CHAIRPERSONS: Representative Berger, Senator Fonfara
SENATORS: Boucher, Cassano, Coleman, Frantz, Leone, McLachlan, Moore, Winfield
REPRESENTATIVES: Albis, Alexander, Altobello, Arce, Berger, Berthel, Boukus, Brycki, Bumgardner, Candelora, Carter, Davis, Devlin, Floren, Fox, Harding, Hennessy, Hoydick, Lemar, Lopes, Morin, Mushinsky, Perillo, Piscopo, Rojas, Rutigliano, Sanchez, Santiago, Serra, Srinivasan, Stafstrom, Stallworth, Verrengia, Wood, Yaccarino, Zoni
REP. BERGER (73RD): If we could convene the Finance, Revenue and Bonding Committee meeting for Tuesday, March 22, public hearing. If we could please close the exit doors in the rear of the room please. Put your cell phones on vibrate or shut them off please. The Chair recognizes Representative Lemar for an announcement.
REP. LEMAR (96TH): Thank you, Mr. Chairman. Good evening, I mean good morning everyone. As you come in, if you could take a seat and close the doors. It's a little loud in here and it's hard for everyone to understand. In the interest of safety, I would ask that you note the location of and access to the exits in the hearing room. They are right behind you. You entered the room through them. They have the emergency exits overhead. In the event of an emergency, please walk quickly to the nearest exit. After exiting the room, go to your right and proceed to the main stairs or follow the exit signs to one of the fire stairs. Please quickly exit the building and follow any instructions from the Capitol police. Do not delay and do not return unless you are told to and you're advised that it's safe to do so. In the event of a lockdown announcement, please remain in the hearing room and stay away from the exit doors until an all-clear announcement is heard. Thank you very much, and have a wonderful day.
REP. BERGER (73RD): Thank you, Representative Lemar. We will go to the AUC elected and legislator list. For the first hour, we will maintain ourselves on the agency/elected/legislator list and then alternate off the public list to that. We are going to time everybody at three minutes, obviously for agency and elected. We will allow some latitude but we are going to try to stay en pointe for our three minutes on the public side because there are many people here that want to give testimony, and we want to give them the ability to be able to do that in a timely manner. First up, Senator Looney.
SENATOR LOONEY (11TH): Thank you, Mr. Chairman. Good morning. Senator Fonfara, Representative Berger, members of the Finance, Revenue and Bonding Committee, my name is Martin Looney, State Senator of the 11th District, representing New Haven, Hamden, and North Haven, it was my great honor to chair this [inaudible] committee for a number of years. It was among the best experiences I've had in the General Assembly.
I come before you today to speak in support of three bills on your agenda today, Senate Bill 1, Senate Bill 466, and Senate Bill 413. First of all, Senate Bill 1 is legislation which aims to create a robust, supportive ecosystem for innovators and entrepreneurs in Connecticut. As we know, Connecticut has many economic strengths and long has been a national and worldwide leader in innovation. In the concept of interchangeable parts, the Air Space Industry, the first can opener, the first color television, the first submarine and anesthesia, all owe their creation to Connecticut innovators. The sewing machine, the first artificial heart, the first FM radio station, first vacuum cleaner also got their start here.
Connecticut has a longstanding history of innovation and creation of new business ventures to commercialize those inventions, and this potential skill still exists today because we boast some enormous economic assets, leading research institutions like Yale, University of Connecticut, a highly educated and efficient work force, emerging strength and industries like bioscience and more Fortune 500 companies per capita than any other state.
But yet we have been lagging our region in many areas and in one key area, the formation of entrepreneurial startup companies. Since at least the year 2000, Connecticut has fallen behind other New England states and New York in the formation of new business establishments, and over the last 10 years, we've also seen the age distribution of all Connecticut firms shift slightly older. This is important because economists have established that job creation rates are highest at young companies, that is those that experience rapid growth. By contrast, older businesses generally maintain steady rates of employment, but this is not a criticism, it's simply the nature of our free market system where it is young businesses that have the option and the potential for greater growth.
An economy that wish to remain competitive in the globalized world of the 21st Century must provide a robust environment for the creation of new businesses and support of entrepreneurs. Looking across the country, we could see many examples of communities that excel at creating this environment including neighbors in Boston and the entrepreneurial dynamo, Silicon Valley in California. Boston is particularly instructive in that the city has long benefitted from world class research and scholarship on the nearby Harvard and MIT campuses and taken in conjunction with an entrepreneurial spirit in close collaboration with the business community, one of the strong entrepreneurial areas of the country has emerged. But Boston has not been content to rest on its laurels. It has undertaken a successful campaign to expand innovative activity and to become a magnet for a highly skilled workforce facilitating collaboration in many fields.
Connecticut is not trying to completely replicate what has gone on in Boston or Silicon Valley or New York City, but the innovation district model adopted in Boston is not limited to communities of that scale. At least 17 states across the country have seen some movement in this direction. The city of Pittsburgh, for instance, once famous for its steel mills, recently made itself the center of innovation, building on the strengths of Carnegie Mellon, University of Pittsburgh, and other key local institutions.
So, Senate Bill Number 1 lays out a robust five-part framework for the creation and support of a reinvigorated culture of innovation and entrepreneurship in Connecticut and provides for the creation of our own innovation districts but also takes steps to support entrepreneurs in other essential ways. First, promoting the availability of more private venture capital, supporting business accelerators, engaging our universities, clarifying state leadership, and last but not least focusing on job training to supply new businesses with skilled workers they need. As we proceed to discuss this framework, I would urge no one to miss [inaudible] the details of this bill, and the intent is not to advance a preconceived government-driven framework but to spur innovation in entrepreneurial activity in all of its forms. It's our hope to set a goal and target and move ahead to make Connecticut the kind of climate that attracts that degree of creative brilliance.
One word regarding the cost of these proposals. Our state faces significant and pressing budget challenges as we know as a consequence. All funding proposed in this bill would be reallocated from existing bonding resources. Innovation and entrepreneurship must focus in priority of our state's economic development efforts, and the state spending has to reflect that.
So first of all, focusing on the state as a partner. State government cannot be the primary driver of entrepreneurial progress, but it can be a convener and aid and a constant partner. We propose the creation of a new private/public partnership called Impact to promote and coordinate state activities concerning entrepreneurship and innovation. Crucially, this entity will be private-sector driven, led by an appointed panel of serial entrepreneurs and venture capitalists. To clarify roles, the bill aims to consolidate most startup support functions now performed at Connecticut Innovations and DECD into this new entity including the ongoing CT Next programs
Yet Connecticut Innovations has long been and will remain an essential backbone of state support for startup communities, but the bill proposes the creation of a new initiative, Startup CT, administered by CI, will take supportive startups in our state to the next level and proposes to refocus CI and what it has always done best, evaluating entry into investments with Connecticut startup companies. We also propose instituting performance-based pay ad CI and requiring every CI deal to include a private partner, to include offers to ensure that offers are competitive and attract new private capital in the state.
As described also in terms of the innovative activities in Boston and Pittsburg, Senate Bill 1 proposes the designation and support of innovation districts to bring innovators and entrepreneurs together in dense, highly walkable neighborhoods where there interactions with one another will amplify their accomplishments and create this climate of shared activity and new ideas feeding upon each other because of close proximity.
The bill envisions an open, competitive process to designate the districts with a panel of impacts serving to make the final decisions, and for a district to succeed, it must secure the broad support of an entire community, and for this reason, the bill encourages entire community groups to come together and collaborate on devising a community and private sector driven plan for a local innovation district less than one-half square mile in size.
So, for instance, if a particular community features a college, a hospital campus, an existing business incubator in close proximity to one another, those organizations might come together with a local business council or industry association to devise a plan for improvement and growth of their neighborhood as an innovation district. Applications would be judged on criteria enumerated in the bill including the breadth and quality of the group formed to apply, broad community support, plans to foster [inaudible] interactions among neighborhood residents, workers, and visitors, the roll and number of anchor institutions, which would be universities, research centers, hospitals, accelerators, and plan to make the most of mixed-use zoning, walkable areas, and access to public transit. Impact Connecticut may award grants to selected districts in support of their specified development plan. Impact might also award smaller grants to innovation places, which would be unique locations in any part of the state, which meet some of the same criteria and goals sought in innovation districts but on a smaller scale.
Startup businesses need much more than a driven founder and a clever concept. Mentors, advice, space to work, equipment, support services, and investment capital are all essential.
Senate Bill 1 proposes the creation of Startup CT through Connecticut Innovations, an effort modeled in part on the existing Invest CT programs. The program would establish six new private investor-led funds for the support of Connecticut startup companies. Each fund would leverage state funds and tax credits with private capital to support a greater number of companies. Investors' eligibility for incentivizing tax credits would be conditional on their companies meeting specified job creation targets.
The bill also propose Accelerate CT, which would be an initiative to support new privately run business accelerators, which takes startups with growth potential and provide them with a year of low or free rental space, business support services, and advice and sometimes access to capital equipment and other resources. Finally, the bill extends the existing [inaudible] investor tax credit, which would otherwise expire at the end of this fiscal year for an additional three years.
Also, Connecticut is home to some of our best colleges and universities in the world, and by capitalizing on innovations developed by Connecticut faculty and students, our state can harness their innovative spirit and ensure that every ground-breaking idea with businesses potential has the opportunity and support to be fully realized. We see some of this happening already in the City of New Haven with technology transfer from research being done at Yale.
Connecticut has invested billions to transform UConn into a top 20 public research university, but UConn has yet to establish itself in the area of research-driven entrepreneurialism, and Senate Bill 1 will conditionally provide one million in funds through Impact Connecticut to support new entrepreneur-oriented staff and programing at UConn provided that the UConn Foundation also raises one million to match and would also dedicate one of the six $30 million funds created through Startup Connecticut to support early-stage companies that grow out of UConn technology.
Impact CT will also be charged with creating an intercollegiate tech transfer office to provide packaging, licensing, and commercialization support services to both public and private colleagues in Connecticut who do not currently have such resources. This service will unleash the hidden potential of researchers and would-be entrepreneurs at private and public higher institutions across our state, indicating that some of the other smaller institutions like Wellesley and Trinity Conn College, Fairfield, Quinnipiac, University of New Haven would have access to this as well because it would focus assistance on those that don't have the large scale resources for their own fully developed technology transfer programs at this point and would also help to keep our young people with ideas here in Connecticut rather than being lured away to New York, Boston, or California. Also, new companies will of course need new employees to help run them and to ensure perspective employees to have the experience and training necessary to make the most of these opportunities.
Senate Bill 1 proposes added support for night classes at Connecticut vo-tech schools to teach information technology, digital media, skilled trades, and other valuable work skills to students of all ages. The bill also includes expanded support for the Dream-it, Do-it initiative, which helps to expose middle school students through workshops through all the facets of the field of manufacturing. It includes a manufacturing careers program to provide training and technical skills followed by six-week internships or more formal 12-week on-the-job training and also seeks to establish a statewide membership network to Connecticut would-be entrepreneurs and experienced mentors. So, this needs to be, this focus on innovation and entrepreneurship must be a major focus of our economic development strategy from this day forward, and while our significant, when we have had significant results in our current economic development efforts, we can and must take our broader economic strategy to the next level. We have many strengths but need to build on them in a more aggressive way to continue to be competitive in the world in which we now live. Again, I would urge your support for this comprehensive and innovative bill.
The second bill I wanted to mention is Senate Bill 466, which builds upon last year's historic bill on major property tax legislation that provided assistance through targeting sales tax revenue for relief of the motor vehicle tax, an adjustment to the pilot form to take into account that the communities have unequal amounts of tax-exempt property and also to provide a general distribution of municipal aid. Last year, as you recall, we capped the highly regressive property tax on automobiles at 32 mills. It will provide more than $77 million of direct tax relief to car owners across the state beginning this summer, and Senate Bill 466 contemplates some minor changes to the current law in keeping with the spirit of last year's reform legislation. So it provides for an adjustment to motor vehicle property tax grants that will alleviate fiscal impact of revenues lost to the new car tax cap. It will update the calculation of these grand amounts to reflect fiscal 16 rather than fiscal 15 mill rates. It will also -- later I understand there will be some further adjustments to deal with the particular situations some towns who have gone through a recent reeval that affects their mill rate.
The legislation also provides that 35 percent of grants awarded through the municipal revenue sharing account to counsel to governments be for the purpose of assisting regional education service centers in merging their human resource finance or technology service, which subservice is provided by other municipalities within the region. This furthers the state's longstanding policy goal of promoting regional efficiencies.
Third, the bill makes a few changes to the so-called soft cap on municipal spending that was introduced last year, in last year's bill, and under the current cap, under the current law, this cap applies only to municipal revenue sharing grants, that is the sales tax sharing grants. Should a town increase it's spending by the greater of 2.5 percent or the rate of inflation, the municipal revenue sharing grant would be proportionately reduced. No other municipal aid is affected under any circumstances although there has been some misinformation out there promoted among some small municipalities that all municipal grant were subject to this cap, and that is certainly not the case. The bill adds a few items to the list of exemptions to the cap including budgeting for an audited deficit, nonrecurring grants, nonrecurring capital expenditures of 100,000 or more, and payments in unfunded pension liabilities. Additionally, the legislation would allow spending cap thresholds to be adjusted upward in accordance with annual state population growth estimates. So for communities that are actually experiencing population growth, the cap would be adjusted proportionately.
Fourth, the bill offers municipal governments the ability to opt out of municipal revenue sharing grants, that is the sales tax sharing grants if they so choose and thus become completely exempt from the municipal spending cap.
Last but not least, the legislation would guarantee current levels of select pilot payments through fiscal 2018 and fiscal 2019, and that is those are the tiered payments that established the three levels of pilot funding for the ten municipalities that have the most overall tax exempt property in the next 35 that have the intermediate level, again taking into account that levels of tax exempt property in our state range from 3 percent in some communities to 50 percent in others. This change will provide towns with increased confidence in the levels of state aid they can expect in this category in the years ahead. So, it must remain a priority of the state to preserve these new commitments on municipal aid despite the difficult budget choices that we face because the property tax is the most progressive tax levied at any level of government, and its impact on both households and businesses is enormous.
It's important to point out that the car tax relief in particular provides substantial relief for businesses because any businesses that own vehicles or fleets of vehicles and are located in high mill rate towns will see substantial relief from that portion of last year's initiative. So this bill is important in terms of business policy as well as benefit to individual tax payers.
Finally, just briefly to comment on Senate Bill 413, which is on your agenda today, which is an innovative bill looking at the issue of the endowments, major university endowments, and the Senate Bill 413 would encourage more private investments to create high-level jobs and affordable access to higher education so that children can then fill these jobs. It creates an incentive for exceptionally well-endowed universities, like Yale University with its endowment of 25 billion, to spend more to support access to higher education and create innovative, high-paying jobs. Currently, the Republican leadership in the U.S. House and Senate is conducting an inquiry into the tax exempt status of university endowments over a billion, and they are looking at this in terms of examining the social impact of the spending of those large endowments.
So what this bill would do is provide an incentive for additional investment in communities, in economic development, and in enhanced opportunities for education. We know that Catharine Bond Hill, who is president of Vassar College, stated the richer schools are getting richer. Poorer schools in some cases are getting poorer, and we believe these great wealth opportunities should have a more broad, comprehensive social impact and that what we're looking at is that the bill contains no mandated spending requirement for the spending incentive. It doesn't threaten the endowment tax exempt status. It protects the tax free status of an endowment's principal adjusted for inflation, and extends that tax-free treatment to all of the endowment's growth that is reinvested in education in the broader economy.
Senate Bill 413 also does not create a new tax. It simply provides that if the university chooses not to reinvest it's earnings into higher education or the economy, those excess earnings would be subject to tax that the universities already pay today on their noneducational income. The goal is that the universities with over $10 billion endowments would either use their endowment to expand access to education and create innovative jobs or would share a small percentage of their retained earnings with the state's taxpayers so that we could accomplish these same goals.
So I would recommend Senate Bill 413 to the committee's attention also, and thank you for bringing it forward. Again, I want to commend the committee for your innovative work on all three of these bills, and in particular I want to thank the Chairs in particular for their exhaustive work in the preparation of Senate Bill 1.
Thank you, Mr. Chairman.
REP. BERGER (73RD): Thank you. Senator Fonfara.
SENATOR FONFARA (1ST): Thank you, Mr. Chairman. Good morning, Senator Looney, and thank you very much for your testimony on those three bills, all very important matters before this committee in this session, and I'd just like to say with respect to Senate Bill 1, last year you led the charge with respect to Senate Bill 1, and monumental paradigm shifting initiative that came before this body and was passed into law, and I do believe strongly that when the bill finally, or the law now, finally realizes it's full potential that those across the state will agree with us that it is game changing for the State of Connecticut, the first time providing municipalities with a significant revenue source other than the property tax, which is so debilitating for many of our towns across the state. So, I thank you for your leadership on that and as well as SB 1 this year, the number one designated bill of the Senate majority caucus, and you were exhaustive in your presentation in terms of what is entailed in the bill, and I believe also as strongly that as members not only of this committee but of the legislature as a whole understand the objective of this bill, and that is the underscore the objective, there will be strong support for it as well.
I'd like to just ask you two quick questions. One is with respect to Connecticut does not have a full blown experience with respect to innovation and entrepreneurship as we see in other parts of the country as you articulated. Big cities, research universities located in those cities, but we do have pockets of it, and probably your city is one of the best examples along with the city of Stamford. Maybe if you can take a moment for the benefit of the committee to give us a sense of what you see there in terms of Yale and the impact on the city in general of innovation going on and tech transfer, commercialization, as that spills out of Yale, and the activity going on in Grove Street and other places like that.
SENATOR LOONEY (11TH): Thank you, Mr. Chairman. Obviously Yale is one of the premier research universities in the world, but prior to about 10 or 12 years ago, it had not really fully engaged in the world of technology transfer in the way that other universities like Stamford and others had, I think in part the culture of the university was that it was somehow perhaps a taint on its academic mission. But that has been changed, I think, under the leadership of President Levin in the last decade of his tenure there and is continuing now under President Salovey, and I think really has had great benefits already for the city of New Haven. A number of small entrepreneurial businesses have been established by Yale undergraduate students, graduate students, researchers connected with Yale. They are now located all over downtown New Haven. In fact, Mayor Harp has informed us that in some cases the city is having trouble finding locations for actually some of them and is actually referring them to some of the neighboring communities like West Haven and other places, and it has created also a housing boom in downtown New Haven too, which is there were many areas of New Haven that really were fairly barren in terms of housing that have built up greatly because of all of the activity being created in downtown with younger people wanting to live and work there. So that is something that is already under way but obviously can grow and expand even more, and clearly there's an opportunity to UConn to be engaged in the same kind of activity that will expand, and the other private universities in the state on a smaller scale, which I think is going to be critical for us to be competitive in the areas in which we want to be.
SENATOR FONFARA (1ST): Lastly, Senator Looney, in your closing remarks, you indicated that, well prior to your closing remarks you mentioned that folks you hoped would be able to see, not be focused on the tree so much as the forest with respect to this bill, that it is a, as you stated, a model, one set of proposal of how we might work together to achieve this goal and that you welcome feedback and constructive criticism. I'm hoping that your comments are heard by those who intend to speak, and we have a number of people speaking on that bill as well as those who are not here today, and with respect to this is an approach that we put forward. We put a lot of time into it. With your consent, I'd ask you if you could comment further with respect to your desire to see greater participation, hopefully bipartisan participation, with respect to developing this initiative.
SENATOR LOONEY (11TH): Absolutely, Mr. Chairman. I think that because of its wide-ranging scope of content, the subject matter of this bill will come under the cognizance of several committees of the General Assembly apart from the Finance Committee, which is generated, and obviously it will need to be considered by the Commerce Committee, the Higher Ed Committee, other committees as well as it does involve higher education institutions in the state. So, I think that members both of this committee and of other committees will have an opportunity to weigh in, comment, and suggest improvements as we go along to its innovative content, and, you know, I know that the chairs are open and welcome for that dialogue.
SENATOR FONFARA (1ST): Thank you, Senator, for your testimony today.
SENATOR LOONEY (11TH): Thank you, Mr. Chairman.
REP. BERGER (73RD): Thank you, Mr. Chairman. Representative Davis.
REP. DAVIS (57TH): Thank you, Mr. Chairman, and thank you, Mr. President, for being here today and coming forward with this proposal for Senate Bill. I certainly agree with the desire to have greater entrepreneurship and innovation here in the State of Connecticut, and there are certainly a lot of things in this large bill that I think most of us could be supportive of. But a few of the concerns that I do have is the creation of a new quasi-public agency to oversee this initiative, and I was wondering if you could comment on why you see a need to create a new quasi-public agency to, while we already have Connecticut Innovations and the Department of Economic and Community Development.
SENATOR LOONEY (11TH): Well, I think while those agencies have had their successes, I think there is an opportunity for us to do something bigger and different with a more precise focus on creative entrepreneurship that could be, I think, highlighted by this newly created entity that I think would give more momentum to development of this particular category that is going to be the crest of the wave that we need to be part of going forward.
REP. DAVIS (57TH): Through you, Mr. Chairman, the amount of bonding that's included in this bill, where do you foresee us being able to achieve that? Obviously, we're looking at significant cuts to authorizations as we stand now. We've maxed out our state's credit card essentially with the decreases in revenue. Where do you see that shift happening?
SENATOR LOONEY (11TH): Yes, the bonding involves reauthorization of about $164 million of current bonding. About 120 to 127 million would come from the manufacturer's assistance act. About 35 million from CI, another about two and three quarter million from the MIF fund. So that about seven million per year over the first five years would come from CI's existing authorization for the creation of Impact. That would be that first 35 million. About 30 million from the MAA for support of innovation districts and innovation places. About 60 million from the MAA for support of Startup CT that the new private/public early stage venture capital initiative that we mentioned modeled in part on Invest Connecticut. About 25 million from the MAA for Accelerate Connecticut, the initiative to support new business accelerators. And about 5 million from the MAA for night classes that we mentioned in the skilled trades and other work skills at Connecticut technical high schools and about 750,000 in priority MIF funds for the expansion of the Dream It/Do It program and about two million in priority MIF funds to establish a manufacturing careers program to provide internships and on-the-job work skills training and about seven million for projects at UConn's Waterbury campus to be redirected to an existing authorization that would, I think that language is still being worked on. So those would be the categories of reauthorization and existing bond funds.
REP. DAVIS (57TH): So you wouldn't be seeing additional bond funding for any of these projects? It would be reauthorizations or shifting from existing bond authorizations?
