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Project - Mania!
Weird science?: A new, $52 million Science
Center in East Hartford would be financed by $24 million
in state and federal tax dollars.
The state no longer gives money to individual businesses. But increasingly, it seems perfectly willing to gamble on big-ticket projects like football stadia and floating hotels
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Business New Haven
11/17/1997
By: Albert S. Coppola
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A football stadium in Storrs. A science museum in East Hartford. A floating hotel in Bridgeport. A steel mill in New Haven. A “multimodal” air cargo distribution center at Bradley. A Six Flags amusement park on land owned by Pratt & Whitney.
Would it surprise you to learn that state officials think these projects are critical to the future health of Connecticut's economy? And are you surprised that the projects' developers are asking for some $560 million in taxpayer dollars to help them along?
While the State of Connecticut may no longer be giving outright hand-outs to individual businesses, Hartford is still actively spending tax dollars to prop up the economy. And when you factor in the considerable expenditures of public
money made at the local level for business development, it's clear that government remains firmly in the business of helping private businesses.
“The state plays a facilitating role in driving the economy,” explains Chris Cooper of the state's Department of Economic & Community Development (DECD). “The state can provide a stable, business-friendly environment.”
“Public investment is important,” agrees John Emra, director of governmental affairs for the Greater New Haven Chamber of Commerce. “If you look at the regions of the country that have grown at the greatest rate, it was not due to a laissez-faire attitude on the part of the state and local governments.”
Most everyone seems to agree that government needs to foster an environment that allows good businesses to start up, grow and flourish. But what sort of assistance should it provide? And what kind of economic sectors and development projects should be supported to best ensure a healthy economy down the road?
None of these questions has easy answers, but a look at the sorts of projects state and local governments have thrown their support behind gives some clues at to which direction lawmakers believe the winds of economic fortune are blowing.
Many projects the government is backing fall somewhere within the broad sweep of the Rowland administration's so-called “cluster groups,” six key economic sectors that the state believes will form the Connecticut's economy in the future: manufacturing, financial services, high-technology/bio-technology, telecommunications, health services and tourism.
“These are six areas that already have strength at this time and have been targeted for future growth,” says Cooper.
There has also been a shift in the kind of support the state provides, he says. “During the previous administration, the state had a policy that allowed grants to be given to companies,” Cooper explains. “Too often this represented one-shot money to firms that may or may not have been able to stay in business.” Gov. John G. Rowland, he says, “indicated that he would instead provide low-interest loans” and other types of assistance instead of outright grants. (See story, page 1.)
“We're looking for healthy companies to come stay and grow,” Cooper explains, companies which choose to locate in the state “because Connecticut is the best state for them, not because we're the highest bidder.”
This idea that government assistance should merely sweeten an already favorable deal is echoed by Anthony Uzzo, an economic development specialist for the United Illuminating Co. Uzzo worked with state and local officials to lure a quarter-billion dollar steel mill to New Haven.
Uzzo describes how the city, the state and the utility put together an incentives package of close to $70 million last October to convince the company, Williams Specialty Steel Corp. of Buffalo, N.Y., to choose New Haven as the site for a new stainless-steel plant.
Locating in New Haven had certain cost advantages for the company, he said, such as a skilled workforce and good transportation links. However, in order to seal the deal, his team “had to offset the cost advantages of other sites, such as a closer proximity to [the company's] customers,” he explains.
As part of the assistance package, $55 million would come in the form of tax-increment financing, by which the state would use future tax revenues to pay off some of the bonds issued for construction; $9.75 million would be loaned through the Connecticut Development Authority (CDA); and $5 million would be furnished by UI for the purchase of electrical infrastructural equipment such as transformers and inter-ties.
Uzzo argues that this level of public assistance was warranted because of the impact the Williams' plant would be expected to bring to the region's economy. Quoting a state study, he says that “Every permanent job created by the company would create ten more outside.”
In this case, “a totally new core industry is being created,” Uzzo says. “Incentives are definitely in order.”
There remain, however, some financial hurdles to be cleared before the Williams plant rises toward the sky. Uzzo says Williams Specialty Steel is currently “working with its equity partners and potential customers” to ensure it has the necessary customer base to make the project financially viable.
According to Everett Shaw, executive director of the Regional Growth Partnership, the high technology and biotech fields are another economic sector deserving of significant government assistance.
Shaw sits on the governor's Biotechnology Implementation Team, and that group is recommending that the state appropriate $50 million to support the research of emerging biotechnology firms. After meeting with industry leaders, Shaw says, his group concluded that this money is “absolutely necessary. It's what it would take to meet estimated lab needs over the next year or two.”
The tax dollars - “almost like a line of credit,” is how Shaw characterizes it - would allow firms with hot research projects to afford costly laboratory space while they try to develop marketable products. Shaw envisions that the funds would be used to augment private sources of financing for real estate.
Shaw says his group did not develop the proposal with specific projects in mind - companies could apply for assistance once the funds were approved - although he says there are at least “two strong projects right now” that “should be helped” by the state. Shaw declines to offer specifics on those projects.
Shaw says that although the region has a strong base of biotech firms, as well as an “enormous cluster” of universities and research hospitals, “in the last ten years we have lost from that base” as companies moved to Massachusetts or Maryland. In those areas, the industry has matured to a point where it can largely support itself, which is not yet the case here, Shaw says.
“We have to create a critical mass [of successful firms]. The industry is an expensive one,” Shaw argues. “In all states doing well in this field, there are aggressive and generous financial tools in place.”
