OLR Bill Analysis

sHB 5435 (as amended by House “A” and “B”)*

AN ACT CONCERNING THE RECOMMENDATIONS OF THE MAJORITY LEADERS' JOB GROWTH ROUNDTABLE.

SUMMARY:

This bill authorizes programs and policies for establishing or expanding businesses and creating jobs. It authorizes tax credits for investing in new and expanding businesses and pre seed capital for those developing new concepts. It also phases out existing Insurance Reinvestment Act tax credit program, which authorizes credits for investing only in insurance businesses, and replaces it a new version authorizing similar credits for insurers investing in many different types of businesses.

The bill authorizes financial and technical assistance for established businesses. Specifically, it authorizes loans and lines of credit for small businesses and funds them under an existing bond authorization. It also authorizes, tax credits for those hiring new employees, including those with disabilities. And it provides technical assistance for all businesses seeking foreign markets for their goods and services.

The bill directs the Community-Technical Colleges to develop training programs preparing unemployed people meet job needs. It also creates a council to continuously identify and assess the state's strategic business clusters and recommend policies addressing their needs. It also provides authorizes bonds for the existing mortgage crisis job training program.

The bill authorizes financial incentives and technical assistance for businesses developing alternative energy technologies and Connecticut students seeking jobs in those and other technology fields. The bill establishes a task force to boost government efficiency and eliminate waste.

The bill sunsets the tax credits for (1) donating computers to public and private schools (CGS 10-228b), (2) constructing new facilities housing financial institutions (CGS 12-217u), and (3) paying Small Business Administration guaranty fees (CGS 12-217cc). It repeals these credits upon passage for income years beginning on or after January 1, 2014

The bill makes technical changes regarding the DECD's authority to provide Manufacturing Assistance Act (MAA) funds to financial institutions employing at least 2,000 people and the eligibility of these institutions for a state-reimbursed property tax exemption ( 22-24).

Lastly, the bill requires the Office of Fiscal Analysis to determine the resources it needs to include job impact analyses in fiscal notes.

*House Amendment “A” replaces the original version of the bill, but retains many of its elements. It retains provisions authorizing pre seed funding, angel credits, the waste reduction task force, and expands MAA assistance. It also substitutes a similar version of an investment tax credit.

The amendment drops the original bill's provisions:

1. placing an angel investor on Connecticut Innovation, Inc. s' board of directors,

2. authorizing matching funds for federal Small Business Innovation Research grants,

3. requiring CII to market Connecticut as a place of innovation, placing the DECD commissioner on two energy policy advisory boards,

4. using school construction grants to make energy improvements,

5. extending the existing job creation tax credits to S corporations and partnerships,

6. shutting down completely the Insurance Reinvestment Act tax credits, and

7. repealing several existing tax credits.

*House Amendment “B” requires existing insurance reinvestment act funds to meet investment targets before investors can claim credits and makes other minor and technical changes.

EFFECTIVE DATE: Various, see below

1-3 — STUDENT LOAN REIMBURSEMENTS

Eligible Fields. The bill authorizes reimbursements for student loans and training grants for Connecticut residents with educational backgrounds and jobs related to green technology, life science, or health information technology and holding jobs related to these fields. The Board of Governors of Higher Education must adopt regulations for providing these loans and grants.

Under the bill, green technologies are those that promote clean, renewable, or energy efficiency; reduce greenhouse gases or carbon emissions; or apply chemical products and processes to eliminate the use and generation of hazardous substances. Green technology jobs can include those classified as such by the U. S. Bureau of Labor Statistics and the codes DECD and the Labor Department use to identify green jobs.

Educational backgrounds and jobs in life sciences involve studying genes, cells, tissues, and the chemical and physical structures of living organisms. Those in health information technology involve creating, executing, or implementing electronic data systems for recording or transmitting medical or health information.

Eligible Residents. The eligibility criteria for the loan reimbursements vary depending on whether a resident holds a degree or certificate. A resident holding a bachelor or associate degree qualifies for reimbursement if his or her expected family contribution, as determined by the federal Free Application for Federal Student Aid, falls below $ 35,000 for the most recent full academic year. The resident must also have:

1. graduated from any Connecticut institution of higher education on or after May 1, 2010 with a degree related to one of the fields mentioned above and

2. worked for at least two years in Connecticut after graduation in a job related to one of these fields.

A resident receiving a training certificate qualifies for a grant if he or she:

1. is unemployed, received a layoff notice, or earns less than $ 40,000 per year;

2. is 18 years or older;

3. graduated from high school before July 1, 2008; and

4. has not been enrolled as a full-time student at any institution of higher education before July 1, 2010.

Loan Reimbursement and Grant Amounts. The reimbursements apply to federal and state student loans. (No state loans are available. ) The amount depends on a resident's degree. A resident with a bachelor degree qualifies for reimbursements of up to $ 2,500 per year or 5% of the loan amounts, whichever is less, for up to four years. A resident with an associate degree qualifies for the same amount, but only for up to two years. The bill caps the total value of reimbursements a resident can receive under the bill and any other state program. The cap is $ 10,000 for residents holding a bachelor degree and $ 5,000 for those holding an associate degree.