SENATOR LOONEY (11TH): Yes, given our current climate it would not be taking on additional obligations, but would be in effect reallocating existing, previously authorized bond funds.
REP. DAVIS (57TH): Well, I thank you for your answers. Obviously, the concept, I think is something that many of us could get behind, it's just working out these details of how exactly we would do it. I do have some concerns about how it is drafted in this bill, but I'm certainly keeping an open mind to it and look forward to its progress through our committee here this year. Thank you, Mr. Chairman.
REP. BERGER (73RD): Thank you, Representative Davis. Any other comments or questions? Representative Wood.
REP. WOOD (141ST): Thank you, Mr. Chair, and thank you, Senator. I think the bill is, certainly it has a lot, you've articulated a lot of things to be excited about that make a lot of sense. I always like to play Devil's advocate. So my question to you is it feels like we're putting a beautiful coat of paint on a house that's crumbling, and in particular there was one tax that we eliminated last year of the net operating loss carry forward that really penalize complains of in their innovative efforts. So I wonder how you can reconcile the punitive tax climate for businesses with his bill.
SENATOR LOONEY (11TH): I don't believe with have punitive tax climate at all. I think if you look at our -- it is comparative to what many other states do, but I think this bill will show that Connecticut really is looking to prioritize those kinds of businesses that will build upon the resources that we have in Connecticut through research, through innovation, through our university-based system, and we're seeing in many parts of the country that there is a move back towards cities, especially cities that are the homes of major universities.
If you look at any state, the most thriving cities in any given state are the cities where major universities are located. You know, while 30, 40, 50 years ago there was a move to the suburbs, now we are seeing younger people want to come back to the city. So there is great opportunity for cities both large and small, but they have to have the niche of the kind of things that will attract those creative, talented young people, and I think this is what this initiative is geared for and what we see that cities like Boston are doing and like other cities like Pittsburgh is doing and others. This gives us an opportunity to build upon our own strengths to encourage that same movement in Connecticut. As I said, New Haven is seeing some of this already. Stamford is to some extent partly because of this strong connection to so many businesses and it's closeness to New York City, but we also need to find a way to build other cities that some of those same resources that [inaudible] develop.
REP. WOOD (141ST): Thank you.
SENATOR LOONEY (11TH): Thank you.
REP. WOOD (141ST): I think that there are a number of people that would disagree with you on the punitive tax climate. It is one of the reasons GE decided to leave the state, and back to the net operating loss carry forward, do you see eliminating that to encourage businesses to innovate?
SENATOR LOONEY (11TH): Well I think it's something that should be extended and one we can certainly afford because it is something that allows for the recovery of in product development and certain kinds of fields, notably pharmaceuticals I think is one of the areas where you sometimes have a long time, a long period of research before a product pays off, having gone through multiple levels of clinical tests before something finally turns out to be successful. Like we know, in many entrepreneurial businesses, they will have nine or ten failed efforts before they get the one that hits it big and is successful, and we have to, I think, build that expectation into our systems as well because when we are supporting entrepreneurship, you have to expect a certain rate of failure while you're looking for the big homerun that's ultimately going to make the other investments worthwhile.
REP. WOOD (141ST): So you can see putting this back, eliminating this in the budget, continuing with the [inaudible], allowing corporations and that operating loss carry forward.
SENATOR LOONEY (11TH): I think so. I mean obviously it's going to be a function of what we can do at a given time, but I think that should be one of our long-term goals here.
REP. WOOD (141ST): Thank you. I do agree with you on there is a big move back to the cities. I know New Haven is a hot place to live and a lot of very exciting arts and culture and mix of people, and there's a vibrancy there that some of the more rural suburban areas don't have, and a lot of young families, that's what they're choosing these days. So, again, I like this bill. I like the concept.
I do have one last question on Connecticut Innovations has not been, it's been an uneven performance. So I wonder how you see this new agency minimizing some of the difficulties they've had.
SENATOR LOONEY (11TH): Well I think Connecticut Innovations has had some successes. Obviously, I think that this will help I think spur them to be even more aggressively entrepreneurial. I know that they are interested in opening certain branch offices in parts of the state to be closer to where the action is happening. I know that they're contemplating open a New Haven office, which would make a lot of sense, rather than being located where they are now. Nothing against Rocky Hill, but it's not necessarily the hub of all of the growing economic activity in the state. So, I think that that, there is I think the growing sense in Connecticut Innovations that it needs to be more centrally involved in the heartbeat of activities going on around the state.
REP. WOOD (141ST): Great. Thank you for those questions, and again I think there's a lot in this. It's very positive. I applaud the way it's been conceptualized and expressed, and I look forward to following it. I do want to see the uncertainty be eliminated from our economic climate so businesses, not only entrepreneurs, but full-grown businesses want to stay here and want to come here and families want to stay here. So thank you again and thank you, Mr. Chair.
REP. BERGER (73RD): Thank you, Representative, and thank you, Senator, also for reinforcing the fact that certainly it's before the Finance, Revenue and Bonding Committee, but it also then needs to move to several other committees in the legislature that have cognizance, that are in the bill, and those would be Commerce and Higher Education. So we look forward to that making it through that legislative tract. Representative Lemar.
REP. LEMAR (96TH): Thank you, Mr. Chairman, and thank you, Senator Looney, for your testimony here today. It's certainly a broad ranging, and you covered a lot of important topics that I think will clearly move the state forward. Each of the bills you testified on I think are innovative policies that will help us grow and lead into the future.
I want to talk a little bit about SB 414 and 413, I'm sorry, 413. I think it's an interesting conversation that we're beginning this year. It's actually been, it's begun at the federal level for a number of the last five or six actually about the accumulation of wealth inside of endowments, and this bill though not by name but certainly in target applies largely to Yale University in our backyard, and over the last number of years, we've heard about the wonderful relationship we've had and how that's fostered the growth that we have seen in our community, and you referenced it numerous times in the testimony, and we're trying to strike that balance. Like what can we do to foster that continued growth and that continued positive relationship that's been established between former President Levin and former Mayor DeStefano, between current President Salovey and current Mayor Harp, and how do we continue to have that growth move forward but at the same time recognize that as a state we apply tax policy in order to affect a broad public policy. Perhaps the original intent of providing a tax exempt status to a small ministerial training college 300 years ago isn't the same thing that we're seeing now and perhaps the same tax policy that we established, enshrined 300 years ago shouldn't be the same tax policy we have moving forward. I think you hit on that quite well in your testimony. I wanted to get to the meat of what I still am limited by, is how do we approach the constitutional assertion that Yale College makes that they are completely protected from taxation due to enshrinement in the charter and confirmation in our state constitution that Yale University is free from all taxation. How do we move past that contention that they make?
SENATOR LOONEY (11TH): Well, I think, as you say, I think we need to look at the modern relevance of statutes that were passed or provisions that were passed in a very different time, but clearly the tax exempt mission, the purely educational mission of the university should remain, as it always has been, tax exempt for all universities.
But the issue is now that Yale and other universities are moving into so many areas of entrepreneurship and promoting research that does have the technology transfer aspect that there is a close connection in some cases between the academic research and the commercial spinoff of that academic research and the use of facility perhaps a laboratory or purely an academically based teaching mission and perhaps the same lab is also used in product development for something else that may be on the market pretty soon. So, I think there are issues that are now arising because of the, that just the increasing change and the scope of that, of research, that requires us to look closely at those definitions and in terms of this bill, looking at the way endowments are used and invested. Clearly, I think the bulk of the endowment in every case should be untouched by taxation, but there is an interest I think in looking at the investment policy, a very large endowment, to see whether or not there is at least some level at which there ought to be a spur to additional community responsibility in terms of endowment investment policy.
Now Yale, we know, because of its generous endowment, does provide a great deal of financial aid to its own students, so low and moderate income students actually wind up paying a lot less if they're fortunate enough to get accepted to go to Yale than the same student might have to pay at some other universities. So there is not denying that they already provide a great deal of substantial assistance and in fact they, in so many other ways, they're also a benefit to the city of New Haven. I don't mean in terms of promotion in job development but the promise scholarships that are funded by the university are in many ways transformative for Connecticut, for New Haven public school students who now have an opportunity to go to college that they previously might not have dreamed of. But, when you look at an endowment of $25 billion, you're looking at a huge resource that perhaps there ought to be some element of that that there should be a spur for even greater support for important public policy initiatives and benefits of a larger community.
REP. LEMAR (96TH): Terrific. Thank you, Senator. I really appreciate your testimony here today. I think you nailed my underlying hope for this bill. I think you actually stated it perfectly, which is what we're trying to do is ensure that the public policy that we extended through tax policy is benefitting the community in a way that we originally intended, and clearly by looking at spending that is unrelated to the institutional mission and the tax exempt mission of the university is something that I the should be considered at least fair game for this conversation. So thank you very much.
REP. BERGER (73RD): Thank you, Representative. Any other further questions from committee members? Seeing none, thank you, Senator.
UNIDENTIFIED SPEAKER: [inaudible]
REP. BERGER (73RD): Thank you for your leadership, sir. We're going to move to Commissioner Sullivan for his testimony, and then we will alternate on our list between public and elected officials. Commissioner Sullivan, please proceed, sir.
COMMISSIONER SULLIVAN: Thank you, Mr. Chairman. I know that you are at this point pressed for time, so I'm going to make an exception today and read this. I won't do as well as Senator Looney did, but I'll try.
Let me begin today by apologizing to you because I have the occasion to do it today, for the erroneous information provided to other than single income tax filers by the Department of Revenue Services the number of effective tax payers and the amount for any one tax payer may have been relatively small. The action we're taking will avoid any impact on the budget, but as I said, a mistake is a mistake. It's my job to take responsibility, and I do so here today as I have before.
Since becoming Commissioner of Revenue Services, I have appreciated a close working relationship between the agency and this committee. So this is one of those rare occasions where we have to share some very strong concerns about raised committee legislation, specifically some provisions of HB 5636. DRS shares your interest in sales tax compliance. Indeed, the Finance Committee has supported several of our initiatives, and you have initiated some of your own that have significantly increased collections and reduced noncompliance without adding any burden on taxpayers who are already compliant. We are always open to your proposals that focus on deficient taxpayers and nonfilers.
As in the past, section four of HB 5636 is either a solution in search of a problem or at least it's the wrong solution. This sales tax collection scheme, while certainly a great business opportunity for those who will make money off it, is very much the same thing that the finance committee directed us to evaluate in our 2014 report to you. With all due respect, we demonstrated that it did not make sense then, and nothing has changed. It has been rejected by every state where it has been considered. It has been dismissed also by the national conference of state legislatures. Unfortunately, what this proposal will do is add significant costs to credit care processors, retailers, and ultimately consumers. It will also add significant costs to DRS. Those who will overwhelmingly bear the cost and added fees and expenses are retailer who are already meeting their state tax obligations in full and on time. Let me repeat that. Those who will bear the costs of the legislation are those retailers in particular that are already meeting their sales tax obligations in full and on time. Those who effectively get off free, retailers not receiving credit card payments, and there are many of them, particularly in the cash economy, will continue to be the primary source of sales tax noncompliance in Connecticut.
But I'm not here to just say no. If this is about reducing the sales tax gap, let's focus on that, and let's do it as simply as possible. Today, there are a growing number of third-party certified sales tax processors who can handle all aspects of calculation, collection, and remittance of sales taxes by retailers in any and all states. Why not require that retailers with some significant level, some significant level of actual sales tax deficiency choose among and contract with one of these tax processors as certified by DRS? Yes, there will be a cost but not a cost borne by tax payers who have done no wrong, and yes it won't be as profitable for whoever owns the magic algorithm in HB 5636, but I'm sure that's not the point of your legislation.
Ironically, the second major concern of HB 5636 is the big tax break it would give to at least one major out-of-state retailer now litigating Connecticut's efforts to enforce existing state law on this very issue. The result will be a loss of taxes already due and another hole in the state budget. You will likely hear that section three is just a matter of fairness. It is not. When retailers use credit cards, including their own private label cards like Home Depot or Walmart, the retailer is charged a fee. None of this in any way affects the retailer's compensation for the actual sale. Even if the credit transaction goes bad, the retailer is paid in full for its price plus tax. Connecticut's bad debt credit law was enacted in 1984, but to help small businesses that sell items on credit to customers who ultimately never pay their bills. The small businesses got a credit for the sales tax it paid to the state on the sale to ensure that the businesses weren't out of sales tax as well as the cost of the items sold. HB 5636 turns the small business credit on its head by creating a loophole and a tax windfall for big retailers. Specifically section three would have the state eat the cost of bad debt incurred by the banks that administer private label credit cards subject to all the usual committed commercial risks and benefits. HB 5636 will only benefit big, mostly out-of-state retailers. Worse still as drafted the retailer would derive its tax break from portion of all it's private, all -- excuse me, would derive its benefit not just on those sales that have been made in Connecticut but on a portion of sales all across the nation. Note again in no case is the retailer on the hook because it's already been paid in full. There is simply no good reason to provide big out-of-state retailers with this tax bracket and certainly not at this time, and I thank you for your attention.
REP. BERGER (73RD): Thank you, Commissioner. Thank you for your testimony on 5636, and you know that we've had discussions on this in the past on the tax receipt portion. From your estimate on a yearly basis, does DRS have a percentage of the fault that occurs on a yearly basis on the receiving of sales tax receipt from these retailers?
Yes, but not -- so let's talk about the bill. The bill does not address default on sales tax. It addresses only default with respect to credit card purchases. There is very little default with respect to those using credit card purchases. In fact, I think we would estimate that the entire loss, entire gap, if you will, attributable to this, is probably no more than $25 million. Connecticut has high compliance. Most of our noncompliance is not in any of these areas. It is in the cash economy in the State of Connecticut, which is the biggest problem that we are challenged by. Certainly not the retailers in this bill who are almost without exception people who pay on time in full. The problem with this bill is not the solution for deficients, it's that it mandates a solution for people who are not deficient.
REP. BERGER (73RD): Commissioner, I know you have a different opinion on this. That's not really the direction I'm going in. I'm going in, I'd like to go down the road of what is the loss to the State of Connecticut on the sales tax receipts, because I have some figures in front of me that, you know, are hovering at four, five, six percent. I know there's been discussion in the past that it could be 250 to 255 million. You ramp up your recovery efforts, you reduce that by maybe 100 to 195 million, and potentially there might be 50 or 60 million on a yearly basis that is unrecoverable. Am I incorrect in assuming that?
COMMISSIONER SULLIVAN: I'm not, I think the number is high. I would say it is lower than that, but I'll acknowledge that it may be that number. That's on all sales.
REP. BERGER (73RD): Yes.
COMMISSIONER SULLIVAN: All sales, including cash sales --
REP. BERGER (73RD): This my concern here --
COMMISSIONER SULLIVAN: -- including cash sales --
REP. BERGER (73RD): -- and this is my concern here on finding a way either through this bill or through your idea of us working together to come up with a solution that, you know, people say to us on this committee and they say it in the media, well, you know, you have, you've done tax increases. You know, we were in a deficit. But my concern, and certainly I believe the concern of the majority of this committee is, you know, let's collect the taxes that are out there right now, and if there's inefficiency and there's fraud equal to 50 or 60 million dollars on a yearly basis on total amount of sales tax revenue, which by the way is $4.4 billion a year, then let's address that and get at it. That's all I'm saying.
COMMISSIONER SULLIVAN: We absolutely agree with you about that as a department. That's why we've asked year after year for legislation to strengthen our ability to go after deficient tax payers. So to the extent that you want to focus on deficient tax payers and get those who are not playing by the rules to play by the rules, we will work with you until the end of time to come up with better and better legislation. We simply submit that there is no good reason to mandate that good tax payers who are compliant and timely filers bear additional costs to do business in the State of Connecticut, which is what this bill mandates.
REP. BERGER (73RD): I appreciate that, Commissioner, and hopefully in the next day or two we can see some potential language that would help you, you know, enable us to be able to capture because, you know, it's, for the Chairs of this committee, it's a strong, strong concern. It's consumer fraud. It's state fraud. It's, you know, it's allowing those that are collecting sales and use tax for your office and for the State of Connecticut, you know, it's a large "float" that we never really obtained of dollars.
COMMISSIONER SULLIVAN: I would state some exception to the notion of float.
REP. BERGER (73RD): Well they --
COMMISSIONER SULLIVAN: You had, we did have a bill, as you will recall, that was enacted that advanced [inaudible] in order to capture some of that float, and the legislature repealed the bill last year.
REP. BERGER (73RD): What is the timeframe now for remittance?
It depends on whether is a monthly filer, an annual file, or a quarterly filer, and it depends on the size of your enterprise. But I think that again the float is not the dollars you're talking about, what we established in research last year that we're talking about a one-time possibility of few million dollars. Not tens, a few million dollars in so-called float. However, that would be a major change and a major cost to implement this. So the point, I guess all the point I'm making today is that we agree with you about chasing deficient taxpayers. We absolutely agree. We do not agree about chasing compliant taxpayers.
REP. BERGER (73RD): Thank you. Any other questions or comments from committee? Senator Frantz.
SENATOR FRANTZ (36TH): Thank you, Mr. Chairman. Just very briefly, I've seen a lot, we've all seen a lot of mistakes made in the different agencies here in Connecticut. You've handled that the best of anybody I've ever seen. So thank you very much for you approach and also the solution.
COMMISSIONER SULLIVAN: Thank you, Senator.
REP. BERGER (73RD): Any other comments or questions? Seeing none, thank you, Commissioner.
COMMISSIONER SULLIVAN: Thank you very much.
REP. BERGER (73RD): We're going to move to the public portion. First up is Bill Gordon and Pino Luongo. You'll be, we'll start timing at three minutes when you get ready and get to go.
PINO LUONGO: Good afternoon, ladies and gentleman. My name is Pino Luongo. With me is my co-founder, William Gordon. We are representing STAC Media Methodology, which is a patent approved by the United States Trademark and Patent office. We suggest that STAC Media Methodology is added to the House Bill 5636. STAC Media is the only sales tax payment methodology that can enable the collection of said taxes from credit and debit transactions in real time. The STAC Methodology uses the existing payment system, technology, the infrastructure, to create an easy vehicle to remit daily credit and debit sales tax transactions done by ACH payment directly and unaltered to the state. The STAC Methodology requires no change to the current sales tax return filing process. All CC and debit card transactions in the State of Connecticut are electronically remitted and then received by a processor company, First Data, Vantage [phonetic], Payment Debt [phonetic] to name a few. If a merchant is doing business and collecting payments with customers using a credit or debit card, they must use a processor to get paid. All processors, no matter where their offices are located, are presently processing transactions coming from Connecticut. The State of Connecticut will mandate the processor to isolate, bifurcate, and remit unaltered sales taxes by ACH directly to the state's bank account. It is very important to understand that State of Connecticut is mandating the collection of sales taxes revenue and not payment by processor as previously requested by the Department of Revenue Service. We believe the mandate will implement and alternative collection method of sales taxes, and there is no reason for the processor to be certified as previously demanded by the Department of Revenue Services.
Ladies and gentleman, processors are being bifurcating 21 percent of all credit card transactions in the United States, which is in the range of almost three trillion dollars by business to business client. This methodology in the private sector has already been used, and that's been used for almost 15 years.
Now, we took the liberty to also submit a sort of incremental collection summary that if I'm allowed I would like to describe if you want me to. According to the budget for the State of Connecticut for 2018 and '19 and '20, we took the liberty to make -- can I go?
REP. BERGER (73RD): Yes.
PINO LUONGO: We took the liberty to take a very conservative estimate that 73 percent of all transactions in the State of Connecticut are through debit card and credit card. Now I say conservative, but actually we have approved now from some statute released from certain academic institution in Washington that since the use of debit card, which has becoming predominant in the last 10 years, actually cash has shrank down to four or five percent nationwide, and 95% of transactions are through credit card and debit card. On that assumption, we make an incremental funds on five percent incremental, which you can see if you have our proposal in front of you, which is to increase a minimum of $182 million dollars a year in collection. The actual national estimate shrinkage for lack of a better word is estimated around 10 percent in the United States. We are talking about over $350 million a year of funds that are not being provided to the state.
I think I made my case.
REP. BERGER (73RD): Okay. Thank you. If I could here, I mean obviously you were in the room when the Commissioner of the Department of Revenue Services was here, and --
PINO LUONGO: [inaudible]
REP. BERGER (73RD): I'm sorry?
PINO LUONGO: I'm kidding.
REP. BERGER (73RD): So, you know, I had posed a question about uncollectable dollar amounts, and I thought I heard the Commissioner say that or agree that 60 million or so a year was uncollectable, but then I also then heard a number of a million dollars, and now I hear you giving testimony that it could be upwards of 10 percent based on 73 percent credit card transaction potentially then being $356 million. So, I mean, I think that the committee and myself need a little bit of a clarification on where you fall in what the Commissioner has stated and what the real number is that's a loss potentially to the state of Connecticut by an inefficient recovery system.
PINO LUONGO: Question, I would like to sort of answer by giving you some explanation of the way the State of Connecticut collects it's taxes. Most of the states, United States, use their federal ID number to collect said taxes. They provide the merchants with a state number, representation number, which happens to be the federal ID number. There is a reason why for that, because processors create an [inaudible] language that allowed it to identify the merchants based on the business, the location, and the federal ID number, that is now in place in the State of Connecticut. [inaudible] cash as the Commissioner was expressing, I am mind boggling. How does he know what cash is missing? No one can know the amount if you don't have a POS system in place, if you don't record [inaudible] that you generate daily, and you report. So if cash is disappearing at the retail unit level, unless you are God, there is no way to know what's missing up there. Now, on the critical portion, the question is --
REP. BERGER (73RD): So you're, not to interrupt, but I guess I did, so you're saying 73 percent are credit card transactions with the potential of 27 percent being cash transactions. So what is the amount, so 27 percent or $4.4 billion dollars?
PINO LUONGO: Seventy-three percent is 3.2 billion? Right? Twenty-three percent probably is in the range of another additional billion dollars on top. But our assumption is not to call them cash. We are taking just a conservative approach because the statistical data that we add to it from the labor standard statistic it basically gives us a parameter between 70 and 90 percent.
REP. BERGER (73RD): This is an, this is a, I guess for the want of a better word, this is an intercept or capture at the point of purchase?
PINO LUONGO: Correct.
REP. BERGER (73RD): Not 14 days down the road, 30 days down the road, six months down the road. This is on point of purchase.
PINO LUONGO: Transactions.
