Connecticut jobs package beats Feds to the helping factories

By Rob Varnon, Connecticut Post Staff Writer

BRIDGEPORT - A key element of the state's new $625 million Jobs Act that Gov. Dannel P. Malloy signed into law Thursday was developed from an idea by a Bridgeport factory owner. But that man isn't celebrating the new law.

"By itself, it's not going to work," Hugh McCann Jr., president of Identification Products Corp. in Bridgeport, said Friday as machinery hummed at his Silliman Avenue plant.

He was talking about the Manufacturing Reinvestment Account provision of the Jobs Act. It allows up to 100 manufacturers with 50 or fewer employees to make pre-tax contributions into a special account in a local bank and then use that money to invest in equipment, buildings and training.

The money is capped at $100,000 a year over five years and would have its tax rate reduced from 7 percent to 3.5 percent. An MRA would be similar to a health savings account, or an IRA, with the account owner having to use the money for a specific purpose or pay a penalty and a higher tax.

With only two lawmakers voting against it, the General Assembly passed the legislation, which includes the MRA, tax credits and a small business lending initiative that could require Connecticut to pay $1 billion on bonds and debt service to cover the costs of the programs.

The MRA would not require bonding, according to the Office of Fiscal Analysis, but it has the potential to cost the state $300,000 to $587,500 a year in corporate taxes, depending on the number of businesses that participate.

McCann didn't work on the state version, but it was based on an idea he came up with in 2009 while sitting in his kitchen. He said he's been concentrating on getting a federal version passed, which is aimed at allowing manufacturers with 500 or fewer employees to put up to $500,000 a year into an MRA over a seven-year period. He said the nominal tax rate would be about 15 percent, a tax reduction of more than half.

U.S. Rep. Rosa DeLauro, D-Conn., sponsored MRA legislation in H.R. 110, a bill that is currently in the Ways and Means Committee.

"I am very pleased that Governor Malloy included the state Manufacturing Reinvestment Account Act in his jobs bill," DeLauro said Friday in an email. "... Connecticut has always been known as a vital center of industry, where new ideas and innovation combine with a long history of manufacturing expertise -- and I look forward to continuing this tradition with the Manufacturing Reinvestment Account Act."

She said the federal legislation will have a multiplier affect in the economy, sparking job growth.

If Congress acts on the MRA, then the Connecticut MRA becomes even more valuable, said McCann, who has 52 employees and is ineligible for the MRA.

But so far, getting Congress to act on the legislation has been difficult -- and a bit mystifying, as it should be palpable to both parties, he said.

On one side, there's a backlash against tax breaks and corporate welfare, including the bank bailout of 2008, Troubled Asset Relief Program. On the other side, politicians are calling for major cuts to social programs and reductions in spending. The stalemate has the nation facing a fiscal crisis, as borrowing has increased, forcing the sale of more and more bonds, which many equate to printing money.

McCann said the MRA skirts these issues.

"It's not printing money, it's our own money," he said, pointing out this is profit from businesses. "It's better than TARP."

Whether it's luck or acumen, successful manufacturers would have an incentive for plowing money back into their businesses and their communities. As they use the money to expand buildings, they're employing construction workers and buying materials. If they use the funds for training, they are expanding the abilities of their workforce, and if they buy equipment, they're increasing competitiveness.

Overall, McCann said the state made an effort, but the economic and manufacturing issues are national and must be dealt with on a national scale. He said he hopes more people send messages to Congress to get the MRA passed.

Other business experts said that effort speaks volumes during these contentious times.

"Here's the thing that really got me," said Nick Perna, an economic adviser to Waterbury-based Webster Bank and member of the President's Council of Economic Advisors in the 1970s. "I think we got everybody but two to vote for the thing -- says an awful lot."

He said it shows the state is thinking creatively and willing to move beyond partisan politics at a time when other nations and states are going down a different road.

"How do we stack up? I don't know," Perna said, reflecting on the global competition for business. "We've gone against the grain. There's a tendency not to cut everything. ... The solution to Greek debt is to make them so poor they can't pay it back. The new economic policy that's dominating the globe is to bring back debtor's prisons."

That's not what Connecticut did, he said. The state looks like it took a reasonable shot at doing something to help businesses, he said.

Because it is reasonable, Alan Schankel, municipal bond expert and Janey Capital Markets director of fixed income research, said the state's jobs initiative is unlikely to hurt its bond rating.

He said the actual amount of bonding involved for this is relatively small for a wealthy state such as Connecticut. But he also said the state is carrying a lot of debt, and if the economy doesn't turn around soon, things could get tight.

"Connecticut has been less shy about raising taxes than other states," he said, and that has reassured ratings agencies, along with the state's ability to pay. So unleashing a package to try to grow the economy will probably not affect any ratings.

Indeed, the Connecticut State Treasurer announced Friday that the ratings agencies all affirmed the state's strong credit rating, which is AA, according to Standard & Poor's.

Joe McGee, a former banker and commissioner of the Department of Economic and Community Development and current vice president of public policy for the Business Council of Fairfield County, said he liked the new legislation.

"It's an attempt to respond to the business community in a more nuanced way," he said.

It clearly sends a message that government is trying to work with business and that message is coming at a time when businesses need to hear that and see it."

McGee said the MRA shows the state is willing to be creative. He said the small business lending program shows it's willing to step in where the private sector has fled. It's a move Connecticut has done before, and successfully, he said.

The state will establish a lending program for small businesses of less than 50 employees that have been having difficulty getting loans from banks.

"Connecticut is saying, we're willing to take a risk here," McGee said. "Let's try it."

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