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Gauging the Impact of the Cluster Initiative
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Business New Haven
7/13/1998
By: Clement L. Russo
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BNH interviewed Victor Budnick, president of Connecticut Innovations Inc. (CII) of Rocky Hill, a government-funded organization that offers financial assistance, business information and advice to emerging technology companies in the state.
Briefly, what are the main provisions of Public Act 98-203, also known as the Cluster Bill?
The bill extends the six-percent tax credit on non-incremental corporate R&D and, for the first time, makes it available to companies that spend less than $100 million a year on research and development. It also reallocates some of CII's bond funding, which will allow us to use some $30 million for biotech and other high-tech laboratory and related facilities financing. Finally, the bill strengthened and clarified the language of our statute to enable CII to create and manage a venture fund for direct investments and attract private capital for it.
Why is this bill significant?
One reason the bill is a major step forward is that it will help us to address the biotech lab shortage in the state. Biotechs are looking for loan and lease guarantees and other kinds of credit enhancements. But even though they're attractive to investors, it takes them a long time to create the kind of balance sheet that conventional lenders are comfortable with, and their investors want them to use their money to increase their intellectual assets, not to purchase additional mortar. So having some state support in the form of guarantees will be critical to helping us grow this sector.
Who will benefit the most from this legislation?
The tax credits are important for technology companies that are grow
ing and developing, and perhaps in relative terms will have a larger impact on them than on established companies. The biotech firms will see the support for laboratory space as an expression of commitment by the state, though it will of course need to be followed up with additional funding as we demonstrate success over the next several years. And emerging companies in Connecticut, which often have to struggle for investments in the $500,000-to-$2 million range, will benefit as we're able to create a new investment fund.
How do the tax credits provided by this bill compare with those offered by other states?
I think that those credits are favorable, but we need to re-examine the provisions that were not successful, like the carry-forwards on net operating losses and the ability to sell certain tax credits as an alternative. Other states have adopted these provisions, and from a competitive standpoint not doing so places us at a disadvantage. So we need to look at them and adopt them in a way that's fair and affordable. In short, I'd say that what we've accomplished with this bill is a good beginning, but our work isn't done yet.
What do you think will be the long-term impact of the cluster initiative on Connecticut's
economy?
I am optimistic that this bill will move us forward in creating a critical mass of biotechnology companies and help us reach our goal of having at least 25 such firms in the state within the next four or five years. This will be particularly important for the New Haven region. And I believe that the R&D tax credits will enable a lot of existing companies to utilize some of their resources to hire more people, as opposed to paying taxes, and that will strengthen the technology economy in the state. Building a strong technology sector benefits the people of Connecticut because it will mean better, higher-paying jobs and promote a skilled and educated work force.
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