REP. BERGER (73RD): So to me it's befuddling to me. I don't understand why we don't do it?
BILL GORDON: Mr. Chairman, I want to point something out --
REP. BERGER (73RD): Please.
BILL GORDON: -- which [inaudible], I think he indicated that this would be a burden to the merchant in cost, etc. There is zero cost to the merchant.
REP. BERGER (73RD): Well that was going to be my next question now. The Commissioner said well, you know, this is a pass along cost that's going to cost the consumer more, it's going to cost the merchant more, so how would you answer or counter that argument?
BILL GORDON: Well, as I said, we don't change anything that happens in today's business world when a transaction is processed at the point of sale and transferred to a processor and back to the merchant to pay their sales tax whenever they want to. What we do is bifurcate. We separate the two, so in fact on the transaction daily they're paying their sales tax. So at the end of the period, which again we don't recommend that you change, monthly, quarterly, yearly, whenever they defer, they do exactly the same. This time they say, oh, we paid a little of that already, so here's what I, and they file their cash sales and settle up with the DRS. But it's, I'm just underscoring, there is absolutely no pass-along cost to the retailer, the credit card company, the card company, zero. The processor does pay us a small fee to use our patent and suggest that to make them more efficient, and that's it.
REP. BERGER (73RD): So at some point then, if you were to, we saw it fit to move forward on a project, you would have to negotiate -- so how would your Calendar, you know, what's in it for you here? If you're going to collect a certain amount of dollars for the State of Connecticut that are uncaptured, you know, from the public and for this committee, you know, what does the benefits yield?
BILL GORDON: As you did mention, it is negotiated [inaudible] with the credit card and debit card processors. Having said all that, this kind of thing has advanced to almost implementation in one specific area that I know of, and when the processors were brought in to do it, they had the system ready to go. It was all [inaudible]. They know about it. This is coming. They know about it. That's one of the largest processors, and the venue is Puerto Rico, and Puerto Rico got messed up in other problems, and this was put on the side. But they had this ready to go two and a half years ago, and we were invited down there to help them strategize this, and we did, and then you know what happened with the bond issues, etc. So there were deeper problems than sales tax.
PINO LUONGO: But to answer your question, we started this process as a taxpayer initiative, because what really bothered me really is the lack of information that basically taxpayers are not aware that their said tax money gets ahold by merchants and small for 30, 60, 90 days or ever submitted. So when we started to look into this issue as taxpayer money, we developed this patent which has been approved by the patent up in Washington. Our interest is to really get the processor on board. The processor handles trillions of transactions a day. For them to handle an additional split or bifurcation on transaction it's a minimal effort. The reason why they show some resistance is because they don't want to be the one who intervened against the merchants, that they are requiring the state, it be the state's mandate to do so. They are not going to finish it. They are waiting for the state to make mandate. If the mandate is collect said taxes by bifurcation on real time daily, they will need probably 90 to 120 days to be in compliance, and it can be done.
REP. BERGER (73RD): So just, and I'm going to go to Representative Yaccarino in a moment, but just to reinforce again, because, you know, the numbers are big here. In your idea and in your estimate, the fraud to the State of Connecticut on sales tax intercept based on $4.4 billion is potentially $365 million?
PINO LUONGO: If you use the national statistic, yes.
REP. BERGER (73RD): Thank you. Representative Yaccarino.
REP. YACCARINO (87TH): Thank you, Mr. Chair, and thank you for your testimony. I have a small business I've owned for 25 years, a retail business. Like many of my other friends in business we pay our sales tax every 20th of the month, 19th to the 20th of the month. We collect credit card and cash. You had stated 73 percent approximately sales are credit card, but then you did state 95% are credit card. Which one is it?
PINO LUONGO: Our analysis is 73 percent because were talking in a very conservative approach. What do we know today that on the volume of commerce sales nationwide it's over 95 percent because the last ten years, we look at starting as far back as 2006. But the only thing we didn't take under evaluation is that from 2006 forward, a new form of card came around, debit card.
REP. YACCARINO (87TH): Right.
PINO LUONGO: Today, a debit card is used by younger generations [inaudible] on an easy way. They go purchase a candy and they charge to their credit card. They go purchase a cup of coffee they charge to a debit card. The debit card does not change the transaction aspect as far as at processor is concerned, but it's definitely eliminating a huge chunk of the so-called cash business out of the equation. So 73 percent I think is conservative enough, and even if that's what it is, you should be happy enough to see that at least it brings you $182 million [inaudible] in collection of real time.
REP. YACCARINO (87TH): I think in my business it's probably closer to about 75 percent, credit card/debit card. Very few checks and then the rest is cash. But how would it benefit a business that, I pay every month, every month I pay. How would that benefit [inaudible] and how would it benefit me when I have a good processing company, I pay my sales tax, it's all included. Credit card and cash. There's no separate, you don't separate it. Deposits are deposits. Revenue is revenue. So I have to pay the sales tax on X amount of dollars every month. So how would that benefit a business like myself. Excuse me, how would it benefit the consumer? It has to increase costs somewhere because a processor, processing company is not going to do it for free. We collect tax every month, and we distribute it back to the state, and that's a lot of work for us. Our money does not get deposited every night. It takes approximately two days. So what is the timeline and what is the benefit?
PINO LUONGO: Okay, so let me start for the first portion, how it benefits you. I think it's more business myself. What is the beneficial component, is that I came to realize that said taxes cannot be part of my P and L. My profit and losses have to be based on my ability to run the business because the mom and dad I run into a shortage of cash, and the so-called said taxes collected which have to remit maybe 30, 50, 60 days later are available. The tendency you have as a human being to run this business is to use them to pay payroll, to pay taxes, to pay whatever contingency is front of them. Now there is not guarantee at the end of the 30, 50, 60 days that the money will be there, so three different things happen. On the reporting, so you're subject to penalty on the balance due, no reporting at all. So, this, it's actually happening a lot, and not because it should desire to fraud the state, it's just because small business do not have access to bank loan, do not have access to huge amount of other loans in the market unless they come with a 25% of interest rate attached. From time sales taxes, the last remedy for them to run their business. The way I view it, I say to myself, you know, I got all of this credit card business every day, please give me less of a headache, take the sales taxes out of my bank as soon as possible so I don't have to count on this money to run my business because every human being will do it.
BILL GORDON: We've done this a few times before, as you may hear from our stories, and the last time we did it, which was in Albany about six months ago, we had some people from the payment industry actually testify on what small business is specifically, and the thing that small business has been [inaudible] with right now [inaudible], is that the tenth of the next month they get hit with sales tax in one lump sum and they get hit with the credit card fees in one lump sum. So it seems the direction that he was indicating, this is from one of the largest credit card processors in the world, said that small businesses is encouraging the processors to bill them daily so they're not hit with a four or five thousand dollar bill on the 10th of the next month. Sales taxes are the same thing.
REP. YACCARINO (87TH): I understand what you're saying --
PINO LUONGO: Now on the accounting [inaudible], I'm sorry --
REP. YACCARINO (87TH): Go ahead.
PINO LUONGO: As far as the accounting cost to you --
REP. BERGER (73RD): If you could direct your response or questions through the Chairs please? Please proceed.
PINO LUONGO: Oh, I'm sorry. As far as the accounting cost, I think actually it's beneficial to you because I think that to be in the position of which is the monthly filing for said tax collector, if you go from how much I owe to the state to how much I already paid to the state, it will make my filing much easier to deal with a very small component of probably cash, which is minimal, to file the taxes. And look, behalf of the state, the state is going to have a really win-win situation here because you have to envision the following three scenarios. The state collects from the processing company, processing credit card company will provide monthly statement for every merchant that they collect the money from. They will get their own ACH bank, provide statement of the money collected on behalf of that merchant, and the merchants filing on the monthly basis. This [inaudible] reconciliation of accounting are beneficial to the state. In all honesty, this [inaudible] for me, this patent for me it's important not because I think it's damaging the small business. I actually think that it's really helping the small business to say in business on its own, but what it definitely does it brings the state, and many states in America, to the 21st century. I want to remind you that sales tax when it was invented there was only two forms of payments, cash and checks. Today, the form of payments most use in the country, 95 percent, are credit card and debit card. If the private sector can take advantage on a 24- to 48-hour remittance of the cash generated, I don't see why this state should not be able to do the same thing.
REP. YACCARINO (87TH): It's still though, if you're a business and you're making the assumption that all small businesses are doomed to fail, they're not going, they can't pay the bills at the end of the month, if they can't do that then, how could they do it on a daily basis? That's all I -- thank you, Mr. Chairman.
PINO LUONGO: If you need the sales taxes to stay in business, I think you have a failed business no matter what.
REP. YACCARINO (87TH): But that's the point, most, they don't though. I pay every month. My friends pay it every month. We don't base our business on sales tax. You're making a false assumption. You're making the assumption, I believe, for the benefit of the company. That's just not true. If that's the case, please, if that is the case, that business is not going to last long any way. That's not true, I'm sorry [inaudible]. Thank you.
PINO LUONGO: Right, okay, so if that's the case, the business would not be in business.
REP. BERGER (73RD): Did you want to respond to that question?
PINO LUONGO: Yes. If that's the case --
REP. BERGER (73RD): Please proceed. You have to understand we can't have banter back and forth. You work through the Chair.
PINO LUONGO: Sorry.
REP. BERGER (73RD): If they ask a question, you respond.
PINO LUONGO: Sorry, I'm very green on this matter of public deposition, sir. If that's the case, that the business needs to use that tax to stay in business, and then you will go out of business, what chance is derived that that business is going to report the unpaid tax liability to the state? It's going to go out of business and everything vanishes. Look, I am not making these things up. If you have a shrinkage in the state, someone is not paying the taxes. That's for sure.
REP. BERGER (73RD): Thank you. We'll need to probably discuss that further, Representative. Any other comments or questions from committee members?
PINO LUONGO: Thank you.
REP. BERGER (73RD): You're welcome sir.
BILL GORDON: Mr. Chairman, [inaudible] --
REP. BERGER (73RD): Seeing none -- did you have a further comment?
BILL GORDON: I did.
REP. BERGER (73RD): Please proceed..
BILL GORDON: Thank you. I don't think this should be viewed as a punitive measure against small business or any business. The sales tax, which comes in immediately in the 21st century technology should be paid immediately to the state. It should not be floated for five minutes. That's where, I'm sorry --
REP. BERGER (73RD): Yeah, I know, and that's where the rub is on it, so we'll continue this debate, and I'll be discussing this with Representative Yaccarino as we move forward. Thank you, Representative.
BILL GORDON: Thank you, Mr. Chairman.
SENATOR FONFARA (1ST): Moving back to the elected official portion of the signup list, there are five individuals representing small towns. I'll name them. Some town managers, some selectmen, first selectmen. Matt Galligan, John Elesser, Leo Paul, Barbara Henry, and Donald Stein. You are all welcome to come up together if your testimony is consistent. In the interest of time, you're not required to do that, but I would ask if your messages are similar that you have that opportunity. Matt Galligan. I'm assuming that others that I mentioned would rather come up separately. Okay. Great. That would be great.
MATT GALLIGAN: I think, Mr. Chairman, I'm representing CCM and has a few members here that will probably come up.
SENATOR FONFARA (1ST): Very good.
MATT GALLIGAN: Okay, first of all, thank you. My name is Matt Galligan. I'm the town manager of the town of South Windsor, and past president of CCM, which I remind you represents 96 percent of the residents in the State of Connecticut. I'm here today to talk about SB 466, which is an act concerning property taxes and payments in lieu of property taxes. CCM is appreciative of the focus this committee and legislative leaders have placed on the need for property tax relief.
SB 446 would among other things make adjustments in motor vehicle property tax caps and ensure towns and cities are held harmless, provide an out option for the municipal revenue-sharing grant for towns and cities, direct that 35% of grant money is awarded to regional councils of governments to be used to facilitate regional education service centers and merging back office functions of municipalities located within their region and provide clarification as to what expenses and costs are counted against the municipal spending cap and allow for population growth to be considered against increases in municipal spending.
Over reliance on the property tax to finance local public services, particularly K through 12 public education, is the root cause of many of the public policy challenges facing Connecticut. Just to paraphrase, Mark Twain, everyone complains about the property system but nobody does anything about it. The anticipated and inequitable property tax system continues to cause numerous problems including the fiscal distress and decline not only of our cities but also our towns and encourages a continued economic and racial segregation of our state, and it often prevents municipalities from meeting the public service needs of their residents and businesses without levering a heavy local tax burden. It promotes bad land use decisions contributing to costly and destructive sprawl. But I do have testimony here. In interest, I'll try and just shorten it up and summarize each category.
The statewide motor vehicle tax. That's 446, attempts to ensure that all towns and cities are held harmless of a newly enacted statewide motor vehicle property tax set at 32 mills, and I know then it goes to 2936. One of the flaws in this was that it uses fiscal 15 as an indicator as to what the money that will be used to accommodate those towns over the 32. So towns like Tolland, Norwich, Coventry, and South Windsor and this year there's a shortfall in South Windsor budget of $346,000 based upon this formula. How does that get relieved? It goes to first to the real property size. So instead of having a, the town will have a 12 percent reduction in taxes for your car but a 4 percent increase in property size, so it has to be made up somewhere. I think there are some decisions that we like the see made here that will rectify that situation as these towns are made whole. For example, local official skepticism and the other skepticism and the other skepticism is, you know, when the economy is tough and the state is looking at a $900 million deficit, will the money be there to make sure that we're going to get paid. That's an issue every year. We do appreciate that we have to do something with property taxes, but we're also concerned that the revenue sharing will be there to support the things that you're looking to do and what we're trying to accomplish with you.
Another issue is a mandated spending cap. This is not a new issue for me. In the State of New York you have a 2 percent constitutional tax limit, but it's not just based on spending. It's based on a formula that goes between your assessed values and what you're allowed to spend. The spending cap has a couple of flaws here, and let me give you one in particular. If I'm a community that has been cutting back over the years to the [inaudible] economic times like the state has done and now all of sudden we get a resurgence of revenue to put back our capital programs and put back our road programs and put back these programs, I can't do that. Because it came from revenue because my spending cap was 2.5 percent. You have 42 mandates this year that are coming down, again, mandates that are going to increase the cost of local government. So what do I have to do to do those mandates? I got to cut someplace else. So although we understand that we're trying to level off spending, I think some of the things that CCM will be looking is to delay the implementation of the spending cap until fiscal year 20 so that we can look at other solutions that are probably more meaningful than are done by other states throughout the United States and would be more meaningful to accomplish the same goals but have a modified formula that will be beneficial to the communities as well as going forward. We would like to amend the list of exemptions of municipal spending cap. An example is in New York you have the constitutional tax limit, but if there is sewer bonds, water bonds, school bonds, they're exempt from those types of caps, so I think we would probably be looking at the same here in Connecticut. We want a waiver from OPM for exceeding the spending cap in the event that unforeseen circumstances require increased municipal spending. As we all know, the storm of October of 2011, the big storm that hit, a lot people [inaudible], a lot of people, a lot of towns here had to move their money around, so you we need to have a mechanism to appeal for those type of items that do come up that are not foreseeable by local government.
Allow municipalities to override the spending cap with a two-thirds vote of the local legislative body without a reduction of funds and to exclude arbitration of [inaudible] list of exemptions to the cap. In the local community, we make a deal with the union. Fine. We made that deal. We know it's going forward, but it there's an arbitration [inaudible] we'd like to see that to be exempt. Some of the other authority, the COGs, you also would have a concern that CCM with section 1E that directs 35 percent grant money to provide COGs to be used to assist in the merging back office function with resource, with the RESCs. This is not a bad idea, but what you're doing is to the COGs, and you're taking 35 percent of the money, which you already do in regional approaches with 29 towns in North COGs, and now saying well now you got to reserve something else. I can see us all working together to make that happen, but I don't think that to put a burden on the local COGs to take money away for someone else to get it makes no sense to me. You either give us more money or -- we work with them now. One [inaudible] has put in a grant through the COGs for the captive insurance program. Right now that's 16 pounds that we're doing that are going to go together to talk about an insurance program that would be able to reduce costs to the town, to the grant that's now been through COGs, it works. So I just think keeping the same system as it works is probably a benefit to all of us at this point.
Going forward, education financing form, pre-K public education finance, that's the key to property tax reform in Connecticut. Chronic state underfunding of the pre-K to 12 public education is the single most larger contributor to over reliance of the property tax in our state and in the local communities.
SENATOR FONFARA (1ST): Mr. Galligan, could you summarize your testimony please? I think you've gone beyond the three minutes, and I don't think we had the timer going. Okay. In conclusion, I would say that we've got a concern about pilot programs. The [inaudible] program, which talks about regional cooperation, and also the mandate reforms, that you can't tell us that we're going to have all these caps and have 42 mandates. We need mandate reform. The limit on prevailing wage to do projects. It's ridiculous. Those things were done in the 60s. Give us a million and a half. We don't mind going that process. We can move that process. But make it more accessible to what the market [inaudible] at this point.
So, again, I'll sum it up and take questions. My testimony is in the record, and if there are questions I would be more than happy to answer those.
SENATOR FONFARA (1ST): Thank you, Mr. Galligan, for your testimony. Now you represented, you're representing CCM today --
MATT GALLIGAN: CCM, right.
SENATOR FONFARA (1ST): -- not just your town.
MATT GALLIGAN: Correct.
SENATOR FONFARA (1ST): So, and therefore you get whether the bouquets or the arrows and for that. I get them all.
MATT GALLIGAN: I get them all.
SENATOR FONFARA (1ST): Okay.
MATT GALLIGAN: I get them locally and I get them statewide.
SENATOR FONFARA (1ST): I'll just say firstly that you indicated that this is a mandated spending cap. You know it is not a mandated spending cap, right?
MATT GALLIGAN: Well, right now you have a situation where you're going to take a certain amount of money away, so if you don't do it --
SENATOR FONFARA (1ST): Are you restricted from what you can spend?
MATT GALLIGAN: Am I restricted?
SENATOR FONFARA (1ST): Yes.
MATT GALLIGAN: I'm not restricted from anything.
SENATOR FONFARA (1ST): So therefore it's not a mandated spending cap, right?
MATT GALLIGAN: I didn't say the mandate was on the spending cap. I said it was on the 42 mandates [inaudible].
SENATOR FONFARA (1ST): No, earlier in your testimony you indicated that it is a mandated spending cap.
MATT GALLIGAN: Well, I think the cap is a 2.5 percent cap, and I would assume that if it's not a mandate then why are we here today?
SENATOR FONFARA (1ST): You are free to spend as much as you want.
MATT GALLIGAN: Yeah, but then you're going to take away revenues that are definitely needed in the town.
SENATOR FONFARA (1ST): Right. But it's not a mandated spending cap, is it.
MATT GALLIGAN: Well, it's not a mandate but if you don't do it, it's kind of a backdoor mandate, if you want to do that, yeah. You don't have to do it, but then we're going to take money away from you.
SENATOR FONFARA (1ST): From a fund that you don't, you doubt very seriously, your organization has said repeatedly that you can't count on the state to fund this program.
MATT GALLIGAN: Well, I would agree with that, yes, we can't, we can't --
SENATOR FONFARA (1ST): So, you don't believe it's valid but yet you feel that it's a mandated spending cap because we're going to take away money from you potentially that we won't fund anyway.
MATT GALLIGAN: You know, if you want to, if we want to play semantics here --
SENATOR FONFARA (1ST): I'm not playing semantics, it was your words.
MATT GALLIGAN: -- if we're talking about, we're talking about a 2.5 percent cap. Fine. You don't do it. You can do without it, but you have a revenue pot over here that you're going to lose. So why would I sit there as a town manager and say to my nine council people, oh, forget it, don't do that, and lose some potential revenue. What I'm saying to you is we don't particularly have a problem with spending and putting a cap, there's a better solution out there that we should all look at. It's not about spending. It's about revenue. It's about the whole picture. And that's what we would like to do is look at the whole picture, not just one aspect, and say this is what it is.
SENATOR FONFARA (1ST): Well, I would say that you're organization, again, I'm speaking to you as a Representative of CCM, not as the town manager specifically of South Windsor. You're organization had ample opportunity to participate in the passage, the writing and the passage of SB 1 last year, and they declined to participate, and your organization has not ceased in its criticism of that legislation, to this day. I will say to you that despite that there is still opportunity to participate in this and not do that on the airwaves or other forms of media that your organization has chosen to embark on.
MATT GALLIGAN: Well it's my understanding from the executive director that there was attempt to sit with certain key representatives to talk about this, and yet those meetings --
SENATOR FONFARA (1ST): Well I can tell you that this member of this committee that had as much to do with writing that bill as anyone was never contacted by CCM, but in fact I spoke to, and some of them are scheduled to speak here today regarding that legislation in its very early stages. But the organization never made an attempt to contact me to talk about that or I can't speak for my co-chair, I can't speak for other members of this committee, but I can tell you from my perspective whether that ever happened, and it did not.
MATT GALLIGAN: Well, I have had reports of the past president that attempts were made to sit with Senator Looney, in which those attempts were not moved forward. There was no meetings, and I know that our director said he spent many, many times making phone calls. Again CCM was through a transition process. We got a new director coming in and tried to make that effort, and it didn't happen. I'll have to get back to you, so I'll just have to agree to disagree with the effort.
SENATOR FONFARA (1ST): You're welcome to do that sir. I will say that the unfortunate aspect of this process is it doesn't allow for serious engagement in this form. There are many people who have taken the time from their work to come here to testify and are waiting patiently, so I for one and all of us obviously have to limit our questions and our comments and also with respect to those who are here to testify need to do the same, but I can't tell you, and I can tell you, I speak for many in my caucus how disappointed I am in this organization that you're representing today and the manner in which they have conducted themselves in the last year or so, and I don't think that holds the members in good light because of the association with the organization as it's currently handling it's business with respect to this particular bill and with respect to our efforts to help towns get out from under the heavy weight of one form of revenue generation that this state has allowed towns to operate under. That's the genesis of SB 1. It continues to be the focus of this committee and of the legislature in terms of helping towns to not be cannibalizing each other' not to be hurting business and the growth of business, which this property does; not to discourage individuals, homeowners, and others from investing in their property, which the property tax does. I for the life of me don't understand why the representatives of municipalities and organizations that represent municipalities wouldn't want to embrace in an effort to do that. I don't understand it.
