OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 (860) 240-0200

http://www.cga.ct.gov/ofa

sSB-1

AN ACT CONCERNING INNOVATION, ENTREPRENEURSHIP AND CONNECTICUT'S ECONOMIC FUTURE.

OFA Fiscal Note

State Impact: See Below

Municipal Impact: See Below

Explanation

SUMMARY

The bill results in the following impacts enumerated below. Specifically the bill:

1. Repurposes $164.75 million from existing bond authorizations for various programs and funds established under the bill.

2. Extends the angel investor tax credit for three years, resulting in a revenue loss of $3 million from FY 17 to FY 19.

3. Creates a Mentorship Network, resulting in (1) a potential cost of up to $50,000 to the Department of Economic and Community Development (DECD) and (2) a potential acceleration of debt service costs associated with the potential forgiveness of certain state assistance.

4. Requires Connecticut Innovations (CI) to relocate its main office and create satellite offices in innovation districts, resulting in a cost of at least $50,000 to the agency.

5. Requires CI to enter into venture capital agreements, resulting in a potential acceleration of debt service costs, depending upon CI's need for additional state bonds to support these agreements.

6. Establishes a tax credit for certain investments made through the Startup CT program, resulting in an aggregate revenue loss of $60 million in the out years.

7. Allows for the creation of up to ten knowledge enterprise zones, resulting in (1) a potential significant annual revenue loss to the corporation tax and real estate conveyance tax and (2) a potential grand list reduction to certain municipalities.

8. Requires the University of Connecticut to lease property from the city of Waterbury as part of a downtown campus, resulting in an outyears cost in excess of $150,000 per year.

The following sections provide further detail on the impacts by topic.

BONDING

The bill reauthorizes and repurposes bond authorizations for various agencies and programs for the new programs created within the bill.

1. Manufacturing Assistance Act

The bill carves out $120 million from the Manufacturing Assistance Act (MAA) for various purposes listed in the table below.

Manufacturing Assistance Act Bond Authorizations

To Agency/Program

Amount

Description

ImpaCT

25,000,000

Innovation District program grants and planning grants

ImpaCT

5,000,000

Innovation Places Grants

ImpaCT

25,000,000

Accelerate CT

Startup CT

60,000,000

Loans

SDE

5,000,000

Grants to technical high schools

TOTAL

120,000,000

 

The current unallocated bond balance for MAA, after the March 24 State Bond Commission meeting, is approximately $114.3 million. An additional $100 million is authorized for FY 17 from PA 15-1 JSS. sSB 11, as voted out of committee, includes a cancellation of $10 million.

Background: The Manufacturing Assistance Act is a multipurpose program administered by DECD which provides different types of financing for businesses and infrastructure development, including the First Five Program. The State Bond Commission allocated $119,478,850 to MAA during FY 15.

2. Connecticut Innovations Recapitalization

The bill carves out $35 million from bond authorizations for the recapitalization of CI for various purposes listed in the table below.

CT Innovations Recapitalization Bond Authorizations

To Agency/Program

Amount

Description

ImpaCT

25,000,000

$5 million per year from FY 17 to FY 21 for purposes of ImpaCT outlined in the bill

ImpaCT

5,000,000

$1 million per year from FY 17 to FY 21 for technology purposes

UConn

5,000,000

$1 million per year from FY 17 to FY 21 for hiring staff for its entrepreneurship program.

TOTAL

35,000,000

 

The current unallocated bond balance for CI's recapitalization , after the March 24 State Bond Commission meeting, is approximately $85 million. sSB 11, as voted out of committee, includes a cancellation of $35 million.

Background: PA 11-1 of the October Special Session, authorized a total of $125 million for grants-in-aid to recapitalize the CI's programs. CI's current venture pipeline alone is over $31 million in order to finish out FY 16 and continue through FY 17. The breakdown of the Equity Pipeline is as follows:

• $10 million for Follow-on Funding for current portfolio,

• $15 million in Equity Pipeline for new companies and

• $6 million in PreSeed Funds.

The State Bond Commission allocated $80 million of the $125 million since 2011 to CI.

3. Connecticut Manufacturing Innovation Fund

The bill carves out $2.75 million from the Connecticut Manufacturing Innovation Fund (MIF) for providing grants under the technology talent program ImpaCT develops.

The current unallocated bond balance of MIF is $29.5 million as of March 24th. sSB 11, as voted out of committee, includes a cancellation of $10 million.

Background: The Manufacturing Innovation Fund, administered by DECD, targets financial assistance to support the growth, innovation, and progress of Connecticut's advanced manufacturing sector. It provides matching grants to manufacturers to assist with purchase of equipment as well as research and development costs. The State Bond Commission allocated $13.5 million to MIF during FY 15.

