Connecticut

Tax incentive evaluation ratings

Tax Incentive Evaluation Ratings: Connecticut

This page was updated July 19, 2017, to reflect Connecticut’s improved rating after enactment of H.B. 7316.

Rating: Leading

Key points:

  • Connecticut is leading other states because it has a well-designed plan to regularly evaluate tax incentives, experience producing quality evaluations that rigorously measure economic impact, and a process for informing policy choices.
  • Connecticut’s evaluations take into account key considerations for measuring the economic results of incentives such as the extent to which the programs successfully influence business decisions.
  • As a result of 2017 legislation, lawmakers are required to hold hearings to consider the findings of the evaluations.

Connecticut evaluation law

Year enacted: 2010.a

Who evaluates: Department of Economic and Community Development; Auditors of Public Accounts.

Length of review cycle: One year.

For more information on state ratings, please visit our interactive map.  

The following information was current as of May 3, 2017. 

Connecticut was one of the first states to begin producing regular evaluations that rigorously measured the economic impact of tax incentives. However, the studies have had little effect on incentive policy, in part because the state’s approach lacks a strong connection between the evaluations and the policymaking process.

Connecticut’s 2010 evaluation law requires the Department of Economic and Community Development (DECD) to evaluate business tax credits in a report published every three years.b DECD’s evaluations take into account key considerations for measuring the economic results of incentives. High-quality evaluations consider that some businesses receiving incentives might have expanded even without the assistance. Connecticut’s evaluations model the results of many incentives based on different scenarios for how much activity was caused by the incentives. By using money on incentives, states reduce the dollars available for other priorities—such as tax cuts or spending increases—that also could have some economic benefits. DECD’s modeling treats the costs of tax credits as a reduction in state spending.c

While the evaluations provide a great deal of detail on the economic results, they offer less on the design and administration of incentives. Evaluations in other states, such as Missouri and Wisconsin, provide much more information on whether administering agencies are following proper procedures and whether the programs have been well-designed to achieve their intended goals.d DECD may not be the most appropriate agency to perform this type of analysis, because it is also responsible for promoting and administering many of the state’s tax credits.

After DECD’s reports are published, the agency simply has to deliver them to key officials in the legislative and executive branches. Many other states have designated legislative committees to consider the evaluations, hold hearings, and determine how to improve incentive policy. No legislative hearings were held on DECD’s most recent evaluation.e

In 2016, legislation was proposed to address the weaknesses of the current system. Under the bill, a nonpartisan legislative office with experience studying the details of government initiatives would have taken over the lead role in conducting the evaluations, while DECD would have continued to provide assistance with economic modeling. The legislation also would have required two legislative committees to hold hearings on the evaluations.f The bill passed both houses of the Legislature but was vetoed by Governor Dannel Malloy (D), who said he preferred that DECD continue as the evaluation office. His veto message also said supporters of the legislation could work with DECD to implement other aspects of the bill, even without statutory changes.g

Endnotes

  1. Connecticut Gen. Stat. § 32-1r, https://www.cga.ct.gov/current/pub/chap_578.htm#sec_32-1r.
  2. Ibid.
  3. Connecticut Department of Economic and Community Development, “An Assessment of Connecticut’s Tax Credit and Abatement Programs” (September 2014), ii, http://www.ct.gov/ecd/lib/ecd/decd_sb_501_sec_27_report_revised_2013 _final.pdf.
  4. Missouri State Auditor, “Economic Development: Historic Preservation Tax Credit Program” (March 2014), 9–19, https://app.auditor.mo.gov/Repository/Press/2014018370056.pdf; Wisconsin Legislative Audit Bureau, “Wisconsin Economic Development Corporation” (May 2015), 33–66, http://legis.wisconsin.gov/lab/reports/15-3full.pdf.
  5. Rob Michalik (legislative affairs director, Connecticut Department of Economic and Community Development), interview with The Pew Charitable Trusts, Aug. 18, 2016.
  6. Connecticut H.B. 5636 (2016), https://www.cga.ct.gov/asp/cgabillstatus/cgabillstatus.asp?selBillType=Bill&bill_num=HB05636&which_year=2016.
  7. Governor Dannel Malloy, veto message on House Bill 5636, June 9, 2016, https://www.cga.ct.gov/2016/agn/2016AGN00620-R01-AGN.htm.
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Tax incentives—including credits, exemptions, and deductions—are one of the primary tools that states use to try to create jobs, attract new businesses, and strengthen their economies. Incentives are also major budget commitments, collectively costing states billions of dollars a year. Given this importance, policymakers across the country increasingly are demanding high-quality information on the results of tax incentives.