MATT GALLIGAN: Well, I would think that CCM in all the years have tried to embrace. It had a blue ribbon commission many, many years ago that talked about what needed to be changed in taxes and nothing has happened. Is that CCM's fault? I don't believe it is. There's been many, many studies going back and forth on taxation and how to be redone. The opinion is we should not be piecemeal in one. We should be looking at the taxes going across the board. Look at it all. Let's sit down and talk about that. I'm more than happy to sit down and talk about that. There's been a lot of lot of studies. You have your commission, your Moore [phonetic] Commission. What's come out of that? I haven't seen much come out of that. There's been a lot of testimony. There's a lot of frustration of local government that nothing's come out of that. So I guess what we need to do is, maybe not here in this public forum, but to have the new president of CCM, which is Mayor Boughton, sit down with the parties, the legislators here behind closed doors, and say, let's take a look at this stuff and see what we need to move forward together to make this work for the State of Connecticut. We both have the same taxpayers that we represent, and we need to do that.
SENATOR FONFARA (1ST): Questions? Representative Lemar.
REP. LEMAR (96TH): Thank you, Mr. Chairman, and I will try to exercise the restraint my Chairman similarly exercised. The frustration, I think, for a lot of us on this committee is pushing forward SB 1 last year. It was a tremendous undertaking, and it wasn't without constant criticism and complaint from a lot of folks who didn't see the benefit by allowing towns to receive additional dollars. I mean it was a Herculean effort that this committee undertook to get those additional dollars back into cities and towns across the state. There were tremendous pressures on us last year, on a multitude of fronts, to redivert those dollars back out. To not give it to cities and towns. A constant refrain of, you know, well, you know the governors of New York and New Jersey are popular for cutting aid to cities and towns, and that has never been the approach that this committee and this legislature has taken.
So to see CCM's approach to engagement with this legislature based upon that commitment that we have shown to you, we have incorporated numerous recommendations from the Moore Commission over the years. SB 1 was an attempt to redirect dollars towards communities. We can disagree publically or privately or whatever way we want to. We can sit in the back room and go line by line over recommendations that have been made and forwarded to this committee that we've tried to approach, and the leadership of my Chairman in particular, Senator Looney, who you decided to take a shot at in your response, I think is unquestioned in trying to get additional dollars back into cities and towns. So I would hope that this conversation can evolve over the next few weeks and months and years to a place where we are seen as being on the same team, working for the benefit of cities and towns across the state. Thank you.
SENATOR FONFARA (1ST): Thank you, Representative Lemar. Representative Candelora.
REP. CANDELORA (86TH): Thank you, Mr. Chairman, and thank you for your testimony. I appreciate your honesty and your willingness to come forward. You might be taking a little bit of heat today, but I locally served on my town council, so I really, before I got here, I have an appreciation for what the towns actually go through to balance their budgets and to make things as cost effective to tax payers as possible because you're the ones that get accosted in the grocery stores and the drug stores, not us. I mean we tend to be up here and have somewhat of insulation from the decision making. Having also served on the Moore Commission, I'm sympathetic to the frustrations of CCM. I once sat through a committee that we made recommendations for municipal savings for mandates, and the committee had passed out some of the mandates that we talked about in the past like prevailing wage and made those recommendations and by the Chair's prerogative, those recommendations were just removed and never saw the light of day even though the democratic process had wanted to see those moved forward.
So, on the one hand I know people up here could be frustrated with CCM's position, but I think it's important for you to continue your honest voice and your honest dialogue. Being in the minority, we represent 42 percent of the State of Connecticut, but when SB 1 was drafted, not only were you not in the room but neither were the other 42 percent representatives, and I know the impact for some of our towns, including my town of North Branford, don't see the benefits necessarily of SB 1 and the capping of the car tax, which brings all sorts of administrative problems. I'm also, you know, sympathetic to the fact that on top of all that we took away the property tax credit from our taxpayers. So on one hand per se we're giving you money, on the other hand, we're hitting the taxpayers that you have to listen to in the grocery stores. So, I thank you for coming up here, to give your perspective. I think all of us need to hear it. We need to continue to hear your voice. Thank you.
MATT GALLIGAN: May I respond, through the Chair please?
SENATOR FONFARA (1ST): I don't think there was a question that was asked. Questions, please, from further members. Thank you, sir.
MATT GALLIGAN: Okay. Thank you.
SENATOR FONFARA (1ST): Going back to the public list, Nick DeFiesta.
NICK DEFIESTA: Good afternoon, Senator Fonfara, distinguished members of the committee, my name is Nick DeFiesta, and I'm testifying today on behalf of Connecticut Voices for Children, a research based public education and advocates organization that works to promote the well-being of children and families across the state. I am testifying today in support of House Bill 5636, particularly the provision that expands the tax credit report. We also respectfully urge the committee to expand the tax expenditure report in a similar manner to the changes to the tax credit report and this bill.
So the first point, the bill requires the expansion of the tax credit report by more fully evaluating the effectiveness of tax credits that were enacted for the recruitment or retention of businesses. This evaluation includes a description of the tax credits, it's beneficiaries and it's goal and analysis of the fiscal economic impact alongside administrative costs and a recommendation about whether to continue, modify, or repeal each tax credit. The bill also requires that the committee will hold a public hearing on this report. We know that according to the most recent data available that the state awarded over 700 million dollars in tax incentives in 2014, and this bill will help by providing regular evaluation of the spending to ensure the intended goals are being met and help the state provide accountability and transparency to part of the tax code that often goes unexamined. During a time of immense fiscal challenge that I know that we all know we're in, it's incumbent that the state analyze all types of spending including spending through tax credits to ensure that all spending is meeting it's goals in a cost-effective manner. If these tax credit programs are evaluated to be operating efficiently, we should expand them or continue them. If they're found to be an ineffective use of scarce taxpayer resources, then they should be ended. The tax credit report provision in this bill would help Connecticut achieve that goal.
We also, as I mentioned, respectfully urge the committee to apply the same logic more broadly to all tax expenditures, which are estimated to cost Connecticut over 6.4 billion dollars in revenue in the coming fiscal year. The tax incentives to be evaluated in the tax credit report are only a subset of what are known as tax expenditures, which persist on the books year after year with minimal review as to whether or not they are helping our state address critical needs in a cost-effective way. If the goal in this bill is to evaluate whether tax incentives are cheating our policy objectives in a fiscally responsible way, we believe this logic should apply to all tax expenditures more broadly.
So we propose that the committee undertake the same review process being applied [inaudible] tax credits to all tax expenditures more broadly, which would mean, I'm almost done, which would mean a tax expenditure report that is focused on more robust evaluations and a legislative review process of that report.
Thank you for your time, and I would be happy to answer any questions.
SENATOR FONFARA (1ST): Thank you, sir. Questions? Thank you.
NICK DEFIESTA: Thank you.
SENATOR FONFARA (1ST): John Elesser. Anyone joining you, John.
JOHN ELESSER: Yes, Leo Paul.
SENATOR FONFARA (1ST): Great. Appreciate that.
JOHN ELESSER: Thank you very much, Senator, and members, Senator Frantz, Senator Fonfara. Thank you very much for the opportunity to discuss. My name is John Elesser. I'm the town manager of the town of Coventry and President of the Council of Small Towns. Joining me is --
LEO PAUL: I'm Leo Paul, the First Selectman of Litchfield and the Vice President of the Council of Small Towns.
JOHN ELESSER: So I'll take the start and go forward. We do recognize that there have been a lot of discussions, particularly I have had discussions with you last year, Senator, and we appreciate those opportunities for that dialogue. Today we are here to support Senate Bill 466. Specifically a couple issues.
In Senate Bill 1, there was a couple unintended consequences for towns that were in reevaluation years, and Senate Bill 466, we think addresses those inequities for the 14 or so towns, nine to 14, depends on the impact. Revisions were needed to the tax cap provisions in section 1 of the bill to restore equity between towns by making an adjustment for a negative reevaluation impact. We all experience something which is fairly rare after decades of increasing [inaudible]. At the end of reevaluation the town of Coventry had to increase our mill rate. Housing prices had decreased over the five years between the equalizations we are adjusted to market value. Senate Bill 1 did not anticipate this type of change, and with the look back to the prior year's grand list, the groups of towns was inadvertently penalized for our post-reevaluation mill rates. But the replacement income under the MRSA account formula did not apply. So we support any change, which restores equities for the towns which were negatively impacted by being in reevaluation transition while Senate Bill 1 was being implemented.
On the spending cap, we are well aware that it is sometimes called the soft cap, but it does not prevent us from spending money. There is, I think, some issues related to the perception of it. So we ask you to take a look at a few issues of it, to clarify going forward.
In a lot of our small towns, we actually have the traditional town meetings and we have referendums. In my town, I have a mandatory referendum. So there's a concern, and we understand that the need that if you're giving us more money that there has to be accountability. We get that, but we also believe that there's a perception on many of our small towns, most of which still have town meetings, that you're imposing your will against the will of our residents. That we go to our referendum in a lot of our towns and that should in a sense be the voice without penalty. We know it's a minor penalty of only the MRSA money, and a lot of our small towns it's not a great deal of money, but it's this feeling that the state is trying to tell us that we're not efficient and not doing well when it's really our residents are agreeing to that situation.
So a couple issues that could be clarified in the spending cap, which we think would be helpful, and actually some of them are in Senate Bill 466. Particularly things like the pension funding. We want to make sure that we're not penalized and don't make the mandatory or the suggested actuarial contributions of pensions because we want to avoid going over a spending cap. That would lead to unfunding our pension plans. I know a number of years the town of Coventry, when we hit the recession and the stock market losses, our pension fund plummeted. We were down in the mid-50s. We worked real hard over the next few years, and we're not at 85%. We were able to get a [inaudible] bond rating increase because of our efforts, but we had to budget for that, and that amount to recover, so we don't want things like pension funding, which is in 466, to be a negative impact on the cap.
Also, unfunded mandates that come along. If there's going to be new requirements put on us, we hope that those also -- yeah, I'm sorry, I'll stop there.
LEO PAUL: Do I get three minutes, Senator, or?
SENATOR FONFARA (1ST): If you could consolidate your testimony, I'd appreciate it.
LEO PAUL: I will. You have a copy of my testimony in front of you.
SENATOR FONFARA (1ST): We do.
LEO PAUL: The only thing I would like to just highlight out of that, I serve on the Advisory Commission on intergovernmental relations, ACIR, and they produce a report every year, and I just want to point out that 49 percent of the municipalities in 14-15 had budget increases of 2.5 percent or more. Fifty-nine municipalities had increases of more than three percent, and there were 111 with increases of more than 2 percent, so it seems as though the trends at the local level are not holding to the 2.5 percent cap that's been produced. The only thing that I want to, the only thing that I want to point out beyond that is that I actually do come from a statutory town and a true town meeting form of government where we have levels of review all the way through our budget process. The board of education, which we have our own district, and the board of selectman present our budgets to the board of finance. We actually have a town hearing where the town actually comes out and makes recommendations on whether they do, and they do ask for increases, especially on the educational side, or they make recommendations or requests for reductions. Then the board of finance reacts to that town meeting, and then what happens after that is we hold an actual town meeting where the residents can then at that point make adjustments to the budget during that town meeting. So what this cap seems to be doing on the town meeting form of government, whether it's an automatic referendum or if it's a true town meeting form of government exercise like we have in our community, it in essence, and I don't think it was intended, this might be one of those unintended consequences, it in essence disenfranchises the 6000 residents in the town of Litchfield to decide what is actually spent and what isn't spent. I understand what you said earlier, Senator, about it is not a hard and fast restricted cap, but there are penalties involved, and I'll give you an example. Right now the budget that I presented to the board of finance last night and the board of education presented last week, it comes to a 3.01 percent increase, and given the cap, it would cost the town of Litchfield $84,000 in that MRSA revenue that we have coming in unless we make a rather drastic reduction in our budget. The way we look at our budget right now and what we presented to the community is a reasonable budget. The Board of Education and the Board of Selectman are both at about 2.5 increases, but with our debt service, and the town of Litchfield has debt service, because we issue bonds every single year because of the size of our infrastructure, 120 miles of roads, and we have a rather large infrastructure that we have to deal with and repairs, so we do issue debt every year. So that's the important thing that I just want to pass on in town meeting forms of government. There are some unintended consequences, and I would urge you to reconsider maybe exempting town meeting forms of government or coming up with some other creative manner that the consequence to those types of communities are not as hard as they are right now, sir. Thank you.
SENATOR FONFARA (1ST): Thank you. Questions? Representative Wood?
REP. WOOD (141ST): Thank you, Mr. Chair, and thank you very much for your testimony. I think you've summed it up when you said the perception is that you're imposing your will against our voice, and that's what many of us do work to support you. We hear you. I hear this in both the towns I represent. You're a vital part and a vital voice at the table, and we do need to hear what you're saying about unintended consequences of Senate Bill 1 last year. So, thank you. I understand that the car property tax we needed to fix that, but I think we needed to avoid the unintended consequences. So thank you again for taking the time to come up and testify. Thank you, Mr. Chair.
SENATOR FONFARA (1ST): Thank you, Representative Davis? Anyone else? I just would like you to respond not today but if you could in writing. I thank you for your testimony and John for your help in helping me understand better some of the issues that you are facing as we embarked on that bill last year and others that you brought together. If you could, again, comment in writing on the objective of this being one primarily with respect to the cap was to provide for the first time a revenue stream that was not from the property tax that for the first time changed the paradigm where the state would assist in a significant way. As you know, many states across the country provide for a greater percentage of the sales tax that goes to counties. We don't have counties in Connecticut, so we created a mechanism that those revenues would go directly to the towns. But it was not to provide an additional revenue stream but an attempt to slow the growth of mill rates in towns. Now, I represent a small town. They do a fantastic job of managing limited resources. I have great respect for town managers and first selectman and elected officials across this state, particularly in smaller towns and how they manage budgets with limited funds. But we still have the fact that there are pressures to increase that mill rate annually. We understand that and we attempted to provide a revenue stream to replace, not to augment, but to replace and try to alleviate some of that pressure. If we weaken that soft cap further, then we haven't really done much to try to provide a replacement revenue source but just an additional revenue source. I would ask you to comment on how we can maintain an objective in concert with your concerns. I'd love to get that today. We don't have time, but if you could, and anyone else that cares to respond to that going forward, it would be very helpful.
JOHN ELESSER: I would be glad to submit something in writing, and we are not ungrateful for the MRSA money. It is --
SENATOR FONFARA (1ST): I'm glad to hear some is --
JOHN ELESSER: We are counting on it in our budget and --
SENATOR FONFARA (1ST): More is never enough I guess, John.
JOHN ELESSER: -- so we will be glad to submit something in writing to address some of these concerns. It is a major change, and I think we all understand that change is hard for everyone. Even when it's a positive change, it's hard for us to understand, and we're working through those issues, so thank you very much for helping us.
SENATOR FONFARA (1ST): You and your town have been a great resource to us, thank you.
JOHN ELESSER: Thank you, Senator.
SENATOR FONFARA (1ST): I'm going to exercise some prerogative, and I hope it's understood at this time in calling Mayor Toni Harp and Mayor Joe Ganim to testify at this time. I thank you for your indulgence. Mayor Harp, good to see you again.
MAYOR HARP: Good to see you again, and thank you very much. We both have to run off to other meetings, so I really appreciate your indulgence and the indulgence of those who are testifying on these very important matters today. So good afternoon, Senator Fonfara, Representative Berger, and to our ranking members and members of the Finance, Revenue and Bonding Committee. My name is Toni Harp. I'm the major of New Haven, and I want to thank you for this opportunity to testify on two bills before your committee.
I would first express my support for Senate Bill 466, an act concerning property taxes and payment in lieu of property taxes. To list the attributes of Connecticut cities is to cite the many advantages cities provide for all state residents willingly, proudly, and happily. Connecticut's cities are the pillars of the state, drawing guests, businesses, and investments to Connecticut literally from around the world. Connecticut cities are home to the vast majority of hospitals, universities, social services providers, and cultural attractions serving all state residents, but state law makes most of these facilities property tax exempt, and state law prohibits cities from raising revenue through most other forms of taxation other than property tax. In New Haven by state law roughly half of the city's grand list is tax exempt. It is unfair and impossible for the taxable half to carry the rest of the city and all the regional services and facilities as well. State pilot funding meant to help cities bridge the resulting gap has fallen away from statutory requirements year after year. Last year's historic property tax relief program addresses that longstanding shortfall and is critical to protect city residents. This bill makes important changes to improve that program. First, it allows municipalities that want to opt out of the spending cap to do so. If they find the rules of this program too strict, the state should let them leave the money for their neighbors. We could certainly use it, no pun intended. This is even more true because of the way this bill improves the spending cap by creating exemptions as well.
I just want to quickly say, I have a lot more to say, but I'm also here to support Senate Bill 414, an act concerning the tax on college property. It would update a 182-year-old statute and set guidelines to distinguish between a college's commercial and educational real estate holdings. There are many others from New Haven to give more on that, but we don't want our colleges competing with our small businesses, and so thank you. I'll turn it over to my other big city mayor, Mayor Ganim.
MAYOR GANIM: Mayor, thank you. To the Chairs and to the committee, thank you for your time, and I'll return the courtesy and keep my comments very brief, and thank you for allowing us to speak on a tight schedule and a long, long hearing for you. Mayor Bronin was also here today. I think he's either going to or has submitted testimony so that we're in agreement and in support of a variety of not only 466, which I believe is before the committee today, but the way that that helps to further what was last year's SB or Senate Bill 1, and to thank this committee, chairs, leadership in both the House and the Senate for I think Senator Fonfara said, a change in the paradigm, and understanding and recognizing the challenges on a local level with the taxpayers across Connecticut and those that are faced with you know, regressive property taxes, for better, for worse, more dominant in the large cities that provide services to the region and are struggling.
I don't want to go much further in the interest of time, but would answer questions and only say in any way that we can be supportive, I support the cap. I recognize the challenges that some cities and towns may have, but I understand the concept and the policy. When you make major changes in public policy, as you did last year, favorable public policy changes, there are elements to it that we have to work with. I'm willing to do that, but certainly supportive of anything that other cities and towns may need or that the legislature needs to ensure that the policy goals that were set out to better the environment, tax environment in Connecticut, are fulfilled.
Lastly, kind of on a lighter note, but one important to all of us, as we provide services to the region, with the states help many years ago, we built an arena there. We have the honor of serving the UConn women on Saturday morning and I hope on Monday, and everyone's invited to come down to the arena and watch the UConn women I hope go and win a national championship again.
REP. BERGER (73RD): Thank you for your testimony and for your support of UConn.
MAYOR GANIM: Yes, go UConn. Go Huskies.
REP. BERGER (73RD): It also should be noted, and again thank you for your testimony --
MAYOR GANIM: Class of '81.
REP. BERGER (73RD): You know, and it's good for both majors to be here and showing your support. You know, you're a large constituency that you serve, you know, certainly does well by your service to them and also the State of Connecticut as well by that. It should also be noted that the cap under the new language that we're going to have, we understand that no bill is a perfect bill and that we've made adjustments to that cap, which I think are going to be beneficial, and then a roll out, obviously in 2018, of the cap. So, it gives municipalities plenty of time to find their sea legs, so to speak, and the potential for us to make further adjustments, which we are always willing to do, in working with the municipalities and working with CCM, certainly this committee and the General Assembly as a whole. So, thank you for your advocacy for this important ground-breaking legislation. Senator Fonfara.
SENATOR FONFARA (1ST): Thank you, Mr. Chairman. Very briefly, and I welcome comments from both of you, if you care to, but specifically Mayor Harp, with respect to SB 1 that Senator Looney spoke about, this year's SB 1, to be clear. Your city probably as much as any in Connecticut has experienced to the extent that we have a noticeable activity with respect to innovation and entrepreneurship, your city is probably at the top of the list. Can you comment on that activity if you choose to and also with respect to maybe not the specifics of SB 1 but in terms of putting a much greater focus on that subject that this bill attempts to do.
MAYOR HARP: You know, I think it's really important that Connecticut understand where its growth clusters are, and when you see where we're growing as a state, we're growing in technology, in IT as well as biotechnology. We can see it in New Haven. The spinoff that started at Yale and grew in Connecticut and in Cheshire is now an international company that has a footprint in 50 countries around the world. It started out with technology, with the knowledge-based economy, and to the degree that we can support that and recognize, that is where we're growing. We're no longer, we will still have advanced manufacturing, but if we want to grow as a state, we have to do everything that we can to invest in knowledge and in technology.
SENATOR FONFARA (1ST): Thank you.
MAYOR GANIM: Thank you, Mr. Chairman.
REP. BERGER (73RD): Thank you, Senator. Any other comments or questions? Representative?
REP. WOOD (141ST): Thank you, Mr. Chair, and thank you certainly, Mayor Harp. It's a pleasure to see you up here and it was a pleasure to work with you up here. I just want to say that it's -- we hear the difficulties cities face with so much property being tax exempt, but to hear it in your words personalizes it and gives it certainly a resident meaning, and thank you.
MAYOR HARP: Thank you so much.
REP. WOOD (141ST): Thank you very much, go ahead.
MAYOR HARP: I miss working with you as well and, you know, the commitment that you bring in a bipartisan way, and I really love the spirit in which you do your work.
REP. WOOD (141ST): Thank you, and thank you, Mr. Chair.
REP. BERGER (73RD): Thank you, Representative. Representative Stafstrom.
REP. STAFSTROM (129TH): Thank you, Mr. Chair, and thank you both of you, both majors, for being here and highlighting what's so important and particularly highlighting the issue of economic competitiveness and how our cities really have to lead in that initiative. I want to thank both of you. I know you both have been on record previously as supporting the spending cap, and I think that is important.
But I just, I wanted to ask both of you, but particularly Mayor Ganim, on how sort of the changing economic paradigm, how changing sort of the revenue stream that's available to the city of Bridgeport or a city like New Haven to the city of Hartford can help us to increase the economic competitiveness. I know we're scheduled for our own ecotechnology park tomorrow where we've had great success in Bridgeport, and I'm wondering if you could just expand on that a little bit on how giving that flexibility helps our economic competitiveness.
MAYOR GANIM: Sure, I appreciate the opportunity. I think the best singular example is when you look at the across the state equalized mill rate for automobiles when it's 32, which is lower than what we have now, which is several mills higher than that and we're doing reeval, so it'll probably get worse with a grand list that's dropped off, estimated to be a billion dollars from last year. The competitiveness of not just residents owning their automobiles in Bridgeport, registering in Bridgeport, let's say the businesses that have equipment, that may have a choice of locations, when they look an equalized mill rate between cities or towns, I think it puts us on a more level playing field. It's not an away game were trying to attract them based on what they're going to pay at least in taxes on what would be the automobiles. So, that's one way. One of the largest or most consistent things we here is how is the rate of property tax that we can pay when considering doing it our larger cities, specifically in Bridgeport.
