You asked specific questions about the Connecticut Insurance Reinvestment Fund, which we state and answer below. Your questions build upon several previous OLR Research Reports on this topic (97-R-0750, 2004-R-0228, and 2004-R-0338), which are enclosed.

PROGRAM COSTS AND JOB CREATION

Is the insurance reinvestment program revenue neutral to Connecticut?

The insurance reinvestment program was not designed to be revenue neutral to the State, according to the Department of Economic and Community Development (DECD). The law does not require DECD to determine the fiscal impact of the permitted tax credits to the State. The DECD commissioner does not have explicit statutory authority to collect the information necessary to conduct this type of analysis. Nor is he authorized to deny certificate of eligibility requests that do not provide a positive fiscal impact.

How much has this program cost Connecticut to date?

The Insurance Reinvestment Act authorizes premium, corporate, and personal income tax credits for people and entities that invest in Connecticut-based insurers and insurance-related businesses through state-registered fund managers. Investors may claim a portion of the credits over a 10-year period according to a statutory schedule (Conn. Gen. Stat. § 38a-88a). Through December 31, 2002, investors claimed $ 142,894 in corporate business tax credits, $ 7,717,406 in premium tax credits, and no personal income tax credits. Table 1 shows how much credit they claimed each year. “Program cost,” measured as total tax credits claimed, equals $ 7,860,300.

Information for calendar year 2003 will not be available from the Department of Revenue Services until October 2004. Since complete data is not available on the number and type of jobs created under the program, we cannot calculate the amount of new income tax revenue the program has generated.

Table 1: Insurance Reinvestment Fund Tax Credits Claimed By Year

Source: Connecticut Department of Revenue Services

How many new insurance jobs were created because of this program? Does the Department of Economic and Community Development’s (DECD) commissioner require this information prior to issuing an annual certificate of continued eligibility?

When a fund manager requests a certificate of continued eligibility from DECD for a business places investments with, it is required to provide current employment numbers for that business. Investors may only claim tax credits in an income year for which a certification of continued eligibility was issued.

A complete and accurate count of the number of jobs created under the program is not available. This is largely because fund managers do not have to report job totals unless they request a certificate of continued eligibility. If a fund manager does not request a certificate for a particular business investment, then DECD does not receive the employment information. As a result, the information we have on the number of jobs created may either underestimate or overstate the actual number.

Fund managers have requested certificates of continued eligibility for 13 companies, which had a total of 467 employees at the time of their original certification and proposed creating 601 new jobs. Based on the most current information fund managers have provided to DECD, the companies have 553 jobs in aggregate. This means that they created 86 jobs.

As part of its analysis of the insurance reinvestment program, DECD will soon ask fund managers to submit updated employment numbers for all businesses receiving investments, regardless of whether the fund managers request certificates of continuing eligibility. However, the DECD commissioner does not have explicit statutory authority to collect this information.

Assuming 3,000 new jobs and $ 62 million in tax credits, the cost per new job is $ 20,667. What has been the actual cost per job?

An accurate cost per new job ratio cannot be calculated since we have only incomplete data on the number of jobs created under the program.

Using 86 new jobs and $ 7,860,000 in total claimed tax credits, the cost per new job is $ 91,398. 84 ($ 7,860,300/86).

The cost per new job is likely to fluctuate since managers claim a portion of the credits over 10 years. If there are no additional jobs created, the cost per new job will increase in the future as additional credits are claimed.

What has been the highest dollar per new job investment?

One fund manager invested $ 50 million for one start up business and $ 25 million for another, according to DECD. By law, each was required to increase jobs by 25%. There were no employees at the time of application for either company, so each was required to create at least one new job to satisfy the 25% requirement. Since start up, the two companies combined have created 47 jobs, yielding the highest per job investment of about $ 1. 6 million. (Table 2 provides related information. )

PARTICIPATING BUSINESSES AND FUND MANAGERS

What types of businesses have received investments to date?

The types of businesses that have received investments to date include, per DECD: alternative risk transfer insurance, surety insurance, health maintenance organization, property and casualty insurance, insurance-related software, information service provider, pharmacy services, underwriting, third party administrator, portfolio manager, preventative care management services, and managing general agents.

How many of the businesses are small start-up companies?

Six businesses receiving investments were start-up companies, according to DECD.

How many of the businesses are specialty insurance companies?

It is difficult to determine which businesses are “specialty insurance companies,” which is not defined in the Insurance Reinvestment Act. By law, investors may claim tax credits for moneys invested through a state-registered fund manager in an “insurance business,” which the act defines as a business engaged in the business of insuring risks or of providing services necessary to the business of insuring risks (Conn. Gen. Stat. § 38a-88a(2)). The majority of the businesses meet the second part of the definition (providing services), according to DECD.

How many of the businesses are now out of business?

Of the 20 businesses that received investments to date, three are in bankruptcy, including one that is under an order of liquidation with the Insurance Department. Fund managers are still claiming credits for these three investments. There are also two businesses that are inactive, for which fund managers are no longer claiming credits, according to DECD.

What has been the performance (cost per job created) of each of the five fund managers identified in 2004-R-338?

An accurate cost per new job ratio cannot be calculated since we have only incomplete data on the number of jobs created under the program. DECD provided information on the investments in and jobs created by the 13 companies for which fund managers requested certificates of continuing eligibility.

Three fund managers have invested $ 148,889,466 in the 13 businesses for which certificates of continued eligibility have been requested. In aggregate, these 13 businesses have created 86 jobs. Using investment dollars per job created as a measure of performance, each new job has cost $ 1,731,273 on average. Table 2 shows performance per fund manager.

Table 2: Investment Per Job

Source: Connecticut Department of Economic and Community Development

* Note: Despite the loss of jobs and negative impact on state revenues, by law the State is still obligated to provide tax credits, per DECD.

Does DECD set the fees paid to fund managers? If so, what is the fee schedule? If not, what has been the range of fees charged by fund managers?

DECD does not set the fees paid to fund managers, nor does it have information on the fees that fund managers charge. Such information is not required for receiving an initial or continuing certificate of eligibility.

As part of its analysis of the insurance reinvestment program, DECD will soon make a one-time request for fund managers to submit fee information, along with other information it deems necessary to evaluate the program. However, the DECD commissioner does not have explicit statutory authority to collect this information.

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