Residents with certificates qualify for a grant equal to the cost of their training certificate, up to $ 250.

Funding Source. The bill funds the reimbursements by transferring $ 3 million from the quasi-public Connecticut Health and Educational Facilities Authority.

EFFECTIVE DATE: Upon passage, except for the provision transferring funds to the General Fund, which takes effect January 1, 2012.

4 & 5—SHORT-TERM, NON CREDIT WORKFORCE DEVELOPMENT INITIATIVE

The bill authorizes $ 1 million in bonds for addressing the training needs of unemployed Connecticut residents. Specifically, it requires the Community-Technical Colleges (CTC) Board of Trustees to develop short-term, noncredit programs providing job-related skills and workforce credentials. It also must also establish an advisory committee consisting of DECD, Labor Department, Workforce Investment Board, Connecticut Center for Advanced Technology, Connecticut Business and Industry Association, and labor representatives.

The committee must identify workforce needs and recommend how to address them. Specifically, it must identify the type of education, training, support services and partnerships needed (1) in regions with persistently high unemployment and (2) to fill jobs in occupational fields with job openings.

The bill specifically requires the committee to examine the use of individual educational training accounts as a way to help unemployed people pay for training and services. In doing so, the committee must recommend eligibility requirements for establishing these accounts that include methods for verifying unemployment and demonstrating financial need. It must also consider establishing pilot programs based on available funding. The committee must report its recommendations to the CTC board by November 1, 2010.

The board must weigh the costs of modifying existing programs or developing new ones focused on high need, high growth fields. The costs it must consider include tuition, fees, books, materials, and academics. The colleges must defray the costs by citing state funds dedicated to these programs in federal grant applications.

EFFECTIVE DATE: July 1, 2010

6, 7, & 31 — SMALL BUSINESS LOANS

The bill establishes a revolving loan program for small businesses and nonprofit organizations and funds it tapping up to $ 15 million in bonds that have been already authorized Manufacturing Assistance Act projects. The DECD commissioner must administer the program, under which she may provide up to $ 500,000 loans and lines of credit to businesses and nonprofit organizations employing fewer than 50 people. She must establish guidelines and eligibility criteria. The bill imposes a $ 15 million cap on the total amount of loans and lines of credit the commissioner can provide.

The bill establishes a separate, nonlasping General Fund account to receive the bond proceeds. Although it funds the program with MAA bonds, the bill exempts its loans and lines of credit from (1) MAA eligibility criteria and procedural requirements (2) the law imposing penalties on businesses receiving state economic development assistance that leave the state before repaying the assistance.

DECD must report on the program in its comprehensive annual report to the legislature. The report must identify the number of applications for loans and lines of credit DECD received and approved, the size of the businesses, the amount of loans and lines of credit DECD approved, and the amounts that have been repaid.

EFFECTIVE DATE: July 1, 2010

8 & 10 — SMALL BUSINESS JOB CREATION TAX CREDIT

Applicable Taxes

The bill authorizes insurance premium, corporation business, and personal income tax credits for small businesses (fewer than 50 employees in Connecticut) creating new full-time jobs. Businesses qualify for the credits only for jobs they create between January 1, 2010 and December 31, 2012. The bill imposes a combined $ 11 million per year cap on these credits, the vocational rehabilitation job creation credits it creates ( 9) and those authorized under the existing job incentive tax credit program (CGS 12-217ii).

Credit Amount

The bill authorizes three-year credits for small businesses that create new, full-time jobs filled by new employees who reside in Connecticut. The maximum credit is $ 200 per month for new employee per year. But the total amount of credits a business may claim cannot exceed the total amount of taxes it owes. Businesses can apply the credits against the insurance premium, corporation business, or personal income tax, but not the withholding tax. The existing job creation tax credit applies only to the insurance premium and corporation business tax. Depending on how they are organized, some businesses do not pay business taxes, but their owners pay personal income taxes on the income they received from the business. The bill allows these taxpayers to claim credits against the income tax, but specifies that they cannot exceed the tax owed.

Businesses claiming the bill's credits for hiring new employees cannot count these employees toward other credits the law allows. These credits include those authorized under the job incentive and the enterprise zone (CGS 12-217) programs.

Qualifying For the Credit

Businesses qualify for a credit if they create a new job and hire a new employee who lives in Connecticut to fill it. The job and the employee must meet specific criteria. The job must require the new employee to work at least 35 hours per week on a regular, full-time basis for at least 48 weeks per calendar year. New temporary or seasonal jobs do not count toward the credit. The new employee cannot be an owner, member, or partner in the business. The employee cannot be someone who worked in Connecticut for a related business during the previous 12 months.