So this goes a long way to doing that, and I'm one who would like to do more with less in partnership with the state certainly on revenue sharing, so welcome the focus on not just giving money to spend more but to equalize and to reallocate or to redistribute in a way that hopefully does just that. We're happy just being on -- having all city and towns where there's the inequities, and I'm sure they go both ways and get smaller towns, they share their thoughts on the inequities and how it disadvantages them, but on some of these, where we know how high tax is the cost of doing business, the cost of supporting tax exempt properties. Mayor Harp talked, I think it's close to 50 percent in New Haven. I don't know what ours is now with the reeval, but it used to be more than a third, maybe 40 percent in some at this point. It makes it challenging, sometimes overwhelming, to just try and stay above water with the competitiveness. So I think this goes a long way. Major step in public policy what was bravely passed last year and now is supported hopefully this year by this committee and other members of both Houses.
REP. STAFSTROM (129TH): Thank you both for your advocacy on this. Thank you, Mr. Chair.
REP. BERGER (73RD): Thank you. Representative Lemar.
REP. LEMAR (96TH): Thank you, Mr. Chairman, and thank you both for coming up today. I think it's extraordinary to hear your voices as we contemplate directions of our cities and our state moving forward and how to really allow the opportunity for innovation and growth. So I think it's great that you were both up here.
You know, Connecticut turned its back on its cities for the better part of the last half of the 20th Century, and rules were created that allowed communities to write their own zoning laws that precluded the development of affordable housing, that really pushed most of the challenges in our communities back into our center cities, and you know places like Hartford, Bridgeport, and New Haven have taken on, you know, these responsibilities proudly and excitedly and have maintained that commitment to our community. The deal was always well we'll throw dollars to the cities. We'll throw a few more dollars to the cities to help take care of those problems, and the challenges that we face back home in New Haven and even in Bridgeport, you know, go beyond the few extra dollars that the state can afford to spend. Last year when we passed SB 1, it was to try and change that dynamic a little bit, try to ensure that communities had the resources they need to deal with all the challenges, all the tax exemptions that we push onto you, and you know, I think as we move forward, we also recognize the financial climate we're in now, it's hard to sustain an ongoing commitment into the future, and that we can see, you know, protecting the dollars we're giving you now and hopefully growing that minimally over the next few years. That's the best case scenario.
So what do we do to break out of that environment? Are there revenue options that we just have not considered. Is there revenue authority that we should be providing to cities and communities across the state that can help us change that dynamic a little bit more meaningfully. Because otherwise we're back in the same dynamic, where you guys every year are coming to us asking for just a few more dollars more to help with these challenges. None of us want to be in that position. So, are there things that you guys have been able to think of, revenue authorities or different tacts that we can take here that really allow you to unleash the innovations systems that we see in our cities?
MAYOR HARP: We are in the process of putting together a list, and certainly of potential revenues, ones that could either occur on a regional basis or could be local option, should there be a need to reduce [inaudible]. I just want to say that I have built in the Senate Bill 1 revenue into my budget. It is balanced. If I'm cut, it's going to create a huge problem for me, so we will be looking at that and making recommendations should that be necessary, but I'm going to tell you that since 2008. We have lost nearly 50 percent of our workforce in the city, and if I look at police or fire, if I cut any of them, it actually costs us more money for overtime. My public works department is down by 50 percent in terms of the number of people who have to clean the snow, clean the streets, and do those other things. I can't afford to cut. I have libraries that I can't keep open as long as people expect them to be open, and so if the state can't afford to provide the revenue that was promised in that wonderful fill, so thank you, I know it wasn't easy, we have got to find another way in which we can generate revenue because I can't imagine working at 30 percent staff, and already we're down 50.
MAYOR GANIM: I'll be brief too, but it's worth noting that we are similar to the state in the middle of the year with a fiscal year that closes that still has a projected budget deficit back in December of about 20 million. Now we've closed some of that through some refinancing of bonds, taking advantage of lower interest rates, curtailing spending, and being aggressive in the collection of age of back taxes. But our challenge is we'll probably, I've said this before, probably not in this year, but we will end this year in a deficit. We're working hard on every aspect of closing that gap, but mid-year, as you know, percentage wise, our 20 million of a $550 million budget, you can do the math, is probably even a high percentage than the challenges, and I know you have enormous challenges. Next year, on a local level of course, it extrapolates, we have, I committed to the rating agencies that if we did not close that that we would build it into our base so that we would have a balanced budget going forward, and we were counting on the legislation and the projections that are in the governor's budget at least for the SB 1 in implementation. Our board of ed is asking for, and justifiably so, so you don't lay off teachers, $15 million above what's projected this year. So I don't need to add the numbers up [inaudible] Major Bronin is not here, but his Hartford situation has been well documented certainly in the media, and these are real, the largest cities, as you've noted, to take on some of the challenges with the least ability to afford. Unfortunately, I'm old enough to go back with Bob Dakers from OPM, when he used to sit on the financial review board in Bridgeport. So these deficits, if they're not attended to, and we have every intention of dealing with ours in Bridgeport, hopefully with your help again, as you've been so helpful to the city and the cities over the years, would not allow us to continue to carry deficits forward but to address them. We hope that this change in paradigm, this public policy, that addresses some of our challenges, is supported here and throughout both houses. Thank you.
REP. LEMAR (96TH): Thank you, and again I had a quick little preview of the economic competitive analysis that we're doing and multiple committees across the legislature. It's going to indicate the exact opposite of what the current rhetoric is. That cities get too much money. If you come here and you listen to, you know, some of my colleagues or some of the small town mayors and [inaudible] city is giving too much, and we're getting actually the exact opposite. The economic competitive models and studies that are being done, say we suggest that we have not invested nearly enough in our center cities, that those are the growth engines of this century, that we're putting any dollars into public spending, it should be into the growth engines that surround our universities or hospital and our center cities because that's where the future generations are all trying to move to, that's where folks when they're retiring are trying to get back into. We have the cultural and artistic assets that people want, types of housing that people want, and if anything, we've underinvested in our cities, and we need to be pumping in millions of dollars more to them.
Thank you for your leadership in both of those places.
UNIDENTIFIED SPEAKER: Thank you.
REP. BERGER (73RD): Thank you, Representative. Representative Mushinsky.
REP. MUSHINSKY (85TH): Thank you, I wanted to ask Mayor Harp, because you're on the corridor between New Haven and Springfield, the Commerce committee and the Program Review and Investigations Committee both have been talking about economic development in terms of innovation hubs as you've described in your testimony, and comptroller, Kevin Lemboe [phonetic], has talked about, and the Commerce Committee also has talked about [inaudible] innovation corridor with ultra-high-speed internet to serve these new technology businesses, and I don't know if New Haven is hooked into that yet or should this be part of SB 1 to create this ultra-high-speed broadband network?
MAYOR HARP: I'm glad you asked that question. As a matter of fact, we've been working, actually since I was a State Senator here with the Consumer Council around making sure that our state has the ultra-speed broadband for our state and particularly in what you've described as innovative hubs. We have got to have the infrastructure, if we're going to have an innovative economy, which we do have, and that's the part that's growing, we've got to have the infrastructure that supports that, and right now we don't. I think that it is really incumbent upon us to make sure that we build the infrastructure so that the businesses that depend upon that have it here. There are other places in the United States that with sometimes federal dollars have invested in that, and that is where they're growing in this country, because businesses like our business see Quickfix, Grey Wall, the great software companies that we have in our state, are dependent upon low-cost, high-speed broadband, and it really is how once we build that infrastructure we're really building our future as well.
REP. BERGER (73RD): Thank you. Thank you, Representative. Any other comments or questions? Seeing none, thank you for your testimony.
MAYOR GANIM: Thank you so much.
MAYOR HARP: Thank you.
REP. BERGER (73RD): Moving to the public portion, Paul Rescigno.
PAUL RECANZONE: Senator Fonfara and Representative Berger, members of the committee, my name is Paul Rescigno, I'm here to speak in favor of House Bill Number 5636, an act concerning municipal taxing districts in particular.
Thank you for understanding the importance of broadband development to economic vitality and quality of life in Connecticut. OHIvey and Fiber Community, the complains I represent, believe communities can be greatly benefited by public broadband development projects. We also believe the decision to risk public funds on a local broadband development project should rest in the hands of those citizens the decision affects. Connecticut law currently allows for special taxing districts for specific purposes that can bring about significant community benefits for their members. Broadband development is not one of those allowed purposes. In order to allow the creation of a special taxing district, for the purpose of developing broadband, we support the phrase, to plan, lay out, acquire, construct, maintain, operate, and regulate the use of a community broadband system added to Connecticut General Statute 7-326. Adding this language to allow special taxing districts for broadband development will create a vehicle to advance municipal broadband develop and implementation of public gig networks and ensure the decision to participate in a public broadband development venture rests in the hands of the affected citizens, allow a potential funding mechanism that protects the central services from potentially risky broadband development. Communities that elect to form a special taxing district to develop broadband will better control public policy outcomes of broadband development, be able to select gig network solutions and create environments of real broadband abundance, be able to choose an open model allowing multiple service providers to compete across a common infrastructure. To that end, we urge the legislature to pass HB 5636, an act concerning municipal taxing districts, the sales tax/apprentice tax credit certainties and tax credit report.
REP. BERGER (73RD): Thank you for your testimony, and I know you have to catch a flight, so we might not keep you too long. Any other comments or questions? Representative Mushinsky.
REP. MUSHINSKY (85TH): I wanted to ask you, if we did this with bonding instead, what would it cost to do the ultra-high speed along the Amtrak line between New Haven and Hartford and Springfield?
PAUL RECANZONE: You can estimate costs of construction at about 50, or 50 to 150,000 per mile, and it depends greatly on the conditions of the ground and the availability of aerial infrastructure.
REP. MUSHINSKY (85TH): Just to follow up, can you do it along a rail line?
PAUL RECANZONE: Yes, you can do it along a rail line, and that greatly eases security rights-of-way easements.
REP. BERGER (73RD): Thank you, Representative. Any other comments or questions? Seeing none, thank you for your testimony. Barbara Henry on the agency elected portion, Roxbury First Selectwoman, please come forward and state your name for the record. Mr. Stein is going to join you also.
UNIDENTIFIED SPEAKER: I can join you also.
REP. BERGER (73RD): Very good thank you. The committee thanks you.
DONALD STEIN: I'm Don Stein, and thank you Senator Fonfara and Representative Berger [inaudible]. Sorry about that. Thank you for giving us the opportunity to testify. I'm the First Selectman of the town of Barkhamstead, and I'm also chairman of the Northwest Hills Council of Governments, which is composed of 21 municipalities, all of which are small towns other than Torrington, and as probably will not be a surprise, Barbara and I are here to testify on this municipal spending cap, and we'll try not to be redundant.
We do appreciate the increased revenues, but we're concerned about the possible penalties that don't consider the small town's unique needs and priorities. There are times when the small town however frugal must increase spending to reflect the needs of their community, so what I'd like to do very briefly is give you a little bit about the town of Barkhamstead, which is less than 38,000 people. Our total budget last year, which includes all services, the general government, education capital was only $11.6 million. Of that, 79 percent goes to education, and the balance including salaries with everything else, and our salaries are only six percent of the total budget. We operate at a bare bones level. We only have ten full-time employees including our highway department. We have six part-time employees and some seasonal personnel as needed for the highway department. Our schools provide a great education in rural setting, but we depend a great deal on volunteerism. We don't provide any real services besides education in schools. We don't provide post-retirement benefits. We borrowed twice in the last four years. Before that it was 25 years earlier. We use a resident trooper. Our recreation programs are usually funded. What happened this year is we belonged to regional high school and northwestern regional 7. Our student population for Barkhamstead went up by 21 pupils, which caused us to get an increased allocation from the school of $345,000, so that alone not counting any other expenses, was three percent of the total expenditures. Since we only represent 26 percent of the towns in the regional school district, we don't control its budget, so we're pretty much going to end up having an increase in spending of probably four percent because the other budgets are fairly well under control, and we're also starting to pay bond payments on a new school roof, so we basically got hit on a double whammy this year between the regional high school and the school bonding.
So I guess the message here, and Leo Paul when he was here talked about the law of unintended consequences, as I said we appreciate the increased revenue from the MRSA, but the spending cap can effectively handcuff small towns from meeting the needs of its residents. We got hit with an extraordinary tax increase this year. We can't say that's not going to happen other years, and at the same time we would be losing funding, which is very important to the towns. We are a town where the budgets are approved by residents at a town meeting. The budget reflects the will and priorities of the citizens, but there are situations where we don't have a lot of control, so I guess my bottom line, and Barbara has a few more comments to make, is we think that this issue can be either addressed by repealing the municipal spending cap or modifying it for the small towns with their unique needs. Thank you.
BARBARA HENRY: Thank you. I am Barbara Henry. I'm the First Selectman in the town of Roxbury. I am a former president of COST, and I currently serve on the board of directors. You've heard from the small towns here at the table this morning, and for me to just reiterate that it kind of undermines the ability of the residents to approve local budgets that reflect the priorities in their communities. For example, there are some things that are exempted some things that aren't, for example the regional school budget, which affects our budget tremendously. We're a small town of 2300 people. So I find that arbitration awards are exempted, the capital expenditures, I'm not really quite sure how that it is, it says of $100,000 or more. I don't know if that is per project or it's the overall capital improvement budget, but I know that in making the budget this year in our town we put in a lot more of the infrastructure, tried to move it forward in case this cap hits us, because it is really going to tie our hands in what we want to do going forward. So I think that it's flawed. I think that given the state's ongoing budget deficit, I'd like to urge the lawmakers to repeal or suspend the municipal spending cap, which will only serve to disrupt the delivery of critical local services in the wake of continued flat or reduced municipal aid. I find that, you know, if I go to a town meeting, I'd like to reiterate what my colleague, Leo Paul, said. We are governed by statute. We have town meeting form of government, and if my small town of 2300 people want me to double the size of my land use department or my public works or police department, and it would rise above the 2.5 percent cap, the legislature is undermining the ability to approve our local budgets that reflects the priorities in their communities.
So it's kind of hard to swallow, to tell most efficient forms of government, the local government, how to budget and manage our business. I find it hypocritical when the state itself is looking at a $220 million deficit compared to our balanced budgets year after year. Thank you.
REP. BERGER (73RD): Thank you for your testimony. Comments or questions from committee members? Seeing none, thank you for your testimony. Returning to the public portion, Puya Gerami? Local 33. I think those are the Yale students. Are they still here or did they -- do you have, Puya, do you have a group that's with you that's on the speaker's list that you'd like to bring up together or did they have to leave to get back to class or something.
PUYA GERAMI: There are other speakers, but I'll be just offering my testimony individually.
REP. BERGER (73RD): Okay, so other speakers from Local 33?
PUYA GERAMI: I'm the only one from Local 33.
REP. BERGER (73RD): Okay, please proceed.
PUYA GERAMI: Good afternoon, Representative Berger, Senator Fonfara, Senator Frantz and other members of the committee. My name is Puya Gerami. I consider Connecticut my home for my entire life. I was born in Norwich and raised in Storz [phonetic], and I worked my first job after college in the Harford area. Today, I reside in New Haven as a Ph.D. candidate in the Yale history department. I'm here to express my support for Senate Bill 413, which would incentivize the largest college endowments to invest more in higher education.
At Yale, I'm a proud member of the graduate employees and students organization, a union comprising 1900 teachers and researchers at the university. On March 9, GESO officially chartered Local 33 of [inaudible]. Our members spent six to ten years completely their degrees, and a vast majority seek academic employment afterward. Along with our fellow graduate workers nationwide, we represent the present and future of American higher education. But the world we're entering faces a deep crisis. Over the past 50 years, academic workplaces and classrooms have been transformed. Universities have chosen to hire fewer and few professors and rely increasingly on contingent employees, graduate students, adjuncts, nontenure track faculty to do the work that make our campuses run. As a result, universities have reduced the number of jobs waiting for us in the future. In the 1960's, the demand for Ph.D. graduates exceeded the supply. Today, however, ten times as many people are awarded Ph.D.'s annually as there are professorships for them to fill. This costs us our ability to perform our academic work, but it also costs the students we're responsible for educating.
As faculty ranks shrink, tuition bills and student debt loads have skyrocketed. Our students bear that burden, and at Yale despite a $25.6 billion endowment, we are not immune to these problems. In fact, the endowment continues to grow at mind boggling rates while tuition costs increase at the same time. According to Victor Flesher, an expert at the University of San Diego, in 2014 Yale paid $480 million to the private equity managers who handle their endowment. In contrast, only $170 million were earmarked for tuition assistance to students at Yale. Flesher proposes a spending rule that would require universities to spend a greater proportion of their endowments every year or lose their federal tax exemption entirely. Leaders on both sides of the aisle on the Ways and Means Committee and Congress have debated similar proposals over the last few years to grapple with the student debt crisis.
Meanwhile, Yale is currently building two new residential colleges, which will attract 800 more undergraduates to our classroom, but how many additional faculty members do they plan to hire to handle this influx? Zero. Connecticut has an opportunity to lead the rest of the country on this issue by passing SB 413. Encouraging Yale to reprioritize spending on their educational mission over endowment growth will not just help Connecticut. Yale leads among universities across the country and around the world. Just as many schools around the country have followed Yale's practices to seek high endowment growth, greater investment in education at Yale will push schools around the country to follow suit. For the future of high education, a wave of change could not come soon enough. Thanks very much.
REP. BERGER (73RD): Thank you for your testimony. Any comments or questions? Senator Frantz.
SENATOR FRANTZ (36TH): Thanks, Mr. Chair. Thank you for coming all the way up to Hartford and testifying. Have you thought about what the potential reaction is amongst potential donors to Yale University? You know, a lot of the money that is donated to the university goes straight to the endowment either by request or by default.
PUYA GERAMI: Right. I think no one can deny that the folks who ought to be benefitting from Yale's endowment are the students at the university as well as the members of the surrounding community in the city of New Haven, so I would be surprised in fact if there were donors who were opposed to the idea of increasing investment in higher education, which again is the central purpose of the university.
SENATOR FRANTZ (36TH): With the whole concept of a law dictating it, do you think this would be the first one in the country, have you done the research?
PUYA GERAMI: I'm not sure; however, there are other folks who will be testifying in support of this bill including Ella Wood and Gwen Mills, so I would defer to them.
SENATOR FRANTZ (36TH): Okay. So I happen to believe it is the first one that's been proposed in the country. I've never seen this before. I've never heard of it before, and it strikes me as fundamentally un-American. The private sector, private nonprofit sector is exactly that and is immune from a lot of the different conditions that public agencies and entities are subject to. So, to me it's fundamentally un-American as un-American is, you know, Connecticut state government coming in and telling the Yale basketball coach how to coach his team. You know, I'm not sure we would have made it that far had we, you know, had that as a condition at the beginning of the season, but I think we're in very dangerous territory here because the endowment is run incredibly professionally. I know some of the people in the management team. Their numbers are fantastic, and yes you do have to pay private equity managers and venture capital managers a certain amount of carried interest, but it's worth it because if you look at the principal, that's gone up by magnitudes higher than what you're paying them as fees. So that I think is sort of an unfair comparison in terms of the amount that was put into whatever program it was you were describing.
So, I think we have to think very very carefully about this. We do not want to be once again first in the nation to be passing something. It sends out a chilling message, and I'm familiar with a lot of the different universities and their endowments, a chilling message to people who might potentially donate to those universities. So thank you.
REP. BERGER (73RD): Thank you, Senator. Any comments or questions? Seeing none, thank you for your testimony.
PUYA GERAMI: Thank you.
REP. BERGER (73RD): Matt McCooe.
MATT MCCOOE: Good afternoon, I'm Matt McCooe, and with me is Phil Siuta, my partner, COO, and CFO with Connecticut Innovations. Senator Fonfara, Representative Berger, Senator Frantz, Representative Davis, and distinguished members of the Finance, Revenue and Bonding Committee. I appreciate the opportunity to present testimony on SB 1, and first of all, let me start by saying Senator Fonfara, thank you for coming forward with all of your ideas on innovation and entrepreneurship. We've had a couple of good conversations in the past, and I'm thrilled to see some of those pieces make their way into SB 1.
I think there's a lot of terrific ideas that are in here. I think there's a really good basis for what you and I wanted, which is to engage in a dialogue. There is a lot of information about Connecticut Innovations, which is not I think being disseminated widely enough into the community. I'll give you just one example. One of the ideas why we've drawn down less from the job spill is that over last year and this year CI is going to return about $50 million from loans and from divestitures of our portfolio of companies, if you look at the returns over time, especially when you factor in income taxes and sales taxes from companies that were helped to start by CI. The mayor earlier was talking about Alexion moving to New Haven. Alexion, according to Yale, in a conversation I had very recently would not have happened if it were not for Connecticut Innovations. A thousand jobs and lots of other positive impacts on New Haven and Cheshire that have happened over time.
Senator Fonfara, as you know, there are pieces of this legislation that are already being handled by Connecticut Innovations. I think we can go back and forth about whether or not you all think CI is doing a good job as a steward in terms of fostering innovation and driving the state's entrepreneurial [inaudible] forward. I'm happy to answer questions and go into details about some of the programs that I think are so important for the state.
But I want to just conclude by saying that I've only been here now for eight months in this role at Connecticut Innovations, and so I think I come to you with a somewhat objective opinion as an entrepreneur as somebody who has run [inaudible] and somebody who has run a venture capital fund. The team at CI is extraordinarily good. The work that the people on the team, my partners at CI are doing, is phenomenally good. I was recently at a meeting conducted in Washington, DC, that was led by Stamford Research Institute where they pulled together people from Maryland and Utah and Washington and all around the country, and the purpose was to talk about best practices in terms of state venture capital and economic development, and I can assure you that every single box that they were talking about for best practices CI checked those boxes.
So again, we are looking forward to working with you, Senator Fonfara, and the rest of the committee. I think there's a lot of work to be done. There's always more that CI can do. We are pushing forward with less. We've gone from 77 employees down to 42. We don't intend to increase our staffing. The motto at organization is to keep pushing people to do more, to take on additional responsibilities, and everybody had embraced that as an opportunity. So, I'm happy to answer any questions, but again, thank you for allowing CI the opportunity to present our [inaudible].
REP. BERGER (73RD): Any other comments or questions from committee. Senator Fonfara.