Why can't private financing support the industry during this gestation phase? Laboratory space is expensive to build, Shaw notes, and when companies are just starting out, “Venture capitalists don't want their money spent on real estate.” Once companies mature, he says, they can find private backing for necessary facilities.
However, Shaw contends that the state should finance the construction of “incubator space” for the “real start-ups” who need an “18- to 30-month period of time to show potential.”
Shaw's group has big plans. Over and above the $50 million Shaw would like the state to commit at this time, he would also like to see the state found a biotech institute to foster the growth of the industry - and build an 80,000-square-foot facility to house it. With offices, a conference center and 10,000 square feet of laboratory space to lease out to start-ups, Shaw figures $3.5 to $4 million will do the trick. “The industry needs its own entity to drive it,” he says.
Securing government assistance for jump-starting a particular industry is hardly a new approach. Recently, the state's Department of Transportation announced that the Lynxs Group, a Texas-based developer, had been selected to build a $9.8 million, 96,000-square-foot air cargo facility at Bradley Airport in Windsor Locks.
According to Katherine Rose, whose company, Rose Associates, is the Lynxs Group's local partner in the venture, the initial RFP for the project stipulated that the facility should include a special area for perishable foods storage and distribution. That particular industry segment has been identified as having significant growth potential by state economic-development officials.
Rose says the project will be almost “entirely privately funded,” although developers will likely take advantage of tax-exempt revenue bonds for construction costs. Rose says it is unclear at this point exactly how much public assistance will be required, though she believes it will be “very little.”
Some of the most ambitious commitments of public funds to private ventures are taking place in the tourism sector, however.
The state and the town of East Hartford have offered to provide between $100 million and $150 million for a $240 million plan to create a Six Flags amusement park on land owned by Pratt & Whitney, according to James F. Dunn, East Hartford's director of development.
Dunn says that road construction and infrastructure would be needed, but as much as $100 million might come in the form of loan guarantees, not direct expenditures. Still, he says the government appears ready to stick its neck out for almost half of the total project cost.
What is it about this project that merits this support?
“I suppose if I had my choice between Six Flags and a doubling of Pratt & Whitney, I'd take the doubling,” Dunn says. “But that's not an option. Looking at our economy, we've been heavily reliant on a handful of industries - defense, banking and insurance. We think they've stabilized. [The Six Flags project] is a piece of an effort to diversify our economy.”
Dunn says that the park would “create a destination,” and that the development of an “entertainment base” to the regional economy has been one of the goals of the greater Hartford Millennium Project, a region-wide plan for economic growth.
What to make of the critics, who charge that the project will merely create a slew of low-skilled, low-wage jobs? Dunn responds that the park would create 250 to 300 permanent full-time jobs - “from managers to engineers to electricians” - and that studies have shown it would draw three million visitors to the area, $3 million to $4 million in property tax revenues for East Hartford, and generate an additional $2 million in increased off-site tax revenues.
“If we're interested in building our economy,” says Dunn, “then we have to step up and support these projects.”
Another project with a tourism component that's been heavily subsidized by tax dollars is the new facility that's being planned for the Science Center of Connecticut. The $52 million project is budgeting for $18 million in state support for the construction, and another $6 million in federal support for construction and programs. Over $15 million of that has already been committed.
Kate Bush, the center's campaign director, says that as an educational facility, the benefits of the new center will be seen down the road, by encouraging the next generation to be “more comfortable” with technology. “That ties in to workforce issues,” she says.
Tourism is a “secondary concern,” Bush adds, though she notes that 100 million people visited science centers around the country, according to that industry's trade association. Bush estimates that more than 400,000 people would visit the new center once it's open, but that figure includes repeat visitors and members.
Large-scale entertainment developments are going up or being discussed across the state. Concrete will soon be poured for a $14 million minor league baseball stadium in Bridgeport, which is being financed in equal measure by the city and the state. And it appears that the stadium will soon joined by a $1 billion harborfront development, which was approved last month. For that project, which is slated to include a 1.5 million-square-foot factory outlet mall and a floating hotel, the developer is seeking $200 million in public assistance.
Additionally, a plan to use public funds to build a $106 million football stadium on the University of Connecticut's main campus in Storrs has received the backing of the governor and is slated to go before the legislature this session.
Of course, any publicly supported entertainment project comes in the wake of the disastrous OceanQuest center planned for New London in the mid-1990s.
There, a team of developers proposed to build a marine science center and youth camp on the Thames River. After garnering nearly $9 million in state assistance - funding for feasibility studies, as well as for the state's purchase of a riverfront site - the developers failed to raise any private funds and the project went bust.
Some have questioned the wisdom of such massive public investments in the tourism industry, even with organizations with proven track records.
“Everyone talks about casinos and playlands,” says UI's Uzzo. But he believes the ability of such projects to create jobs and spur economic growth is questionable. “Those kinds of jobs don't have this kind of multiplier effect” that manufacturing projects have, he argues.
Shaw agrees, noting that he is “trying to alter the thinking of decision-makers on the state level, to get them to look as favorably on [biotech] projects as they might to putting up a stadium or arena.”
Michael Miotti, president of the Connecticut Policy & Economic Council (CPEC), a public-policy watchdog for the state, says that, “Tourism is an element of an economy, but the problem is how to asses the return on the project, to ensure that what you're getting back is commensurate.”
Miotti's comments on the advisability of public assistance for tourism-based developments might well be applied to all efforts to use tax dollars to stimulate economic growth. As developers scramble for hundreds of millions in state and local aid, politicians will have to decide which projects will give the public a commensurate return on their investment.
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