquarters closer to the CEO's home, shortening their commute time.
Alexion Pharmaceuticals in New Haven received $51 million in grants and tax credits from the state but recently had to lay off 210 employees due to “restructuring.”
Although the First Five program is the most visible business assistance program because it aids large companies, the DECD also administers programs aimed at smaller businesses through the Small Business Express program.
However, there have been instances of fraud and abuse in this program as well.
In 2012, the DECD gave $400,000 to Amoun Pita, which appears to have been an entirely fraudulent company. The owner, Moshen Youssef, was eventually arrested in Canada this year and indicted for $3 million in fraud.
However, aside of publicly disclosed instances of layoffs like Alexion or grand jury indictments like Amoun Pita, the public and legislature only have the annual reports issued by the DECD to judge the effectiveness of the assistance programs.
Lembo issued a press release on Wednesday saying that Connecticut’s business incentive programs need more oversight and should be analyzed to determined whether or not the programs are successful.
“These incentive programs reduce tax revenue at both the state and local level, and increase state borrowing. It is essential that the legislature review their impact and make informed decisions about the continuation, expansion or elimination of each program.”