An employee worked for a related business if:

1. it controlled the business that subsequently hired him,

2. the business that hired him controlled the business that previously employed him,

3. the business that employed him is part of a larger business entity that also controls the business that hired him, or

4. both businesses belong to the same group of controlled businesses.

As noted above, a business qualifies for the credit only for jobs it created between January 1, 2010 and December 31, 2012. The business must claim the credit for the income year in which it created the job and hired a new employee to fill it and each of the two subsequent years if the employee held the job for the full year. Unused credits expire and cannot be refunded.

Accessing the Credit

Application to DECD. To claim the credits, businesses must apply to the DECD commissioner for a certification letter. The business must use a DECD form and provide enough information for DECD to determine the business's eligibility. The information must describe the business' activities, indicate its North American Industrial Classification System code, specify the number of people employed as of the application date, and the name and job title or classification of the new hire.

The commissioner must act on the application within 30 days of receiving it. She must issue the certification letter if she approves the application. In doing so, she must state that the business may claim the credit if it meets the bill's requirements.

The commissioner must annually give the revenue services commissioner a list of the businesses that she approved for credits and the credit amounts.

Apportioning Credits against the Income Tax. If the business is an S corporation or partnership, the credit may be claimed by its shareholders or partners. If the business is a single-member limited liability company that is disregarded as an entity separate from its owner, only the owner may claim the credit.

EFFECTIVE DATE: Upon passage and applicable to income years beginning on or after January 1, 2010.

9 & 10 — VOCATIONAL REHABILITATION JOB CREATION TAX CREDIT

Applicable Taxes

The bill authorizes insurance premium, corporation business, and personal income tax credits for businesses hiring Connecticut residents with disabilities under terms and conditions that are similar to those governing the bill's small business job creation credits. A business cannot apply the credit against their payroll withholding taxes. The bill imposes a combined $ 11 million per year cap on these credits, the job creation credits described above, and the credits authorized under the existing job incentive tax credit program (CGS 12-217ii).

Credit Amount

The bill authorizes three-year credits for businesses that hire people with disabilities who meet the bill's criteria. The maximum credit is $ 200 per month for each new employee.

Businesses claiming the bill's credits for hiring new employees cannot count these employees toward other credits the law allows. These credits include those authorized under the job incentive and the enterprise zone (CGS 12-217) programs.

Eligible Employees

A business can claim the credit if it hires a new employee who lives in Connecticut and has a physical or mental impairment that makes it hard for him or her to find work. The business must have hired the employee during 2010 and after the bill's effective date. The employee must work at least 20 hours per week for at least 48 weeks per calendar year. He or she must also be on the payroll at the close of the business' income year.

As under the bill's small business job creation tax credit program, the employee must be someone who did not work for a related business during the previous 12 months.

Accessing the Credit

Application to DECD. The application requirements and process is the same as the one for accessing the small business job creation tax credits.

Apportioning Credits against the Income Tax. The business must claim the credit for the income year in which it created the job and hired a new employee to fill it and each of the two subsequent years if the employee held the job for the full year. Unused credits expire and cannot be refunded.

The bill allows shareholders and partners of S corporations and partnerships to claim the credit against the personal income tax. With respect to single-member limited liability companies that are disregarded as entities separate from their owners, only the company's owner may claim the credit.

EFFECTIVE DATE: Upon passage and applicable to income years beginning on or after January 1, 2010

11 — RENEWABLE ENERGY SALES AND USE TAX EXEMPTION

The bill exempts from the sales and use tax items sold, stored, used or consumed in the renewable and clean energy technology industries. These industries produce, improve, or develop solar energy electricity generating systems, passive or active solar water or space heating systems, and wind power electric generation systems and related equipment. The exemption applies machines, equipment, tools, materials, supplies, and fuel sold, stored, used, or consumed in these industries.

The law already exempts the sale and use solar energy electricity generation, passive or active solar water or space heating, and geothermal resource systems, including related equipment and their installation.

EFFECTIVE DATE: July 1, 2010 and applicable to sales occurring on or after that date

12 & 13 — PRE SEED FUNDING

The bill requires Connecticut Innovations, Inc. (CII) to provide capital and support services to businesses developing new concepts. It authorizes $ 5 million in bonds for these purposes and establishes a nonlapsing General Fund account to receive the bond proceeds.

A business qualifies for financing and technical support if it is principally located in Connecticut and at least 75% of its employees work here. It must also show that it received private investments that at least equal half the state's investment. Under the bill, it qualifies up to $ 150,000, which may be used only to prove new concepts (i. e. , pre seed financing).

The bill allows CII to run the program itself or through nonprofit corporation serving entrepreneurs and businesses. If CII chooses the latter, it must enter into a personal services agreement with the corporation.

EFFECTIVE DATE: July 1, 2010.