SENATOR FONFARA (1ST): Thank you, Mr. Chairman. Matt, thank you very much for your testimony. I'm happy to say I'm grateful to you that you chose not to read your testimony not because we discourage reading but because of the content of your testimony was much more concerning to me than you spoken testimony, and I'm glad that you chose not to do that.
I am still a novice in this subject. I said that to you when we met. I'm not too much further along in my journey, but I am convinced that Connecticut is not doing the job it needs to. Some of it has a lot less to do with government and a lot more with some decisions that people made years ago. Some of those government people, some of those not. The fact that the University of Connecticut is located in Eastern Connecticut, it's where the research is done, hurts us greatly in this state compared to what we see in other states. We can't change it, but we can make some, take some steps to ameliorate some of that. Whether or not there -- we don't have big cities in Connecticut. We have small cities. We have towns that compete with each other and believe that in some cases that a small town is deserving of everything that's good that a small city has. That's problematic. We have all the, we have virtually all of the resources that this particular field requires for success, but we have not put those together anywhere near what we should for a state that has those resources. We rank in the top 10 in all those categories consistently, but the commercialization and the output of those natural resources is nowhere near where it should be for a state with the resources that we have. I would equate it to having thousands of seven foot two young men walking around the streets of our state but only two basketball courts. That's Connecticut.
This is not aimed at you, Mr. McCooe, at all. You're new. I think you're a fresh face, and from virtually everyone I've spoken to, you have been a positive addition not only to the organization but to this conversation. But we have to examine whether or not the structural organization that with have is the right one.
The bill before us is one version. It doesn't mean that it is the version that is best. I would hope that, and I've tried, for months to engage the administration on this without success on policy. If I wanted to ask you what California is doing, you'd answer that question, but on policy, that has not happened. I hope that will change.
This is not about any particular member of this legislature and it's not about the administration, it's about taking advantage of a resource that we are the envy of in many cases around the country, but many of those places have moved ahead. We can identify them over and over and over again by the successes that we're seeing. The city of Pittsburgh transformed from a steal town, a rough-and-tumble community, to one where high tech and innovation flourishes, and the people of that town I'm told, that city, are excited about their future. Austin, Texas. We know about Boston. We know about Silicon Valley. Everybody talks about those, but I believe strongly that GE did not leave this state because of taxes or tax structure or cost but because they wanted to be, they have transformed themselves to be an innovation-oriented company, and they want to be around that, and they believe that was not here but that is in the city of Boston. That was their decision, but we ought to listen to that and pay heed to that and get about doing what we need to be identified. They did not with having the headquarters of GE here but serving that company in ways and providing the resources that they need to be the kind of company they want to be. I don't think that aspect of things is lost.
So I look forward to working with you. I know the committee does. This is not a partisan issue by any means. I welcome every member of this committee on either side of the aisle to participate in this as we move forward. This is about Connecticut's future. It's about keeping young people in this state that are leaving because they feel rightly or wrongly that there is a brighter place in which to engage in this new world of innovation and entrepreneurship. As I sit here today, I don't know what the right paradigm is, whether government should be in this space or not, whether it ought to be a reform CI or not, but I think you come here with not only clean hands but fresh ideas, and I hope that we can now begin the conversation on the policy that we haven't been able to until this point.
MATT MCCOOE: Thank you, Senator.
SENATOR FONFARA (1ST): Thank you.
REP. BERGER (73RD): Thank you, Senator. By the way of a comment for myself, thank you for your testimony here today. I know you're new. You said you've been here eight months and previous to being chair of this committee, I was chair of Finance for eight years, so many of these ideas I remember back in probably four, five, or six years ago. I would encourage you, and I know that the hard work that you've done, the Senator has done, the Senator has reached out to some of the other committees, but I encourage you as the executive director of CI to reach out to Commerce and Higher Education quickly, to explain to them and meet with their chairs on the ideas that are within this bill of SB 1 just as a way to kind of smooth over the relationship.
Any other comments or questions from committee members. Seeing none, thank you.
MATT MCCOOE: Thank you very much.
REP. BERGER (73RD): Dr. Suzanne Froshauer.
SUZANNE FROSHAUER: Good afternoon, my name is Suzanne Froshauer, and I'm [inaudible].
REP. BERGER (73RD): Ms. Froshauer, could you please put the mic on. I don't believe the mic is on. There's a button in front of you.
UNIDENTIFIED SPEAKER: The red light.
SUZANNE FROSHAUER: Good, I can start again. Senator Fonfara, Representative Berger, Senator Frantz, Representative Davis, and members of the Finance and Bonding Committee, thank you for this opportunity this afternoon to comment on SB 1, in particular section 24 concerning the reauthorization of the Angel tax credit and its transferability.
So, I am Suzanne Froshauer. I'm the president of CURE, which is a 22-year-old trade organization serving the Connecticut bioscience industry. Our membership is very diverse and includes our research universities, our companies in Connecticut, the farm companies, Jackson Labs, community colleges, investors, individual bioscience entrepreneurs, and many others. I've been active in Connecticut's bioscience community for 25 years as an investor in biotech and tech transfer activities when at Pfizer after years of research there, and then I went on to start my own biotech complain in New Haven with some Yale clients and [inaudible] co-founder, Nobel Prize winner, Tom Steitz. So we together built my biotech using Angel Investor money to the tune of 108 million in addition to venture capital.
So this story briefly is to emphasize the importance of these Angel tax credits in getting off the ground, very high-risk, important high plays in our healthcare and potential new cure discovery, starting companies and hiring people and creating jobs in biotech. These are such risky propositions, we require Angels to make the very early investment, and they need to be incentivized by things such as tax credits. There are lots of data that we have presented in testimony. The here are others of us who support this reinstatement of the Angel tax credit and particularly the transferability. I will tell you that once Angels de-risk these biotech startups, then comes the day when venture capital becomes interested in these and potential investments and these companies start getting off the ground with the money they really need in order to build and create new drugs.
I will speak about the ideas that Angels especially in Biotech tend to form syndicates. We require syndications from bioscientists and Angels outside of Connecticut, and it allows dispersion of the risks, and it increases our net worth. I really value the transferability in the formation of these syndicates and the ability then to showcase our biotechs not just to the Connecticut community but to a wider community, especially Boston and New York, where there's been a longer history of high-end investment in bioscience.
So, thank you very much, for listening to my support of the reauthorization via Angel tax credits.
REP. BERGER (73RD): Thank you for your testimony. Questions or comments? Yes, Senator Frantz.
SENATOR FRANTZ (36TH): Thank you, Mr. Chairman. I know we're supposed to be brief here, so I will keep it very brief. Doctor, thanks for coming and testifying. Your story is great. I know a little bit about it. You're a great, shining success story for the State of Connecticut, and we need a lot more of that going forward.
So Angel investor tax credits, where are we today in terms of what kind of capacity we have left. Where do we need to be. Well, I'll ask that question first.
SUZANNE FROSHAUER: We have invested I guess $11 million in Angel tax credits over the years. We certainly have the capacity to invest more. We formed, in the data that I presented, 25 biotech companies with these investments, and that's allowed them to raise through Angel investments $16 million. So, we also have data that there are 47 information technology firms, which of course have some based in bioscience, and they together have raised through Angels about $45 million, so it's a way to leverage very little of state money to bring in a lot more interest, especially in early stages of the company. I think that begins to answer your question.
SENATOR FRANTZ (36TH): It does, and thank you. You know what, I've talked to so many people in the DC community, the Angel community as well, who really, really respond to these programs and have in the past, and my understanding was we were pretty close to using up all of the Angel investment tax credits because they were so popular, and they will continue to be popular. You know, it's really all about how the state comes across, what its reputation is like when it comes to people thinking about starting a company here or going elsewhere or possibly even coming to the State of Connecticut. In some ways we're horrible, as was presented before by one of the co-chairs, and lots of room for improvement, and another areas we're pretty good. We, you know, continue the emphasis on Angel investment tax credits and things like entrepreneur learner's permit programs and things like that. We got some critical mass going in New Haven and in Stamford. We can do great things. Thank you very much for coming up today.
SUZANNE FROSHAUER: Thank you very much for your comment.
REP. BERGER (73RD): Thank you. Any other comments or questions? Seeing none, thank you for your testimony.
Commissioner Smith, I'm sorry you had a long day here, number 11 on the list, sorry. Please proceed.
COMMISSIONER SMITH: Thank you very much, and thank you to the committee for allowing me to testify today. So, Senator Fonfara, Representative Berger, Senator Frantz, who was just here and now gone, and Representative Davis, thank you very much, and to the rest of the committee as well.
I want to speak on two bills today. You have my written testimony on SB 1, and I want to start with that one and then I'm going to come back to SB, I mean sorry, HB 5636. First let me start with SB 1, and I think the conversation that was had moments ago between Senator Fonfara and Matt McCooe is one that we all share very much in goals that this legislation represents, and I for one having responsibility in much sense for the state's economic development plan recognized the extreme importance of innovation and creating an entrepreneur community here within the state, one that's more robust, one that's more connected, not just inside of each and every one of our communities but with the university systems, and I would add employers because I think the private sector is very much needed in the process of creating a much stronger innovation economy.
So having said all of that and agreeing with the goals of the legislation itself, I do have some concerns about it. In part, those concerns relate to the structure that's being proposed. I work very closely with Matt McCooe and the Connecticut Innovations team. They largely have responsibility for work in this arena, but we work very closely with them to support that work, to help them with the representations and work with larger companies as well as obviously just making sure they are effective in what they do. So we are very supportive of what CI has done, and I think we've planted a number of new seeds that are just beginning to show the fruits of their labor. Now could we do more in these areas? Absolutely. Should we do more? Absolutely. I think we agree there are a number of programs inside this bill that are worthy of continuing, but I would very much ask the committee to reconsider the creation of yet another entity to take, to work on this with this group.
You know, one of the observations I've made since I came into the state is that we have a lot of different entities, very much stove piped, working on the same things, and what we need is better collaboration, not more individual organizations trying to haul the same [inaudible] in the direction. So, I just ask the committee to consider all of that and particularly given CI's track record, which I think Matt will share with you a number of the successes that they've have, but you know we've seen tremendous growth in their world, and we really think they're doing a great job. I will, by full disclosure, I should say, I am a board member of CI, so I do have an opportunity to look very closely at the investments that they make, at the programs that they fund, but just taking a couple examples, in the CT Next program, which is the program designed to grow the innovation ecosystem. Would you mind if I continued for just another one or two minutes? Thank you very much. Those programs, such as the talent bridge program, which connects companies to the opportunity to hire people out of our university systems. If you look at the mentor network that's been created and the entrepreneurs and residents that CI has created in the last few years that provides access to literally hundreds, they have several hundred startup companies in their network, not necessarily funded by CI but in the network. I think the work that they're doing is phenomenal, and yes we need to add to it, but let's not undermine the kinds of things that they've been doing.
The other thing I just would point out to you is that many of the programs that you've suggested in the bill actually are already underway. Just to point to a couple -- you know, we have something called a manufacturing innovation fund that you all legislated into being two years ago. That fund, just in fact about a month ago, funded the Dream It/Do It program, and we also are funding CCAT through that program for the work they're doing on advanced composites. So some of these kinds of things are already being undertaken, and again I don't know that we need to put them back into legislation.
Finally, I just wanted to mention that the concerns I have about the source of funding for this program. What has been proposed, I believe, is to direct more than around 120 million from the DECD manufacturing assistant act into these innovation programs, and while I support the programs greatly, I also support the core work that DECD is doing to attract and retain companies in the state, and if we were to take that 120 million out of the bond authorizations for DECD, we would lose the opportunity to continue to work with companies to grow jobs here. Just a couple of stats, just so you have the numbers, in the last four years, using MAA funds at the tune of about 100 million a year, we have created about 55,000 jobs, I'm sorry, retained and created about 55,000 jobs in the state, leveraging an investment of three or four times what DECD has made the investments in. These are larger coms that are growing here in the state that have choices about where they invest to grow, and we think these dollars are going to pay back to the state taxpayers in spades over the next several years. I'm happy to provide all the details of how we underwrite to make sure the return on investment is here. Those of you on the finance committee would I'm sure be appreciative of understanding that we aim for the minimum is on each and every deal the return of our cost of capital to the state, but we generally actually underwrite for quite a bit more than that.
So I would like to see those funds retained at DECD and work with the committee on alternative ways that we might find the funding to move some of these very good ideas forward. So that is the scope of my testimony on SB 1.
I'm just going to add quickly that in front of you is also 5636, and there is a provision in there that essentially takes the work that DECD is already doing on evaluating its programs and making recommendations to the legislature on which programs should continue and why as well as evaluating the effectiveness, the efficacy of the tax credit programs. The bill suggests that that function actually be done by DECD and then done again by another group, and my feeling is if you've read these reports you can see how objective we are on it and again to try to save money and make sure that especially in these difficult economic times we're spending our money wisely. I believe this is not a necessary addition in the process.
Thank you very much for your attention, and I would be happy to answer any questions.
REP. BERGER (73RD): Senator Fonfara.
SENATOR FONFARA (1ST): Thank you, Mr. Chairman. Thank you, Commissioner, and I'll be brief in my comments and ask for your response following that.
You paint a pretty rosy picture of things in the area of innovation in Connecticut. I do not share that view whatsoever. I think there are successes in pockets in Connecticut. There are good people working in this space who are doing so without much organized support at the state level. You've mentioned earlier, you wanted to mention some statistics. I will counter those by saying to you that our research shows that Connecticut is dead last in startups over a decade in all of New England and New York. Dead last. For over ten years at each and every one of those years. We have the oldest complains in the four states that we looked at, Connecticut, Massachusetts, New York, and California. Why is that significant? Because it's been proven over and over again it's not necessarily small businesses that create the most jobs, it's young businesses that create the most jobs, and we have the fewest young businesses and the most old businesses. When you mentioned about CI, and again this is not about an individual but about the structure, one that gets its funding from its success, and that cannot do anything but push efforts further up the pipeline in terms of more stable, more predictable outcomes in terms of their investment, which is why in their own presentation to the committee in response to questions from the office of legislative research, they stated that in terms of various stages along the way of investment that the typical expectation in terms of failure in the industry is 75 percent, and their success rate is 25 percent, which says to me and anyone I think who would read that information that they're not a risk tolerant organization but a risk adverse organization. If state dollars, if tax dollars are going to be involved in this area, they ought to be taking the greatest risk, not less risk. They should not be in business to keep people employed. They should be in business to stimulate and encourage activity, and when they have that kind of failure rate, I question how they could be really moving the needle where the private sector is unable or unwilling to go currently.
We have small colleges in this state, and it's part of this bill that currently are not being supported in terms of tech transfer. There's nowhere in state government, not in your department nor in CI that I know that is focused on that issue or else if it were I think we would have probably modified what you're doing if it wasn't reaching that level, but to my knowledge there's not that activity going on. There is a dearth of VC capital in Connecticut, which causes businesses, young startups, to leave to go where VC's want to be near their investment so they can check on them on a regular basis. To my knowledge, there's no activity to spur and increase that amount of activity in terms of the private world.
You mentioned earlier about composites. It was the initiative of this body to create that fund, not the initiative or your department nor in terms of CI.
Lastly, I'll just say there's no one agency that is charged with looking at the landscape in this space across Connecticut to say where are we strong, where are we weak, and what can we do to improve that? There's no single entity that is charged with that responsibility. That's Impact is meaning to do. You may not like the creation of another entity, but whether it is that entity or another one, we believe strongly that there needs to be an entity that is charged with that because it isn't happening organically in Connecticut. It has happened organically in other places, but it is not happening here. It is doing a disservice to the state, doing a disservice to business opportunities. It's doing a disservice to the young people of the state that we are not with an invisible hand or a visible hand trying to move forward with respect to this effort that, Impact, that is, in this bill seeks to do that for the first time to have an organized focused entity that is charged solely with that responsibility.
You're welcome to comment if you'd like.
I think you have to press the button Commissioner.
COMMISSIONER SMITH: First let me just say that I don't mean to paint too rosy of a picture about where we are on this particular topic. I agree with you that we have a long way to go, and we want to put an effort behind that. However, I do think that Connecticut Innovations has made some changes, and Matt McCooe is one of the most important changes we've made in the last year or so, that we hope to really refocus that effort. CI takes it as part of their mission to work on the ecosystem, the innovation ecosystem. They were handed the CT Next program that was designed in DECD early on in this administration, and we've asked them to carry it forward. I do believe there are many more things we need to undertake, and I totally agree with a number of things you've mentioned including engagement with our independent colleges and further engagement with UConn and Yale and others that are already in very good collaboration.
So, please, let me not be mistaken of thinking there's no work to be done here. But I think CI feels that they own that mission today, and if there are new programs we need to add to it, I think we are all very much in favor of doing that. So I just wanted to make that clarification for you.
REP. BERGER (73RD): Thank you, Commissioner. Any other comments or questions? Yes, Representative Mushinsky.
REP. MUSHINSKY (85TH): Commissioner, I wanted to ask you about the Voices for Children testimony earlier today. I think you were here.
COMMISSIONER SMITH: I don't think I heard it, I apologize.
REP. MUSHINSKY (85TH): Okay, well, what they were asking the committee to do was to more carefully scrutinize the jobs created claims that we use a considerable part of tax exemption benefits for. They wanted us to verify that when people claim these tax credits they're actually producing that many jobs they say they are, so I wanted to ask you, how does the department verify job creation claims?
COMMISSIONER SMITH: I can speak for the ones that we manage at DECD. We have a pretty rigorous process that requires the company's aid at self-report. We then hire an outside auditor to ensure that they've reported correctly, and then we can also verify those triangulated against in the Department of Labor's quarterly unemployment reports, which show the number of employees in that firm. So we absolutely make sure that the jobs are being created in order to give the tax credit or provide the certification that the company then takes to the Department of Revenue services to claim the tax credits.
REP. MUSHINSKY (85TH): Thank you.
REP. BERGER (73RD): Thank you, Representative. Any other comments or questions? Seeing none, thank you, Commissioner.
We're going to really hold tight on our three-minute timeline here. Next on the public hearing portion is Ed Goodwin. So if I ask you to consolidate, please take that seriously.
ED GOODWIN: Hello, Senator Fonfara, Representative Berger, Senator Frantz, Representative Davis, and members of the Finance, Revenue and Bonding Committee. My name is Dr. Edward Goodwin. I am president of the Angel Investor Forum, and I am here today to speak in favor of the reauthorization of the Angel Investor tax credit and it's transferability in section 24 of SB 1, an act concerning innovation entrepreneurship with Connecticut's economic future.
The Angel Investor Forum is Connecticut's largest angel investment group with some 48 members, who invest their own money into promising early stage companies and assume the incredible risk that this type of investing entails. Just to point out what that risk is, we fully expect at least half of our investments will fail, and we'll get absolutely nothing, and only about one in 10 or one in 20 will provide the returns to make it a good event for us. Angel investors are also intimately involved in the startup ecosystem offering mentoring before and after their investment to help companies avoid the many failure points that can kill small companies and would often serve on the board of directors of these companies. Our group has made extensive use of the Angel investment tax credit, so thank you very much for that. That use of the tax credit has lead us to take a greater interest in Connecticut investment opportunities and to increase our portfolio allocation into this risky asset class. As illustration of this point, we've invested some $4 million in the five years prior to the tax credit, which increased to 11 million over the five years after the tax credit came into effect. Please consider that the 25 percent credit improves the risk to reward ratio for investors and allows an investor who is willing to invest $100,000 a year to now invest $133,000 in Connecticut companies for the same cost.
At AIF, we have members who also reside in New York and Massachusetts, so the ability to transfer credits to those who pay Connecticut tax encourages them as well to invest here in Connecticut, and as Suzanne Froshauer pointed out earlier, perhaps most importantly as we often syndicate deals with Angel groups in New York and Massachusetts, allowing this credit transfer will potentially bring further investment dollars and investor attention to all levels to Connecticut. Connecticut's Angel investment tax credit has been enormously successful in increasing independent investment in Connecticut companies and effectively leverages state funds to support the small businesses that derive job creation and innovation. The addition feature of transferability will make the credits even more useful and will encourage additional capital flow into Connecticut.
As an addenda, I had a board meeting this morning with our members, and we are a tad concerned that having the Angel tax credit part of such an ambitious bill might lead to its extinguishment should the bill not go through in toto, so we would ask the members of the committee to consider that as a semi-separate issue should that event occur. Thank you very much.
REP. BERGER (73RD): Thank you for your comments. We have ways to take care of that. Any other comments or questions? Representative Davis.
REP. DAVIS (57TH): Thank you, Mr. Chairman, and thank you for your testimony. Concerning the other parts of the bill, how do you see the private Angel investors, the private side of venture capitalism, interacting with what's proposed for a quasi-government agency that has this sole focus?
ED GOODWIN: Well to be perfectly honest I saw the bill for the very first time late Friday and started reading it and gave up after about page 20, and I got the cliff notes version today. So, I really can't comment extensively on it. In principle, I think it is a very good idea to emphasize early stage entrepreneurship and to realize that you can't just tackle it in one direction but need to create an entire ecosystem to support it. So, you could throw a lot of money at it, but if there are no good companies, or very few good companies, that's not going to help you, or you could incubate a lot of little companies, but if there's no money, that's not going to work. So, I do think the devil is in the details. I do share concerns I think that have been voiced here that there may be unintended consequences in that there are state agencies and there's also private groups that already doing a lot of these things and are amping their effort and that perhaps it's would be better to devote funds to them rather than creating something new. But I admittedly have not had the in-depth knowledge of the bill, so I really can't comment effectively.
REP. DAVIS (57TH): Sure, and I understand that concern as many of us haven't seen the language until just a few days ago as well as it's being crafted during this session. The other question I would have then is have you seen members of your forum interacting with the existing state agencies and working in tandem with them, in partnership with them, and doing some of these investments?
ED GOODWIN: Oh sure. We interact quite frequently with CI. We also attend a number of the CT Next events, provide sort of casual mentoring and mingling at those, which helps very early stage companies. We try to help mold them into potentially investable companies and to educate them about what we do, because Angel investments are really for very, sort of fringe element of very high-growth companies, and so the vast majority of things that could be good investments are still not Angel investments.
REP. DAVIS (57TH): Okay, excellent. Well, thank you very much for your testimony. Thank you, Mr. Chairman.
REP. BERGER (73RD): Thank you. Senator Fonfara.
