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The Art of the Deal
Economic-development czar Diedrick banks on tech companies to fuel state's growth
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Business New Haven
9/15/2003
By: BNH
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Gov. John G. Rowland’s point person on economic-development issues, Arthur H. Diedrick is chairman and president of the Connecticut Development Authority (CDA), which administers business-assistance programs including direct and guaranteed loans and the Chairman of Connecticut Innovation, a venture capital fund funded by the state of Connecticut.
What issues are you working on right now?
The legislature passed the budget bill for the next two years. We now know and have game plan for the next two years for the CDA, and it is also true for [Connecticut Innovations Inc.]. During the last fiscal year CDA upstreamed to the state $7.5 million. For this fiscal year we’ll be sending up $5 million. We will continue to do roughly the same volume of business that we’ve been doing for the last couple of years.
What are some of those programs?
Our primary business is working with banks — People’s, Webster, Fleet. We will guarantee part of the risk on a first-loss basis with those banks. If there’s a borrower coming in that wants to borrow, for example, $500,000 and the bank feels it has solid collateral on $400,000, we’ll fill the gap, up to about one third.
Where does ‘upstream’ money come from?
Since CDA was founded, the state has contributed $108 million in capital. Our current portfolio is $127 million, plus cash, which comes from the loans and interest.
We’re also very active with Urbank. The average [Urbank] loan is about $84,000; [the state holds a] portfolio of roughly $35 million. We put up guarantees with the bank again on a first loss basis. They’re able to write these out themselves, which speeds up the process. Over the years we take losses, but we also have enough gains that are reserves are probably over-funded with individual banks.
What’s the latest with brownfields legislation?
We created the Connecticut Brownfields Redevelopment Authority under CDA. Before they can be reused, polluted sites below or above ground with asbestos have to be cleaned up to different environmental department standards. The best thing you can give a developer is not tax breaks, but cash up front as a stimulant to clean up these sites and [construct] new buildings or redo buildings. Instead of having these polluted empty buildings, the local community gets increased tax revenues.
Let’s say the tax revenues in this abandoned site are $50,000.
Wheras when it’s going to be improved up to $250,000. An increase of $200,000, we will go to to community, we don’t mandate this; it is not an unfunded mandate. What percentage of the increase will you give us and we will issue bonds. Maybe they’ll give us a third of the increased tax revenues and we might be able to issue $2.5 million in bonds, to give as a check to the developer. Generally that will represent about one-third of up-front costs.
You are the chairman of CII, what happened there budget-wise.?
The purpose of [CII] is to promote and development high-technology companies in Connecticut. In the last fiscal year CII [returned to the state] $7.5 million in the current year $5 million and in the next $5 million. The CII portfolio is valued at about $75 million.
What kind of companies are coming to you now for money?
The quality of the idea is as strong as ever. Volume has dropped significantly in terms of these people. In the heyday, people were willing to leave their jobs and take the risk of start-up and the money that was available and the returns were so good on a risk/reward basis. Since the IPO market dried up, a lot of venture funds have dried up as well. At CII we always insisted that there were other investors on the initial and the follow-on [financing]. What we’re finding now is that the venture capitalists are not willing to put up as much and we are having to do more of it ourselves.
What industries do you think will be most important in the near-term future?
I think you’re still going to have technology as a driver for economic development in the whole of the [country]. People talk about manufacturing being a dying business, and in some respects it is because of the competition from China. It is becoming more and more technically oriented, given the enormous intellectual property and assets, whether it is photonics up at UConn or in the bioscience field, which is absolutely enourmous down in New Haven at Yale. I think Yale is taking a totally different attitude under President [Richard C.] Levin, where it is encouraging the economic and business spin-offs from the development of these intellectual properties.
What’s happening in the software industry?
We’ve invested in IT companies. Some of them are doing well. I can’t think of any that we’ve taken a bath on lately. The sources of funding for their growth [are] very limited given the IPO market. VCs are not in it for the long haul. They want to get out in a five- to seven-year period. We’re basically an ‘evergreen’ fund; we’re not returning monies.
What about the fuel-cell industry?
We set up the Clean Energy Fund under CII. We have in the state two major fuel-cell companies: United Technologies and Fuel Cell Energy, which has facilities in Torrington and research in Danbury. We have a nucleus here from which to build. What are the ingredients we need to grow? We call ourselves the fuel cell capital of the world. We have more employees in the fuel-cell business in Connecticut than any place else in the U.S. Thirty-three percent of all the people in the industry [work] here.
Is Connecticut actually a good environment for these companies to do business?
I think we’ve made it a good environment. There are three ingredients to make Connecticut stronger in terms of fuel cells. One is education. We put up $3 million dollars as an endowment at UConn to start the Fuel Cells Research Center. We didn’t put it at UConn because it was the state college. This is putting Connecticut on the map. We have a European company that is coming in here next week talking about opening a fuel cell operation here. Education is a key component, and we addressed that issues.
A second issue is we have an RFP for fuel cells at the Clean Energy Fund. Over the past couple of years we have dedicated about $8 million for fuel cells. There was legislation that was passed this year which said by July 2007, [the state will generate] 100 megawatts of power in clean energy. We are going to devote a significant [sum], $20 million a year, over the next seven years, to buying fuel cells [and] putting them in place
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