14 — NEW INSURANCE REINVESTMENT FUND PROGRAM

Funding Mechanism

The bill phases out the existing Insurance Reinvestment Tax Credit Program and replaces it with similar version using the same type of funding mechanism as the existing one. In this mechanism, (1) state-designated funds organize to make business investments, (2) businesses are designated to receive the funds' investments, and (3) taxpayers qualify for tax credits by investing in the designated businesses through the funds.

The existing version offers insurance premium, corporation business, and personal income tax credits to taxpayers that invest in insurance businesses through a state-designated fund. Taxpayers must claim these credits over 10 years, but only if the insurance business receiving the investment (1) developed a new facility, (2) occupies it over the 10-year period, and (3) employs at least 25% of its workforce in new jobs. Taxpayers may claim the credits or transfer them to other taxpayers. In either case, they must forfeit or repay the credits if the business fails to meet specific performance standards.

The new version has the same funding mechanism but matches different investors and businesses. Because the bill's tax credits apply only to the insurance premium tax, only insurance companies can invest through a state-designated fund. The fund can invest in any Connecticut-based business, not just insurance companies, as under current law. An insurance company qualifies for credits if it invests in a fund that invests in a business that:

1. employs fewer than 250 people when the insurance company invested the funds;

2. netted no more than $ 10 million in the previous year; and

3. conducts it principal operations in Connecticut, that is, at least 80% of its workers live here or 80% of its payroll goes to Connecticut residents.

While the existing component imposes performance standards on insurance companies receiving the investments, the new version imposes them on the investment fund. If a fund that fails to meet the standards, investors risk forfeiting unclaimed credits. The bill imposes a $ 40 million annual cap and a $ 200 million aggregate cap on the amount of credits investors can claim.

Eligible Investors and Investments

As noted above, only insurance companies qualify for the bill's credits. A company qualifies only if it invests cash, at par or at a premium, that fully pays for an equity interest in an approved insurance reinvestment fund or in an eligible debt instrument it issued.

A fund's debt instrument cannot:

1. mature less than five years after it is issued,

2. repay the debt faster than paying the principal in equal installments over five years, and

3. base interest, distribution, or other payments on the fund's profitability or investment success.

In addition, investments qualify for credits only if the fund is closed to additional investments and investors after it applies to the DECD commissioner for certification as an insurance reinvestment fund.

The companies investing the funds may claim the credit only if the fund invests in Connecticut-based businesses that employ fewer than 150 employees. As noted above, a business meets this standard if at least 80% of its employees reside in Connecticut or 80% of its payroll goes to such employees. The may invest no more than 15% of the credit-eligible funds in one business without the commissioner's prior approval.

It may also invest credit-eligible funds in bank deposits, certificates of deposit, or other fixed income securities. (Presumably, a fund would do so until it is ready to invest the funds in an eligible business. The bill does not specify how the fund must account for the interest income these investments earn. )

Eligible Funds

Insurance companies qualify for the credits only if they invest in a state approved “insurance reinvestment fund,” which can be a Connecticut partnership, corporation, trust, or limited liability company. The fund can be organized on a for-profit or nonprofit basis, but it must be managed by at least two principals or people that each has at least four years of experience managing venture capital or private equity funds with at least $ 50 million invested by people unaffiliated with the fund's manager.

The insurance companies investing in the fund cannot control it. Under the bill, a fund retains control if each insurer invests no more than $ 40 million and no one insurer can vote over half of the fund's equity interest. But any insurer can take interim control of the fund if it breaches any payment obligation or contractual agreement affecting company's ability to claim credits.

Insurance companies' cash investments cannot be the fund's only capital. Under the bill, equity from other investors must equal at least 5% of the fund's total eligible capital.

Application and Certification of Credits

Investors qualify for credits only if the DECD commissioner certified the fund and allocated credits to it. She must do so only if funds meets the bill's criteria. In approve a credit allocation, she does so contingent on the fund subsequently confirming that the investors actually invested the amounts indicated in the application. She must begin accepting applications on or before July 1, 2010 (which is before the bill takes effect on July 1, 2010). Each application must:

1. indicate the amount of capital the fund will raise;

2. include an affidavit from each investor committing investments to the fund;

3. include a nonrefundable $ 7,500 application fee;

4. contain evidence that the fund qualifies an insurance reinvestment fund; and

5. commit the fund to invest at least 25% of the credit-eligible investments in businesses in which at least 25% of the jobs use or develop “green technology” and may include occupational codes the Labor and DECD commissioners' identify as green jobs.

As discussed below, the bill limits the total amount of credits that insurers can annually claim. Consequently, the fund may not apply for more than the total amount credits available in each of the 10 years during which its investors may claim them. The application must also include a plan showing the rate at which the fund intends to invest the capital, the types of businesses it intends to invest in, and jobs it expects to create or retain after it has invested all of the capital. Specifically, the plan must show:

1. the approximate share of funds to be invested by third, fifth, seventh and ninth years after the fund was fully capitalized by the investors seeking the credits;

2. the types of businesses targeted for investment and their respective share of the investment dollars;

3. the share of investments going to businesses engaged in research and development or manufacturing, processing, or assembling technology-based products;

4. a commitment to invest at least 3% of the credit-eligible capital in preseed investments within three years after the fund was fully capitalized by the investors seeking the credits; and

5. that the tax revenue the investments will generate equal or exceed the credits' value. The commissioner may require the fund to have a third party prepare the revenue estimate.