SENATOR FONFARA (1ST): Thank you, Mr. Chairman. Mr. Goodwin, can you comment on the information I provided to the Commissioner a few minutes ago that Connecticut has for over a decade been dead last in startups in the context of your information of the success of the Angel investor program or in terms of your organization's interactions with CI?
ED GOODWIN: Well I'm not personally --
SENATOR FONFARA (1ST): Or your implied concerns regarding the efforts of this bill in trying to concentrate the resources in an entity.
ED GOODWIN: Well, I will say there have been efforts in the past to sort of pump out more startups and that just doing that [inaudible] because we need to have a really good idea, and it needs to be a really good idea that ten other people already had and gotten funded for. That's a tall order. So, I think that on the positive end of what this bill does is it does take a very broad approach to say let's really, you know, pry the lid open on our universities and see what's there, what can we work with tech transfer, because there's a shortage of good team members. That's the single-most important thing to determine the success of an Angel investment or early stage company is the quality of the team and to find someone who can be a good CEO at a startup is tough because we usually get technical founders, who are the worst, and we really have to work hard to educate them. So we only work with people that are coachable. So that being said, for example, we see very few companies coming out of UConn at all that are at our level, and I think that's a significant lack. At both Yale and UConn, they both have large engineering programs, and we have never seen an engineering thing come out, which perhaps offers some of GE's interest in finding places where that is more common.
SENATOR FONFARA (1ST): I think that's exactly what we're trying to do is to engage that community in a much greater way so that we see that. We just invested $1.5 billion in the University of Connecticut. In some eyes, I'm sure that some of the college, private college presidents are rolling their eyes right now at that kind of number, but that's what we did. I'll admit that if I had spent the time and if the members of this committee had spent the time on this issue when we were working on UConn NextGen that there would likely have been language in there that partnered the efforts, the investment and research with an investment in commercialization that was a missed opportunity. But we're here now, and the challenge is to do exactly what you said, just to take advantage not only of our two tier one research universities in Connecticut but also to engage the private colleagues as well as the CSU system. In Massachusetts, there are not even branches under the University of Massachusetts. They are full-fledged universities under their system. That's not the case at UConn, the branches are feeder schools, there is not research going on there. They are not under Connecticut's approach. Unfortunately, those schools are not centers, even though they are in Stamford, even though they're in Waterbury, soon to be in Hartford, but that's not part of the vision is to make those institutions anywhere near like that of Massachusetts.
ED GOODWIN: I will say, I'm not trying to pick on UConn, they have recently made some changes including the New Husky Fund, that some of our members are actually helping with for the precise purpose of identifying those early stage companies that might later benefit from Angel investment and getting started on the right path. Unfortunately, all this kind of stuff does take quite a bit of lead time and that even for us as Angel investors, it's five or six years usually before, even longer, before we see an exit, which usually is a failure.
REP. BERGER (73RD): Thank you for your testimony. Any other comments or questions? Seeing none, thank you. Robert Dakens.
ROBERT DAKENS: Senator Fonfara, Representative Berger, and distinguished members of the Finance, Revenue and Bonding Committee. My name is Robert Dakers, and I am the executive financial officer with the Office of Policy and Management. Thank you for this opportunity to provide testimony.
Specifically I'm here to speak in support of section 6 and 7 of raised bill 5636. These sections involve fees for non-state employee, public employees obtaining health insurance coverage under the state employee health plan. Other parts of bill 5636 are addressed by OPM in separate testimony. As you know, public act 1593 allows state public employers, mostly cities, towns, boards of ed, to enroll their employees in the state employee health plan at the same premium rates as are charged to the state employees and retirees. Under the act, the premiums and expenses for these non-state public employees are to be maintained in a separate account. The purpose of section six and seven is to prevent a deficit from arising in this account in the potential event the premiums charged to non-state public employers are insufficient to cover their expenses. The current law already provides for a return of funds to municipalities and board of eds if they are overcharged. However, the law does not address under charges that could lead to a deficit in the account. Section six and seven of the bill would address this missing piece by allowing the administrative fee already permitted in statute to an included amount necessary to prevent or address a deficit in the account. The proposed language indicates that the fee would only be in an amount deemed necessary to ensure positive balance in the account. We respectfully requests the committee's support of section six and seven of raised bill 5636, and I am happy to answer any questions you may have in this regard.
REP. BERGER (73RD): Thank you, Bob. Any questions or comments from the committee. Representative Davis.
REP. DAVIS (57TH): Thank you, Mr. Chairman, and thank you for your testimony here today. What kind of impact will it have on the towns, this section of the bill, if they are required to have to pay some of these administrative fees or additional administrative fees?
ROBERT DAKENS: Well if there's, if there's no deficit in the account which could occur, then there would be no impact because there wouldn't be a need, but in the event that the cost for those joining the state plan are greater than the premiums paid, this administrative fee could result in an additional cost to them. The flip side it prevents from the state, from having to make up those costs, and we're really not in a position to do that at this point. So that's the intent of the bill. The other option would be for the state to make and appropriation to this cost or experience higher costs on their own, so it's really to address that issue.
REP. DAVIS (57TH): So our towns already had the opportunity to join this plan?
ROBERT DAKENS: They currently can apply.
REP. DAVIS (57TH): Have towns already done that?
ROBERT DAKENS: There's been about six or seven who have joined the plan at this point.
REP. DAVIS (57TH): Have we seen this issue come up with those that have joined this plan already?
ROBERT DAKENS: Well, it's new, so they haven't actually experienced any claim, so we're looking at some of their past practice.
REP. DAVIS (57TH): Okay.
ROBERT DAKENS: One of the areas, it could be that we may experience is that geographically healthcare costs are higher in different parts of the state, and that could lead to towns from those geographic areas to apply, and that would lead potentially as an adverse selection for the state health plan.
REP. DAVIS (57TH): Who currently sets that premium for those individual towns that apply for it? Is it the same premium that we pay as a state or is it -- okay.
ROBERT DAKENS: Same premium as the state, so there is really, there is no really looking at what the experience would be compared to the state.
REP. DAVIS (57TH): If a town had joined the state plan already or applied to or already joined it, do they have the option of removing themself from the plan if we were to pass these administrative fees onto them?
ROBERT DAKENS: Yeah, I think the application is every three years, and whether there would be potentially grandfathering those who have joined under the current situation, that could potentially be addressed, but yeah, there is the opportunity to leave the plan after -- you could leave earlier than that. There may be a provision that would apply for those who leave early.
REP. DAVIS (57TH): Okay. Because my concern would be that these towns may or may not have joined this plan because they were under the guise that it was going to spread out their risk or the cost of their joining the state plan and that it's greater for them to do that, and then if we go back and change the administrative fees, put further charges onto them, you know, and we have them locked into a contract, to me that seems like a little bit of an unfair situation for those towns who were told that they would potentially be saving money by joining the state plan, and now we have these additional administrative fees. So, I'll definitely take a look at it, but you know I have those concerns moving forward. Thank you, Mr. Chairman.
REP. BERGER (73RD): Thank you. Any other comments or questions? Thank you for your testimony.
ROBERT DAKENS: Thank you.
REP. BERGER (73RD): Joanne Berger-Sweeney. I think you're going to come up with Professor Gerald Gunderson.
JOANNE BERGER-SWEENEY: Thank you Honorable Senator, Representatives, and committee members. Thank you for the opportunity to testify today. My name is Joanne Berger-Sweeney. I am president of Trinity College. I'm also a professor of neuroscience and a resident of Hartford 2014.
I'd like to share with you that I have had two federal SBIR grants, small business innovation research grants. I also did the proof of concept work for Razadyne, which is the second largest Alzheimer's drug in the world. So I'm coming here because I know a little bit about innovation. Perhaps I will always also say that I was the dean of the school of arts and sciences at Tufts University, and believe it or not, the school of arts and sciences had the largest tech transfer program at Tufts University. It was not the medical school. It was actually the school of arts and sciences.
I am here along with Professor Gerald Gunderson, the Davis professor of American business and economic enterprise at Trinity. I'm here to offer testimony in support of SB 1, an act concerning innovation entrepreneurship in Connecticut's economic future. I will also share my thoughts on SB 413 and 414. As a relative newcomer to Connecticut, I am incredibly optimistic about the wealth of resources right here in Greater Hartford and in Connecticut. As Senator Fonfara shared earlier, it is as though we have a lot of seven foot players without enough basketball courts to actually keep them engaged. We have lessons that we should be learning from the Boston area. Here in Connecticut we have not yet concentrated our efforts into innovation districts, creating density, proximity, and support services where like-minded people thinking about similar problems can run into each other casually. In a knowledge-based economy, production is based on intellectual capabilities rather than physical outputs and natural resources. Institutions of high education, we are the foundation of a knowledge-based economy. One example, Trinity College student, Mica Funditi [phonetic], class of 2018, he's an engineering and economics double major, and he's receiving quite a bit of national attention now for developing an app that allows students to sell and buy textbooks with each other. I want Mica to stay in Connecticut. The majority of our graduates move either to New York or to the Boston area to start their businesses. I think many of the things in SB 1 will keep those individuals here.
The last thing I just want to close by saying is with regard to SB 413 and 414, I would just like to remind you of how colleges and universities are the economic drivers in many of their neighborhoods and communities. Our endowments are essential for the financial health of our institutions. We pay it back through physical plant investment, financial aid for deserving students, and in programs such as innovation and entrepreneurship such as we're talking about now. Our endowments in essence allow us to take some creative risks, and Connecticut needs that desperately.
Thank you for your commitment to making an impact on Connecticut.
REP. BERGER (73RD): Thank you for your testimony.
JOANNE BERGER-SWEENEY: Yes.
REP. BERGER (73RD): That was three minutes for both of you.
JOANNE BERGER-SWEENEY: Yes.
REP. BERGER (73RD): I mean did you just want to make a couple of quick comments because we need to really adhere to our three-minute scenario.
GERALD GUNDERSON: Well my comments are written, so you can refer to them, but I wanted to, as you see, my scholarship is entrepreneurship. I have to add I'm the treasurer of the Yankee Institute so that when I come to you I'm going to come and say you better use you're taxpayer money very carefully. That's a continuing problem.
REP. BERGER (73RD): I would suspect nothing less.
GERALD GUNDERSON: Okay. The example that I've given you in the written testimony was two entrepreneurs who came to my office, who were looking for some advice. We got them started. They did the entire thing on their own and what you will have, I'll show you. This is called WhereSafe. It's simply a little fob, or it can worn inside. It connect to your iPhone, and it would allow you to communicate very quickly with a range of acquaintances. You can email them. You can record messages. You can relay material onto security. They talked to me two years ago. They now have 12 employees, thousands of customers, and millions of dollars of financing. That was done simply because the key thing in entrepreneurship is that you have a network of people that you can work with and talk to and you get those creative ideas. What we know from our research for example is that fully half of the innovations that occur occur not from the direct entrepreneurs themselves, but they're picked up by the consumers. The consumers understand that because they use it in different formats, and they identify lots of things that can be improved and modified. We need the networks.
REP. BERGER (73RD): Thank you. Any other comments or questions? Senator Fonfara.
SENATOR FONFARA (1ST): Just quickly, Mr. Chairman. President Berger-Sweeney, I just want to thank you for coming here and Professor Gunderson as well. You've been a breath of fresh air in Hartford. We're very happy that you're here, lucky to have you, and as you said to me recently, you came to Connecticut and to Hartford because you saw opportunity here that you might not have been able to have the same effect in Boston, and I remember that. We're very fortunate to have you here and in particular with respect to your very strong interest in this field for Trinity, Trinity students, keeping them here, and hopefully having Connecticut take advantage of their incredible talents and skills for our economy and for our quality of life, so thank you very much for coming here today.
JOANNE BERGER-SWEENEY: Thank you.
REP. BERGER (73RD): Thank you. Thank you for -- Representative Boukus.
REP. BOUKUS (22ND): Yes, good afternoon. I want to echo the comments of our esteemed co-chair, but at the same token, I just have a quick question, there's no relationship to Mr. Berger who sits on this committee, is there?
JOANNE BERGER-SWEENEY: No, there is not.
REP. BOUKUS (22ND): I just wanted that, I just wanted that --
JOANNE BERGER-SWEENEY: I'm married to a Mr. Berger but a different one.
REP. BOUKUS (22ND): Yeah, so I just wanted to get that out of the way. I did have an opportunity to read your testimony before you did come here today, so it's an honor to be -- we're running in and out of different meetings [inaudible] hear from you. I do want to add the comments that we welcome you. We are glad you've been here. You came in 2014. You're still here. That's a very positive thing. We'd like you to share with us as time goes on. Let this not be the last time, I'm sure. Senator Fonfara, you know, has close contact with you, but that we hear of any of the projects or ideas that you have as we continue to develop and pursue things in Connecticut that we may have missed and you might be able to contribute to that. So I just also wanted to just welcome you, and I look forward to great collaboration. Thank you.
JOANNE BERGER-SWEENEY: Thank you.
REP. BERGER (73RD): The Chair acknowledges Representative Rojas.
REP. ROJAS (9TH): Thank you, Mr. Chairman. I just wanted to in the interest of full disclosure, I work for President Berger-Sweeney and just wanted to mention that this is where I am when I'm not at work, so thank you for [inaudible].
JOANNE BERGER-SWEENEY: Thank you.
REP. BERGER (73RD): Thank you. Are Aldermen Santiago-Berrios and Evette Hamilton still with us? Please proceed forward and identify yourself. Once you're settled, again, we need to keep you on a three-minute scenario as best as possible.
EVETTE HAMILTON: Good afternoon, Representative Fonfara, Representative, Senator Fonfara, my apologies, Representative Berger, Senator Frantz and Representative Davis. My name is Evette Hamilton. My colleague and I are here on behalf of the city New Haven's board of alders where I am chair of the finance committee. We are a nation of laws, but when it comes to taxes, there's a big loophole for Yale University. I'd like to read to you the current law written in 1834. Yale shall not hold in this state real estate free from taxation affording an annual income of more than $6000. What does that mean? We do not know. Does it separate commercial from educational? No. The law is not clear which of Yale's commercial properties are taxable. In practice, Yale properties become taxable only when Yale agrees not to contest it.
The city needs to know what rules separates taxable from tax exempt properties. We are here in support of Senate Bill 414, to provide that clarification, and I'll turn it over to Berrios-Bones [inaudible].
SANTIAGO BERRIOS-BONES: My name is Santiago Berrios-Bones, and I live in 109 East Paris Street, New Haven. Like many cities across the country, New Haven has changed in the last 40 years. Universities and hospitals are now the center of our economy. These changes have provided a strong foundation for New Haven the state law has not cut up. Currently Yale University operates under the 19th Century state law that grants it a blanket tax exemption. Under the law, Yale can run commercial business out of its tax exempt property. Independent businesses, and I repeat independent businesses meanwhile do pay taxes. I think about the businesses in my world, the many family owned merchants and restaurants that have been serving New Haven for generations. Things were different for Yale. SB 414 will update and clarify the law, making sure that Yale plays by the same rules as everyone else. We urge you to support SB 414.
REP. BERGER (73RD): Thank you for your testimony. Comments or questions? Representative Lemar.
REP. LEMAR (96TH): Thank you, Mr. Chairman. Thank you both for coming here today and thank you for your continued service to the city of New Haven. I know it's an ongoing commitment that you guys make every night on serving our community and the great commitment that you've made by coming up here today and sharing your experience in our city. Look when it comes to balancing the great relationship we have generally with Yale University and our city, trying to find equity and approach to how we balance the needs of our community, the needs of our small businesses, and Yale's tax exemption is a challenging one that we've struggled with at the local level for literally hundreds of years. So I admire your willingness to come here and talk about the challenges you guys face and how we confront it moving forward. Thank you again.
REP. BERGER (73RD): Thank you, Representative. Thank you for your testimony.
SANTIAGO BERRIOS-BONES: Thank you.
REP. BERGER (73RD): Jeff Sitnamboff. Jeff? Seemann, I'm sorry Seemann. I'm sorry I'm reading it wrong. Jeff, come up.
JEFF SEEMANN: Chairman Fonfara, Chairman Berger, Ranking Members and members of the committee, thank you for the opportunity to offer testimony on SB 1, an act concerning innovation, entrepreneurship, and Connecticut's economic future. My name is Dr. Jeff Seemann, and I'm the vice president for research at the University of Connecticut including UConn Health and professor of molecular and cell biology. Prior to coming to UConn two and a half years ago, I was vice president for research at Texas A&M University. I'm accompanied by Rita Zongari [phonetic], my director of innovation programs and external relations. I have provided with more extensive written testimony that I will give now.
Competitive advantage based on innovation and scientific knowledge has been the key to American economic success since the end of World War II when deliberate, sustained federal investment in science and technology was demanded to win the cold war. Those federal investments paid off in Connecticut and all across the US, but as new economic challenges have arisen, the regions that continue to flourish along with those that were rebuilt and flourish again today, are those where the value of university research was realized and leveraged. Universities play a key role in economic competitiveness and growth. Senate Bill 1 recognizes this important fact and that the universities that have emerged as economic drivers in highly prosperous regions did so by linking the practical needs of industry to academic research interests. Many did so at the urging and with the support of state government.
In 2013, this committee began that economic transition for Connecticut with the passage of NextGen Connecticut, a ten-year plan to expand science, technology, engineering, and math capabilities at UConn. Due to this transformative program and your vision, UConn research awards have increased. We are increasing Connecticut's STEM-trained workforce, and we are building expertise and new technology resources required by Connecticut's many high technology companies. The investment of Bioscience Connecticut and UConn Health is paying similar dividends. SB 1 complements, and I emphasize complements, NextGen Connecticut and Bioscience Connecticut as we continue to grow the research pipeline to feed both UConn's technology commercialization potential and Connecticut's economic development needs. SB 1 strives to replicate what has occurred in other states where leading research institutions not only educate students and pursue scientific inquiry, they apply their discoveries and knowledge to technology commercialization and company creation, ultimately becoming the centerpiece of economic advancement within their region. UConn, due to NextGen Connecticut and Bioscience Contract, is now well positioned for a similar role.
We are thus excited to see a bill that provides funding for critically needed personnel to support UConn's technology commercialization enterprise. We are also excited to see a venture fund directed at UConn. However, there is a key gap in the innovation pipeline known as the proof of concepts stage that perceives the formation of a company and the readiness for venture development. This gap also needs to be filled for the venture fund to succeed and for UConn to deliver on the promise of NextGen Connecticut and Bioscience Connecticut.
SB 1 will help give UConn the tools it needs to build upon the growing research successes made possible by NextGen Connecticut and Bioscience Connecticut to help Connecticut start new businesses, create jobs, and keep existing companies competitive and in Connecticut.
Again, I'd like to thank the committee for its leadership in raising SB 1 and for your continued support of the University of Connecticut.
REP. BERGER (73RD): Thank you. Did you want to make a brief comment?
RITA ZONGARI: I'm happy to just be here and answer any questions that you may have about the many programs and companies that we've already started.
REP. BERGER (73RD): Thank you. Senator Fonfara.
SENATOR FONFARA (1ST): Thank you, Mr. Chairman. Dr. Seemann, thank you very much, Rita, for coming here today and testifying in support of the initiative, and clearly you, I can't identify a single place, entity, organization, that is more important to the success of this state than the University of Connecticut. You're relatively new to your position. I had a chance to talk to you several times. Your enthusiasm is refreshing. We are grateful that you are here and that you have such a, your experience in coming from other places where there's been, there's more history, I'll put it that way, than maybe what we have here in Connecticut in this area, but I hope that the university will be an active partner as the bill moves forward in developing outcomes. There's no interest in passing legislation that doesn't have the intended effect that we all seek. No interest. So I hope that people who have experience far more than we on this side of the room do can be at the table in helping us design what ultimately will be the bill that moves forward. So thank you very much.
REP. BERGER (73RD): Thank you, Senator. Any further comments or questions. Seeing none, thank you for your time.
JEFFREY SEEMANN: Thank you.
REP. BERGER (73RD): Nick Paindiris.
NICK PAINDIRIS: Senator Fonfara and Representative Berger, members of the committee, my name is Nick Paindiris. I'm from Glastonbury, Connecticut, and I'm here to support the passage of section four of raised bill 5636. The sine qua non of trust money is that it not be comingled with somebody's own personal funds and must be segregated. This is the case for attorneys, for example, and I'm one of them, where we must put money that belongs to our clients [inaudible]. The same thing holds true for real estate brokers. The state had the wisdom to require that of lotto retailers, retailers who sell lottery tickets must put it into a segregated account. The reason for this is very obvious, to take away the temptation of using somebody else's money and thinking it's their own money because it's in the same account. That's wrong. Yet, that is the case of the merchants of the State of Connecticut who must collect in excess of $4 billion, and they are allowed to comingle their funds with the $64 billion that that money represents. Under the, there's approximately $200 million that is an account receivable every year, and that source is from the auditor's report of the Department of Revenue Services, and admittedly through the collection efforts of the department that $200 million gets reduced to $60 million that gets never collected year, after year, after year, representing 1.5 percent of the total revenues from sales taxes. Now compare that to the lotto, where merchants are allowed, excuse me, they are mandated to have a separate account. Their delinquency rate is 0.01 percent, and that's from the Office of Fiscal Analysis, 0.01 percent, which if you replicate that on the sales tax side you would have sales taxes delinquencies of only $400,000.
It's time for the State of Connecticut to demand that sales taxes be placed in a segregated account pledged to the state as section four requires. Now, what does that mean? A person can comply with this directive when he goes to the bank, a merchant goes to the bank just about every day to make change for their businesses. The alternative to that is they can go online and do it through transferring money from one account to another, and the third is using the technology that exists today, which is not proprietary, which is not patentable, easily accessible to every credit card processing complain to do this automatically without thinking. The benefits of having a segregated account is number one there's no additional filing. Number two, if you sweep the accounts, the float belongs to the state, it doesn't belong to the merchant, it's added income to the state. The state could do a better job of forecasting. Right now, if you want to know how the Christmas season went, you've got to wait until February to see the returns and see how much money has been collected. If this is done on a daily basis, you have an excellent forecasting tool at your disposal.
REP. BERGER (73RD): Mr. Paindiris, were you here for the testimony from the VRF Commissioner.
NICK PAINDIRIS: Yes, sir.
REP. BERGER (73RD): How would you respond to that testimony?
NICK PAINDIRIS: I think there's room for common ground.
REP. BERGER (73RD): Okay.