4. UConn 2000

The bill carves out $7 million from the UConn 2000 authorization to finance a project at the UConn Waterbury campus. The bill subsequently decreases an existing Academic and Research Facilities project from $450 million to $443 million to do so.

IMPACT

Sections 1 – 4, 11 and 12 establishes ImpaCT within CI. The bill provides $5 million in bond authorizations carved out of CI's recapitalization authorization for the purposes of funding the entity and its duties as outlined in the bill.

The bill also establishes various programs to be administered by ImpaCT, including the Innovation District program, Accelerate CT, and Innovation Talent Fund. These programs are also funded by existing bond authorizations carved out under the bill, as listed above.

CONNECTICUT INNOVATION RELOCATION

Section 11 results in a one-time cost of up to $50,000 in moving expenses to CI by requiring the agency to relocate its main office to an innovation district and establish a satellite office in each of the other districts. The agency may also incur potential increases in rent associated with more offices and new locations.

As a quasi-public state agency, CI's funding sources include returns on investment and loans, as well as General Obligation (GO) bonds proceeds from the state, as mentioned above. The identified costs will not be incurred by state-appropriated funds.

VENTURE INVESTMENTS

Section 13 requires CI to enter into venture capital agreements, investment agreements, and other similar agreements. It is anticipated that CI may require additional GO bond funds to support this requirement. Future General Fund debt service costs may be incurred sooner under the bill to the degree that the bill causes authorized GO bond funds to be expended more rapidly than they otherwise would have been. 

STARTUP ENTREPRENEUR MENTORSHIP NETWORK

Section 15 requires DECD to establish a mentorship network for entrepreneurs and provide training for businesses seeking to participate in the network. There is a potential cost of up to $50,000 to DECD to create the network and provide training supports to participants. The cost will depend upon the level of training and outreach needed to prepare businesses for roles as mentors.

The bill also allows DECD to forgive a portion of any state assistance received by certain businesses if they are participating in the network. This may impact repayments that may otherwise be used for future projects.

Such assistance is typically funded by GO bond funds. Future General Fund debt service costs may be incurred sooner under the bill to the degree that the bill causes authorized GO bond funds to be expended more rapidly than they otherwise would have been. 

PRIORITY SMALL BUSINESS EXPRESS

Section 17 allows DECD to give priority for financial assistance in the Small Business Express program to businesses located in innovation districts. There is no anticipated fiscal impact.

STATEWIDE MARKETING ACCOUNT

Section 18 expands the Statewide Marketing account, a General Fund appropriated account, to include innovation and entrepreneurship.

sHB 5044, the revised FY 17 budget bill, as favorably reported by the Appropriations Committee, appropriates $8 million to the account in FY 17.

ANGEL INVESTOR TAX CREDIT

Section 19 extends the Angel Investor Tax credit program through July 1, 2019 and makes the credits transferable, which results in a $3 million revenue loss annually from FY 17 through FY 19.

STARTUP CT

Section 20 establishes a tax credit for certain investments made through the Startup CT program under the bill. This results in an aggregate revenue loss of $60 million in the out years; it is anticipated that revenue loss will occur no earlier than FY 20 and will not exceed $30 million in any given fiscal year.

KNOWLEDGE ENTERPRISE ZONES

Section 22 allows DECD to establish up to ten knowledge enterprise zones. These zones receive the same benefits as those located in general enterprise zones.

This may result in a significant annual revenue loss from the corporation tax and the real estate conveyance tax beginning as early as FY 17. The revenue loss could be off-set by additional tax revenue from the creation of new or the expansion of existing businesses to the extent that these financial incentives result in economic development that otherwise would not have occurred.

There is a potential grand list reduction to municipalities with knowledge enterprise zones beginning as early as FY 18 due to multiple five-year property tax breaks for which certain businesses located in enterprise zones are eligible. Such grand list reductions result in a loss of property tax revenue, given a constant mill rate. Towns will be partially reimbursed for the revenue loss relating to this provision via the Distressed Municipalities grant program administered by the Office of Policy and Management. Correspondingly, this increases the cost of fully funding the Distressed Municipalities grant program.  As the grant is subject to proration, if the grant is not fully funded, then an increase in grant funding to towns with knowledge enterprise zones will result in a decrease in funding to other towns that receive Distressed Municipalities funding.

UCONN WATERBURY CAMPUS

Section 25 of the bill results in a future cost to the University of Connecticut in excess of $150,000 per year and an equal revenue gain to the city of Waterbury as it requires the university to lease property from Waterbury as part of a downtown campus.  The university currently leases a smaller property in downtown Waterbury for $150,000 per year. 

The Out Years

State Impact: See Above

Municipal Impact: See Above