The fund must invest the latter in consultation with CII and the preseed financing program the bill requires it to establish (see 10-11, above).

As discussed below, the fund must comply with its investment plan or risk decertification, which could jeopardize its investors' unclaimed credits. But it can, with the commissioner's approval, change its plan. The fund may do so due to unavoidable or reasonably unexpected changes, including economic changes, technological advances, high employment, and opportunities for revenue growth. The commissioner cannot unreasonably withhold approval.

As noted above, the commissioner approves credit allocations contingent on the fund confirming that investors actually invested the amounts indicated in the application. The fund must provide this confirmation on a form the commissioner's provides. The bill specifically requires each insurance company to invest the capital specified in the fund's application within five days after the commissioner certifies the fund. The fund must notify the commissioner if a company fails to invest in the fund within five days of certification by overnight common carrier delivery service. The company forfeits its credit allocation, which the commissioner must reallocate to the other insurance company investors. The company and the fund must each pay a $ 25,000 administrative penalty.

Insurance Premium Tax Credits

The credits under the new component apply only to the insurance premium tax and equal 100% of an insurance company's investment in a fund. The company must claim the credits over 10 years, beginning in the fourth year after it invested in the fund. It can claim up to 10% of the credit per year in years four through seven, inclusive, and 20% per year in the last three years. As under the existing program, the company may carry unused credits forward for up to five years.

Funds with multiple investors must decide how to allocate the credits among them. Presumably, the amount of credit each investor receives is proportionate to its investment, and the fund indicates each investor's share of the credits in its application to DECD. Apparently, DECD approves the allocation plan when it approves the application and certifies the fund. The bill requires DECD to approve applications, including credit allocation plans, on a first-come, first-served basis. If DECD receives several applications on the same day, it must approve them simultaneously.

When approving credits, DECD must ensure that the total amount of credits claimed each year does not exceed the bill's $ 40 million annual cap and $ 200 million aggregate cap on the amount of credits companies. When allocating new credits, DECD must determine the value of those it already approve, project how much companies can claim each year, and determine the resulting annual balance of unallocated credits. The balance acts as cap on the amount of additional credits DECD can approve. If two or more funds request an allocation on the same day, DECD must prorate the balances among the funds.

Companies may claim the credits under the same rules that apply under the existing program. These address how companies submitting a combined return may claim the credits.

Lastly, companies claiming credits under the bill cannot claim the other credits the law allows for same investment.

Continuing Certification

Performance Standards. The bill's performance standards address the rate at which a fund invests the credit-eligible capital, the share of capital it must invest in certain types of businesses, and the state revenue its investment generates. The fund must meet its own investment schedule, as specified in the business plan accompanying its application for certification and credits and show that the tax revenues at least equal the credits' value. The fund must also invest at least:

1. 60% of its credit-eligible capital in eligible businesses within four years after DECD approved its credit allocation and

2. 100% of the funds within 10 years of that date.

The fund must also invest in certain types of businesses. By the tenth year, it must at least 25% of the credit-eligible capital in green technology businesses.

Annual Performance Reports and Commissioner Reviews. By every January 31 funds must annually report to the commissioner on the status of their investments. Each report must show:

1. the year-end balance for credit-eligible funds;

2. each business receiving investments in the prior year, including its location and industry classification code;

3. the percentage of credit-eligible funds invested in green technology businesses; and

4. distributions or payouts the fund made during the previous year.

The annual reports for the third, fifth, seventh, and ninth year must also show if the fund (1) is investing credit-eligible capital at the rate it projected in its plan and (2) generating tax revenues that at least equal the credits' value. Besides these reports, each fund must also submit its annual audited financial statements to the commissioner.

Decertification. The commissioner must review the annual reports to determine if a fund is complying with its investment targets and the bill's distribution rules. She may decertify a fund if it fails to submit the reports, meet its targets, or comply with the distribution rules. Before doing so, the commissioner must notify the fund's officers in writing that she can decertify the fund after 120 days unless she waives the deficiencies or the fund corrects them.

Forfeiting Credits. The commissioner shall forfeit a fund's future, unclaimed credits if (1) she decertifies the fund within four years after she approved the credits and (2) it invested less than 60% of the eligible capital by that date. If she decides to forfeit the credits, she must send a written notice to that effect to each investor that must forfeit credits.

Distributions

A fund cannot begin paying investors returns on investment (i. e. , distribution payments) until it meets specific requirements. The fund must have invested all of the credit-capital in eligible businesses, with at least 25% of the amount invested in green technology businesses. The businesses must still be operating in Connecticut when the fund distributes the dollars.

But the bill specifies conditions under which the fund may distribute funds before it meets these standards.

1. The fund may do so if the way it is owned, managed, or operated affects its earnings or other tax liabilities to the point where the equity owners must pay additional federal or state taxes, including interest and penalties.

2. The fund may also distribute funds to make principal and interest payments on its debt. But, if it does so, the total value of the fund's cash and other marketable securities plus its cumulative investment in eligible businesses must equal at least 60% of its credit eligible capital.

3. Lastly, the fund may distribute funds to cover the reasonable costs and expenses of forming, syndicating, managing, and operating the fund as long as it does not distribute or pay funds directly or indirectly to an insurance company investor.

The bill specifies conditions when a fund must include the state in a distribution. It must do this when it distributes returns on investments that do not qualify for credits and it failed to meet the job goals specified in its business plan. Specifically, the fund give the state (1) 10% of any distribution when the number of jobs that were actually created or retained falls between 80% and 60% of the planned totals and (2) 20% when the jobs number is 60% or less of the planned total.

EFFECTIVE DATE: July 1, 2010

14 — CHANGES TO EXISTING INSURANCE REINVESTMENT ACT PROGRAM

The bill phases out the existing program. It temporarily removes the ban, until June 30, 2010, on allocating credits to funds formed on or after July 1, 2000. But it requires the DECD commissioner to revoke a fund's eligibility certificate if it fails to invest at least $ 1 million by July 1, 2011.

To avoid this, a fund that has not yet received a certificate of continued eligibility must show DECD that it has met the $ 1 million investment threshold. It must do so by June 30, 2011, providing documentation to the commissioner's satisfaction. The documentation may be canceled checks, wire transfers, investment agreements, or documentation the commissioner request.

The bill also specifies that Connecticut residents must hold the new jobs insurance companies create under the existing program. Under that program, taxpayers may claim credits only if the insurance business receiving their investments occupies a new facility and employs at least 25% of their workforce in new jobs. By law, a new job is one that did not exist in the business before the fund applied for certification. The job must be held by a new employee, which does not include existing employees reassigned from another facility.

Lastly, the bill specifies that investors who received credits before January 1, 2010 may carry them forward as the law allows. This provision applies to investors and taxpayers to whom they transferred the credits.

EFFECTIVE DATE: July 1, 2010.

15 — ANGEL CREDITS AND ANGEL INVESTORS

Tax Credit

The bill authorizes personal income tax credits for people who invest at least $ 100,000 in Connecticut start-up businesses in specified sectors (i. e. , angel investors). The credit equals 25% of the cash investment, up to $ 250,000. Taxpayers receiving the credits cannot transfer them to other taxpayers. Nor can they claim them against that portion of the wages an employer must withhold from an employee's wages for income taxes.

The bill limits the total credits all angel investors may claim to $ 6 million per year in FYs 11 and 12 and $ 3 million per year in each subsequent fiscal year until FY 19, after which the authorization for the credits expires. CII must administer the credits, and angels cannot claim credits on or after July 1, 2014.

Eligible Investors

A person qualifies as an angel investor if he or she is an “accredited investor” under Security and Exchange Commission (SEC) rules or a network of such investors. (Accredited investors are typically upper-income, high-net-worth individuals and entities—see BACKGROUND. ) Angels usually invest in businesses that interest them and consequently seek a role in fostering the business' development, usually as a consultant or mentor.

Under the bill, angel investors do not include:

1. someone who controls 50% or more of the business receiving the investment;

2. a venture capital company; or

3. any bank, savings and loan association, trust, insurance company, or similar entity for activities that are part of its normal business.

Businesses Eligible for Angel Investments

The bill specifies criteria a business must meet before an angel can invest in it and claim a credit. The business must engage in bioscience, advanced materials, photonics, information technology, clean technology, or an emerging technology, as determined by the DECD commissioner.

The business must have its principal place of business in Connecticut and have:

1. gross revenues under $ 1 million in its most recent income year;

2. fewer than 25 employees, at least 75% of whom are Connecticut residents;

3. operated in Connecticut for less than seven consecutive years; and

4. received less than $ 2 a million in eligible investments from angel investors.

Lastly, the business' managers and their families must be the primary owners and, as described below, the business must have been identified by CII as eligible for angel investment.

Applying for Investment Credits

The bill creates a mechanism for connecting businesses seeking angel investments with potential angel investors. A business seeking such an investment must apply to CII for approval. CII must create and maintain a list of such businesses and make it available to angel investors for review. In order for CII to approve an eligible business and add it to its list, the business must provide:

1. its name and a copy of its organizational documents;

2. a business plan describing the business and its management, product, market, and financial plans;

3. a description of its innovative and proprietary technology, product, or service;

4. a statement of its potential economic impact, including the number, types, and location of jobs it expects to create;

5. a description of the qualified securities it offers, their cost, the amount of cash investment sought;

6. the amount, timing, and projected use of the proceeds from the sale of these securities; and

7. any other information CII requires.

CII's executive director must compile the list monthly, beginning by August 1, 2010. The list must categorize the businesses by the amount of cash investments sought and the type of qualified securities they offer.

Accessing the Credits

An angel investor who plans to invest in an eligible business must apply to CII to reserve tax credits. In doing so, the investor must indentify the business and the amount he or she plans to invest.

The investor may claim the credit only for cash investments in the business' qualified securities, which can be any form of equity, including general or limited partnership interests, any type of common stock, or preferred stock with or without voting rights and without regard to seniority position that must be convertible into common stock.

Using or Transferring Credits

The bill extends its credits to people who own a business or shares in a business that is not liable for business taxes. These owners, shareholders, and partners pay income taxes on their share of the income the business generates.

The bill allows the credit for an S corporations or partnership to be claimed by the shareholders or partners. For single member limited liability company that is disregarded as an entity separate from its owner, only the company's owner may claim the credit.

Credits cannot exceed the total income tax an investor owes in a given year. The investor must claim the credit in the same year he or she invested the funds, but can carry forward unused credits for up to five succeeding years.

Credit Evaluation

The bill requires CII to review the credit's effectiveness but it specifies no criteria for doing so. CII must complete the review by July 1, 2014 and report to the Commerce Committee.

EFFECTIVE DATE: July 1, 2010 and applicable to tax years beginning on or after January 1, 2010

16 — WASTE REDUCTION TASK FORCE

The bill establishes an 12-member task force to determine how state agencies and departments can reduce or eliminate duplicative procedures and paper usage. The task force must determine how technology can help agencies and departments achieve these goals.

The task force consists of state officials and corporate executives, economists, and information technology experts. It includes the administrative services commissioner, the OPM secretary, and the Information Technology Department's chief information officer, or their designees. The other members are appointed by the governor and legislative leaders. The House speaker and Senate president pro tempore each appoint two, and the governor and the other four leaders each appoint one. They must make their appointments by July 30, 2010. Members must serve without compensation, but are reimbursed for expenses.

The speaker and president pro tempore select the task force's co-chair persons from among the members. The chairpersons must convene the task force's first meeting by August 29, 2010. The Government Administration and Elections Committee's administrative staff must provide administrative support. The task force must submit its findings and recommendations to the Commerce and Government Administration and Elections committees by February 1, 2011.

EFFECTIVE DATE: July 1, 2010

17 — DECD COMMISSIONER BUSINESS DEVELOPMENT POWERS AND DUTIES

The bill directs the commissioner to take specific actions in certain policy areas.

Exports, Manufacturing, Clusters and Regulatory Assistance. The bill requires the commissioner to take more steps to promote exports and manufacturing by assigning enough available staff to (1) provide technical assistance to businesses regarding exporting and manufacturing, (2) help groups of businesses in the same industry implement policies designed to improve their overall competitiveness (i. e. , cluster-based initiatives), and (3) help businesses understand regulatory requirements. She must do these things by reallocating funds from other DECD accounts and programs.

Marketing and Technology Development. The bill requires the commissioner to develop a marketing campaign that promotes Connecticut as a place of innovation. It also requires her to implement a 2000 agreement with Massachusetts to promote the biomedical device industry in the Connecticut River Valley region between Hartford and Springfield (i. e. , the New England Knowledge Corridor). The commissioner must complete both tasks by reallocating funds from other DECD accounts and programs.

Applying for Federal Funds. The bill requires, rather than allows, the commissioner to apply, qualify, and accept federal funds related to economic development. It also requires her to describe what she did to secure these funds in her comprehensive annual report to the legislature.

EFFECTIVE DATE: July 1, 2010

18 — MANUFACTURING ASSISTANCE ACT (MAA) EXPANSION

The bill authorizes the DECD commissioner to use MAA funds to support exporting. Current law allows her to use these funds to create and support organizations that provide technical and engineering services to businesses. The bill allows her to create and support activities, as well as organizations, that leverage federal resources that provide these services to businesses promote the export of products and services.

The bill allows the commissioner to use MAA funds to promote exporting, including sponsoring export support programs, helping companies access U. S. Department of Commerce export assistance services, and providing export-related marketing materials and website improvements. Lastly, the bill makes export assistance eligible for MAA funding.

EFFECTIVE DATE: July 1, 2010.

19 & 20 —CONNECTICUT COMPETITIVENESS COUNCIL

Organization

This bill establishes a 21-member council to promote the state's industry clusters. The members include specified state officials and representatives of different sectors appointed by the governor and legislative leaders. The state officials are the governor; the six legislative leaders; the labor, transportation, developmental services, and higher education commissioners; and the Office of Workforce Competitiveness executive director, or their designees. The governor appoints the chairperson.

As Table 1 shows, the governor and legislative leaders must appoint representatives of specific sectors.

Table 1: Appointed Members of Connecticut Competitiveness Council

Sector

Total Number of

Representatives

Appointing Authorities and Number of Appointments

Business

5

Governor: 3

House minority Leader: 1

Senate minority Leader: 1

Organized Labor

2

House Speaker: 1

Senate president pro tempore: 1

Academic

Institutions

2

House majority Leader: 1

Senate majority Leader: 1

The council's business representatives must be chief executive officers or chief operating officers or people holding an equivalent position. They must come from key industry clusters and large and small firms.

Terms and Vacancies

The appointed members serve four-year terms, except for five of the initial members, who serve only two-year terms. Those serving initial two-year term are the members appointed by the governor and the House majority and minority leaders. Each appointing authority must fill any vacancy to their appointments, and the person filling the vacancy must serve for the balance of the term. The members serve without compensation, but are reimbursed for necessary expenses while performing their duties. The council must meet at least quarterly.

Purpose

The council's major purpose is to promote the formation of industry clusters—groups of businesses providing the same products or services, using similar processes and techniques, having similar workforce needs, and buying mostly the same types of supplies and support services. (DECD has designated nine clusters: aerospace components manufacturing, agriculture, bioscience, insurance and financial services, maritime, metal manufacturing, plastics and plastics manufacturing, software and information technology, and tourism. )

The council must help businesses form clusters and use them to address their strategic needs and monitor, assess, and evaluate their activities. The council must also help state officials develop and implement policies supporting clusters. Specifically, it must:

1. recommend how clusters should be defined;

2. advise and assist legislators and executive branch officials, as well as businesspeople, on economic competitiveness, industry clusters, and economic development; and

3. develop medium- and long-term strategies for enhancing clusters' development and economic competitiveness.

To perform these tasks, the bill authorizes the council to obtain any assistance and data it needs from any state entity. It also authorizes the council to obtain funds from any source and other resources needed to fulfill its mission, which it must do in compliance with the rules governing these funds and resources. Lastly, council can do other things needed to fulfill its statutory purposes and objectives.

Report

The council must report annually to the governor, the DECD commissioner, and the Commerce Committee on the competitiveness of the state's industry and economy, beginning January 1, 2011.

Innovation Network Task Force

The bill substitutes its Connecticut Competitiveness Council for the Governor's Competitiveness Council as advisors to a 2005 interagency group formed to recommend a plan and budget for establishing an innovation network. Governor Rowland's 1998 executive order 13 created The Governor's Competitiveness Council to promote, among other things, the development of industry clusters. Governor Rell's 2009 executive order 24 eliminated the council along with several other advisory bodies.

EFFECTIVE DATE: July 1, 2010

21 — BONDS FOR MORTGAGE CRISIS JOB TRAINING PROGRAM

The bill authorizes $ 1. 3 million in bonds for the mortgage crisis job training program, which provides rapid, customized employment services, job training, repair training, and job placement assistance to borrowers who are unemployed, underemployed, or in need of a second job (CGS 31-3nn).

EFFECTIVE DATE: July 1, 2010

25-28 — SUNSET OF EXISTING TAX CREDIT PROGRAMS

The bill eliminating granting tax credits for the following purposes for the income years beginning on or after January 1, 2014:

1. the 50% credit for donating new or used computers to public or private schools,

2. 50% credit for financial institutions developing facilities and creating jobs a 25% credit for an additional five years, and

3. 100% credit for Small Business Administration guaranty fees.

EFFECTIVE DATE: July 1, 2011

29-30 — GREEN MANUFACTURING PILOT PROGRAM

The bill authorizes $ 500,000 in bonds for a pilot program to help manufacturers convert their facilities into green operations or implement energy efficiency measures by using lean manufacturing strategies. Manufacturers qualify for assistance if they are principally located in Connecticut and have fewer than 250 employees, at least 75% of whom work here.

DECD must implement the program. It may contract with a third party to provide services to eligible manufacturers. The services can include increasing operational efficiencies, reducing practices that add little or no value to the operation and wasteful practices and processes, and engaging managers and workers in practices that improve service delivery.

EFFECTIVE DATE: July 1, 2010

32—JOB IMPACT ANALYSIS

The bill requires the Office of Fiscal Analysis (OFA) to determine the resources it needs to determine how bills affect public and private sector jobs. Resources include equipment, software, expertise, and personnel. OFA must report its results to the Office of Legislative Management by December 1, 2010.

EFFECTIVE: Upon passage

BACKGROUND

Related Bill

sSB 395 (File 259) and SB 454 (File 307), which the Commerce Committee favorable reported on March 18, contains identical provisions regarding the DECD commissioner's duties and exporting under MAA.

COMMITTEE ACTION

Commerce Committee

Joint Favorable Substitute

Yea

19

Nay

1

(03/23/2010)

Appropriations Committee

Joint Favorable

Yea

46

Nay

0

(04/19/2010)

Finance, Revenue and Bonding Committee

Joint Favorable

Yea

39

Nay

7

(04/23/2010)