NICK PAINDIRIS: Okay. Even though there's three different viewpoints, I think there's common ground. Commissioner Sullivan suggested that if you would not averse, if I recall correctly, if this was really targeted to the delinquents and not to the 95 percent of the population. Perhaps that could be a pilot program for this committee to consider. The other gentleman that spoke further --
REP. BERGER (73RD): How do we determine those delinquents from past history?
NICK PAINDIRIS: It will be up to the department of [inaudible] to determine. It could be because they failed to do one filing, failed to pay the money, how ever way they define it. It will be a start. It's better than now. However, it doesn't still take away the temptation for somebody who has comingled funds, and perhaps to add to that, you could have a situation where new perspectives, licensed merchants in the future, would have to comply with this mandate, notwithstanding whether or not they're delinquent or not.
REP. BERGER (73RD): How would you address the roughly 27 percent in cash transactions? I mean, what miracle crystal ball does the state look into to determine a cash transaction by a businesses and the reporting responsibilities.
NICK PAINDIRIS: Well this particular legislation would address that partially in that. Okay? It can provide for profiling. If you're a merchant, and you report, and you're an honest merchant, you report to the state that 70 percent of your revenues are credit cards and 30 percent cash, and another merchant across the street with the same demographics in the same industry says, gee, all my money has really come from credit cards. I don't take in any cash. That's a great opportunity for the enforcement division of the Department of Revenue Services to determine who is telling us the truth and who's not. So that's a way of looking at that.
REP. BERGER (73RD): Do you have written testimony, Mr. Paindiris, that you presented or provided.
NICK PAINDIRIS: Yes, I have.
REP. BERGER (73RD): Okay. So it's in our packet. Okay. All right, well thank you for your testimony. Any comments? Okay. Thank you, sir.
NICK PAINDIRIS: Thank you.
REP. BERGER (73RD): Mike Gallagher.
MIKE GALLAGHER: Good afternoon, Senator Fonfara, Representative Berger, Senator Frantz. I don't see Representative Davis, but the other distinguished members of the committee. My name is Michael Gallagher. I'm the president of Gallagher Buick GMC, a car dealership located in New Britain. I am second generation. My father started this business 38 years ago. Currently our store employs 44 people living in the central Connecticut area. Last year my payroll was over $2.4 million. We offer good jobs, benefits, and you know, many of my employees are tenured and have been with me for longer actually than I've been there. Last year, our dealership contributed over $1.1 million to the state sales tax and to local property taxes in the city. I'm a resident of Old Saybrook, Connecticut. I'm also a member of the Connecticut Automotive Retailer's Association, which I think you may know represents the car dealerships, 270 of which in the state and over 14,000 employees.
I'm here today to testify in favor of portions of the House Bill Number 5636 concerning the municipal taxing districts, the sales tax, the apprenticeship tax credit, certain fees, and a tax credit report. Car association members help drive this state economy. Last year we sold over $10 billion worth of new and used vehicles at our stores accounting for approximately 19 percent of state sales tax, helping to ensure that millions of dollars, sales tax, fees, income go to the state government. In my dealership, I sold several million dollars' worth of vehicles, mostly of them family owned and pickup trucks, many of which were over the 50,000 luxury tax threshold. I would hardly consider these vehicles to be luxury vehicles as they are family vehicles, pickup trucks, and crossovers that families are using to play sports in, to move their family around. If you're a small business or an independent contractor, your pickup truck is many times your office, and most of these pickup trucks are crossing over into the 50,000 and above range.
REP. BERGER (73RD): Thank you. If you can consolidate.
MIKE GALLAGHER: I'm sorry?
REP. BERGER (73RD): Can you consolidate your testimony? Please conclude.
MIKE GALLAGHER: Sure. Connecticut is the only state that imposes that luxury tax, so in my opinion it stifles, it stifles the business. It costs taxpayers more money. It's not good for the economy whatsoever, and it is truly not a luxury tax, it is an excise tax in my opinion.
REP. BERGER (73RD): Thank you, sir. Any comments or questions from committee members? Senator Frantz.
SENATOR FRANTZ (36TH): Thank you, Mr. Chairman. Just very briefly, if I understand the luxury tax correctly, it's a tax on top of the ordinary sales tax that's imposed not on the incremental amount above $50,000, it's on every dollar going all the way back to dollar one, is that correct?
MIKE GALLAGHER: That is correct.
SENATOR FRANTZ (36TH): Does that strike you as fundamentally unfair?
MIKE GALLAGHER: Completely.
SENATOR FRANTZ (36TH): Do you see it as a dampening of demand for these kinds of vehicles?
MIKE GALLAGHER: Yes.
SENATOR FRANTZ (36TH): Empirically.
MIKE GALLAGHER: Not only does it, if you, if you, let's say you buy a vehicle, and you add an accessory to that vehicle, i.e., something for work, and that pushes it over, that would bring it retro back to number one too.
SENATOR FRANTZ (36TH): Right. So we're losing sales of these, you know, 58,000, 63,000 dollar pickup trucks due to the luxury tax, and it's fair to say, in your judgement, that the 6.35 percent normal tax, sales tax rate, is what we're losing on a, you know, $50,000 truck.
MIKE GALLAGHER: Potentially.
SENATOR FRANTZ (36TH): Yeah. Thank you. Thanks Mr. Chair.
REP. BERGER (73RD): Thank you. Senator McLachlan.
SENATOR MCLACHLAN (24TH): Thank you, Mr. Chairman. Thank you, Mr. Gallagher. It's nice to see you and see that the family business is still chugging along. I wonder if you would think a different number as a threshold might be something that you could recommend as it seems unlikely that the legislature would be willing to repeal the whole tax, but would the number 75,000 make a big difference in the sales as the threshold. Is that sort of a magic number if you will where truly that might be more of a luxury vehicle as opposed to a work vehicle or a family-type vehicle?
MIKE GALLAGHER: I would say that it's much more in line with what a luxury vehicle would be considered given what I know about the industry and what's being sold out there. I don't know if that's necessarily a static number because I look at the prices of vehicles in the, you know, 20 years that I've been in this business and from where they started to where they are, and that is a completely much, much higher number. So I don't know if it's a -- it has to keep moving, but if you were to change something today, I think effectively that would be a good place to start, yes.
SENATOR MCLACHLAN (24TH): Thank you, Mr. Gallagher. Thank you, Mr. Chairman.
REP. BERGER (73RD): Thank you. I'd like to turn to OFA for a moment for clarification from the committee here, for the committee, on the luxury tax. Two questions to OFA. Total amount of dollars estimated in FY16 and projected for FY17 for the luxury tax, and there was testimony that there appeared to be a double taxation, is that correct, sir? Of the luxury tax and a 6.35 rate?
MIKE GALLAGHER: Not a double. No. No. A retro -- instead of 6.35, it goes to 7.75, from dollar one.
REP. BERGER (73RD): From dollar one. What the numbers [inaudible]?
LEGISLATIVE RESEARCH: Good afternoon. I would confirm that it does go to dollar one, as indicated by the person testifying, and I don't have the precise figure budgeted for the luxury tax. I believe it's a little less than $10 million. I can get that for you more precisely in a few minutes.
REP. BERGER (73RD): That's on each of the, each fiscal year, 16 and 17?
LEGISLATIVE RESEARCH: Per fiscal year, yes.
REP. BERGER (73RD): Per fiscal year. Okay. Thank you. Thank you for your testimony. Tim Phalen, I think you have Frank Julian with you? Are you going to testify for him, or is he going to come up with you?
TIM PHALEN: Unfortunately, Representative Berger, Mr. Julian had a plane to catch, and he could not stay --
REP. BERGER (73RD): Okay.
TIM PHALEN: -- to participate. I thought we had let the Chairs know that he had a 3 o'clock flight, so unfortunately he couldn't stay.
REP. BERGER (73RD): I believe he was number 34 on the agenda though, and there were other people that are waiting her also, so [inaudible] --
TIM PHALEN: No, no, I understand. I appreciate it.
REP. BERGER (73RD): We're trying to accommodate, Mr. Phalen.
TIM PHALEN: I appreciate that. Thank you. Senator Fonfara, Representative Berger, Representative Davis, members of the Finance Committee, I'm Tim Phalen, and I am the president of the Connecticut Retail Merchants Association. As you know, CRMA is a statewide trade association representing some of the world's largest retailers and the state's mainstream merchants. I'm here today to testify in support of section three of House Bill 5636 and in opposition of section four of the same bill.
With respect to section three, we do want to thank the committee, Representative Berger in particular, for agreeing to insert this language into a bill and for giving us the chance to go on record for our support for this initiative. The language in the bill would be of immense assistance to retailers doing business in Connecticut by fixing an inequity that currently exists in Connecticut law. As you mention, my colleague, Mr. Julian, from Macy's has submitted some written testimony for the committee to review, which I think best explains the reasons for this request, and I would only add that if this committee were to adopt this language it would not only give retailers a fair resolution to a currently in our opinion unfair and unequal treatment on the collection of sales tax, but it would also send a positive signal to the many national retailers that have stores in Connecticut. Connecticut would be a leader in the region by being the first state to identify and resolve this issue on behalf of retailers, who as this committee knows play such an important role in Connecticut's economy.
While we strongly support and again thank the committee for raising this issue in section three, we are vigorously opposed to section four of this bill and strongly urge the committee to reject this language. This committee and the General Assembly as a whole has looked thoroughly at the scheme that is laid out in section four and have universally rejected it. The language would impose a system and an additional cost on retailers for no good reason. The vast majority of retailers doing business in Connecticut collect and remit sales tax within the timeframes that are called for in Connecticut state statute. This so-called real-time sales tax collection called for in section four does nothing to increase compliance but would rather increase costs and liability to retailers while forcing new administrative costs on the State Department of Revenue Services. I think it's important to add that this new system would not collect any new revenue. It would simply impose a new system on retailers who already comply with the rules of the road.
So as been mentioned earlier and previously by Commissioner Sullivan, the CRMA is happy to work with this committee to find better ways for delinquent taxpayers to pay up. We feel very strongly that the approach in section four of this bill would only penalize the retailers who are collecting and remitting sales tax on time and in full. Thank you for your time, and I'd be happy to try to answer any questions you might have on either parts of the bill we talked about.
REP. BERGER (73RD): Thanks Tim and sorry for the nonability of your Macy's guy to come up and testify, but we got the message of what we need to do. Appreciate that. Any other comments or questions? Yes, Representative Candelora.
REP. CANDELORA (86TH): Thank you, Mr. Chairman. Tim there was discussion today about how retailers might like this because it would help segregate the money. Is there anybody that is in the industry actually dealing with credit card transactions and paying sales tax? Is there anybody that actually supports this aside from the credit card processing companies?
TIM PHALEN: No, Representative Candelora. None that I've been, that I've encountered, and I'm not even sure the credit card processing companies support it either. But to your point, no retailer does.
REP. CANDELORA (86TH): I try to get my arms around how this would work and looking at the language of the bill. You know, I have a business that we collect sales tax, and we pay it every month. As far as I'm reading this, do you read this as it just, I guess merely being an account that a retailer would just establish and segregate money and put money into it and the state would have access to grab it each month, and it would be, they could take up to 90 percent of the tax liability every day, or is it, because the bill looks different from what I've seen in the past, and I didn't --
TIM PHALEN: Yeah, first of all, Representative Candelora, I've never seen algorithmic rate spelling out in state statute before, so I -- that's a new one for us. I'm not really sure. I think there's, I think there are two, seems to be two separate issues. One, we would segregate money into a pot as you said, and then the state would grab it. The other, this what we think quite honestly is this fictional idea that real-time collection and segregating to the state automatically is just in our opinion is just a system of scheme that just doesn't work and won't work, and it isn't consistent with the way a retailer does their business. I find it ironic that there are so many, that people testify about how a retailer should collect or remit the sales tax who are not in the business. So, you only have retailers that are in the business that every day they collect, remit their sales tax on time, and yet people that aren't in the business know a better way to do it and somehow they get the attention of this committee. I will just say that you know we do share the concerns of the co-chairs that there may be delinquent taxpayers out there. We certainly don't want to ignore that concern, but there are ways that we can work, I think we have in the past, to come up ways to try to identify better approaches to getting delinquent taxpayers sales tax remitters to pay. I just, we just don't think this approach it's certainly an extension for does that.
REP. CANDELORA (86TH): Thank you, I appreciate it. I do share the concerns. I don't -- it seems to me it's going to create a two-step process where a retailer would have to pay the tax and then reconcile it again later and so then the commission, you know, the Department of Revenue services may give you a refund and may owe you money or you may owe them additional money at the end, and I think that's where -- I mean, the more steps we put into a process, the more mistakes that are going to be made.
TIM PHALEN: Yeah, we agree, and that's where we talked about the liability. Ultimately retailers will be liable for whatever is due, so the estimated payments that you talk about will eventually come back to us. The other idea, the other part of this that may not be clear is that there will be a cost to retailers to comply with this. Now the proponents will say no, the cost will be borne by the processor, but the processor is going to share that, is going to pass that cost along to us. Retailers already pay high interchange rates with processors. This would be another cost that will eventually find its way back to us.
So, and again, today currently a retailer collects and remits the sales tax and pays it in full. It doesn't pay an estimated portion. It pays the full amount depending on the size of. as Commissioner Sullivan described, the timing is different. We've even talked to this committee I think as the Commissioner referenced earlier, larger retailers are willing to increase the period of time in which they pay their, remit their sales tax under the statute. At one point it was 30 days. The committee moved it to, the legislature moved it to 20 days, which we supported, and it got moved back to 30 days. There are lots of other ways like that that you could get your sales tax faster without it posing new costs on the retailer.
REP. CANDELORA (86TH): I appreciate that because I, you know, having paying this tax every month, it's something, you know, our business does, and we do it on time. I couldn't imagine it's complicated enough to begin with. I couldn't imagine if we had to implement this, how especially small businesses that don't necessarily have accounting departments would be able to do this on a daily basis.
TIM PHALEN: If I can, Representative Candelora, through the Chair, the idea of the testimony earlier that somehow retailers have to get with the 21st Century in terms of technology and the use of technology, I mean with all due respect, if you are a brick and mortar retailer today, you have to be technologically savvy to just stay in business. Our national association, National Retail Federation, holds what they call a big show every year. It's held at the Javits Center. You walk the floor of the big show. Ninety percent of the vendors at the big show are technology companies that are trying to keep brick and mortar retailers, you know, competitive against online retailers, and technology is one of the ways they do that. So this idea that somehow, you know, they're behind the technological curve, that's simply not true either.
REP. CANDELORA (86TH): Thank you.
REP. BERGER (73RD): Thank you. Tim, will you agree that there is probably a six to seven percent default rate on sales tax?
TIM PHALEN: I believe that if the Commissioner says that that's true, I believe that.
REP. BERGER (73RD): I think historically there was stated that, and I think it's low, that there's $60 million out there that goes on a yearly basis that's not collected, that there's roughly $255 million with ramped up collection activities that would probably reduce it to 60 million, and I think that's low, that there are historically over the course of a few years, in the last five years, $60 million per year, so, I mean, do you agree with that number? You know --
TIM PHALEN: Yeah, I mean, Representative Berger, with all due respect with that number it is hard for me to dispute that. I think the issue is how do we get that? How do we collect that? Find that? I think it, you know, --
REP. BERGER (73RD): Well the way, the way that the, the way the testimony was given, it would be collected at the point of transaction.
TIM PHALEN: At a cost to the retailer with a system that nobody's ever tried before that includes estimated payments. It doesn't include actual payments. Borne mostly by national retailers who pay on time and pay in full, so you know --
REP. BERGER (73RD): Okay, I got it.
TIM PHALEN: I think there's, as I mentioned, you know, we would be happy to work with this committee and the DRS to come up with ways to help collect the uncollected sales tax or the sales tax that hasn't been remitted. We just don't think this scheme laid out by the proponents of this is as simple as it sounds.
REP. BERGER (73RD): I think the term scheme should not be used. I think it does disservice to an individual that has an idea that's in opposition to yours, so I think the use of the term scheme is probably inappropriate in determining that. I think it's a different idea. It's a different concept. I wouldn't call it a scheme. Any other questions or comments from committee members? Seeing none, thanks Tim. Anthony Rescigno? He's not here. Richard Jacob.
RICHARD JACOB: Senator Fonfara, Representative Berger, Senator Frantz, and Representative Davis, thank you for the opportunity to appear in person to express Yale University's serious concerns about SB 413 and SB 414, bills to tax Yale's endowment and to significantly expand Yale's liability for property taxes. I am Rich Jacob, the associate vice president for federal and state relations at Yale.
I was pleased to hear some of you note earlier today the renewed enthusiasm for cities and for New Haven in particular. I am delighted that you're hearing the good word about New Haven. Yale is deeply committed to the quality of life in New Haven and has dedicated itself perhaps more than any other university in the country to building stronger neighborhoods, stronger schools, and a stronger tax base in its home town. We agree that these efforts have borne fruit although no one would say that the work is done. I am sure you've noticed the irony in today's hearing. You are receiving testimony on one hand about a bill to promote research and innovation to create jobs, in other words to replicate what Yale has done for the past two decades in New Haven.
You are also hearing testimony about legislation to tax Yale for working very hard to promote the very goals of SB 1. I believe you know that Yale already pays property taxes on its commercial properties. It files tax returns with the state for unrelated business income, and it makes voluntary payments of more than $8.2 million dollars annually to the city of New Haven. It is not clear that Connecticut can succeed by trying both approaches at once. Some claim incorrectly that SB 413 and SB 414 would bring clarity about Yale's tax status. In fact, the Connecticut Constitution in five court cases including two Connecticut Supreme Court cases, have been very clear. In every case, Yale's academic property has been held to be nontaxable. This policy reflects the bedrock view dating from the earliest days of Connecticut's history that education is a social good and it should be promoted by exempting any kind of colleges and universities from taxation.
At Yale we often talk of the idea, excuse me, I'm sorry, we often talk of the idea that a strong New Haven is good for Yale. There is no question in our minds that Yale cannot thrive if New Haven is in decline, that if you had driven Yale's commitment to work with the city to create a virtuous cycle of growth and improvement in the economy, schools, and neighborhoods.
We hope that the members of the committee recognize that the converse is also true. A strong Yale is good for New Haven. The most important contribution Yale can make to Connecticut is to continue what we've done for the past two decades in close partnership with New Haven, to strength neighborhoods, improve educational opportunity for students in neighboring schools and cultivate new businesses.
Recent [inaudible] --
REP. BERGER (73RD): [inaudible] please consolidate.
RICHARD JACOB: I will, thank you, I'm sorry, and I'll stop right there. I understand.
REP. BERGER (73RD): Just as a -- no that's all right, just, but just as a notation to everyone here, everyone's waiting here all day, and everybody wants to testify, testify, so I really [inaudible] the three minutes.
RICHARD JACOB: I'm happy [inaudible]. Representative, I'm happy to take questions.
REP. BERGER (73RD): Representative Lemar.
REP. LEMAR (96TH): Thank you very much, Richard, for coming today, and thank you for your longstanding communication with me and work on a number of issues that we've seen in New Haven and across the state. You've always been a terrific resource, and Yale University has always been a terrific resource for I think every Representative who has had questions or issues and we've needed expertise from Yale professors or faculty or administrators. There's I think a really outstanding relationship, one that I worked on quite intermittently when I was a city of New Haven employee in early 2000, through being an alderman through the mid [inaudible] up until now.
I think by and large what you've heard today from folks who have testified is like a great appreciation for the relationship that Yale and the city of New Haven have, and working together has been I think of primary importance to everyone. Hopefully that informs the conversations as we move forward. Especially to bills 413 and 414, to 414 specifically, which would deal with the taxable uses inside of nontaxable property currently structured. If we were to look at your 990 forms, you could see that Yale does have commercial activity, including like travel tours, laboratory analysis, other medical-related services, and is then contention of myself and others inside of city hall that oftentimes those activities, which are commercial activities, to generate income for Yale University, exist inside of nontaxable buildings, and those are the types of uses that in the private market would be existing inside of taxable buildings, and why would Yale's use and those services be treated differently than a private market competitor or use. I think that is sort of the clarification that the city is trying to get to, what you heard from our members of the Board of Alderman, that they're trying to understand, like why their competitors inside of the city of New Haven have a different tax treatment than Yale would if it's providing you private service.
RICHARD JACOB: I think we should look at this in terms of the unrelated business income tax rules as well as the property tax rules that historically both at the federal level and at the state level, activities not directly related to an educational mission have been addressed to unrelated business income taxes, not through property taxes, and as I said, the Connecticut Constitution and the court's interpretation of the constitution of Yale's tax exemption from property taxes have been absolute, even activities that occur within the academic properties of a university are still, does not affect the property tax status. Yale is not, in our view, obligated to pay unrelated business income tax in the state; however, we have voluntarily filed unrelated business income tax returns in the state. In calculating those returns, we have followed both federal and state rules. I think state rules follow the federal rules, and federal rules for example provide that in the case of laboratory testing the laboratory testing conducted for other universities is part of the academic mission. That is the way we do research in the country, so the number you see on the 990 includes much of that. Where we have laboratory services being provided conducted for other entities, under the federal state rules they would be considered to be unrelated business income. We recognized it as such, file an income return as such. Similarly with respect to the travel tours, that is really largely a function conducted for our alumni, and again, under federal rules, where there is an educational component to that, where there's a faculty or an attendance where there's a sort of a continuing education curriculum that's part of it. Under federal rules that's not considered unrelated business income. If there were some other, if there were a tour in which there were not that type of educational component to it, we do recognize that it is unrelated business income, and we file. That is part of our [inaudible] business income return for the state.
REP. LEMAR (96TH): Thank you, and I think that is a, you know, great underlying understanding of the different roles that the federal and state government have and the rules on how they interplay with [inaudible] status that the university is afforded, and you know, [inaudible] guaranteed by the constitutional provisions. But I think the challenges, the very phrasing of that word, I think that you question, whether or not it was clarification or not, I think from my local officials in the city of New Haven who are advocates, who are based in the city of New Haven, I think it is about clarification, because that $6000, you know, condition, and I think we'd agree that's a condition of the tax exempt status, is something that people question, and I think getting a firmer understanding of where this activity is taking place what of it is in a taxable property, what of it is in a nontaxable property, which of it, you know, is being treated separately because it furthers the academic mission and what is being used to underwrite the overall operations are distinctions that are important to the private market competitors that you have in the city of New Haven and in the city of West Haven. We have a letter from the mayor of the city of West Haven as well who highlights this very distinction and like wanting clarification on like where is this activity happening, is it happening in the city of West Haven, should it be treated in a taxable way, why do we need Yale to consent to be taxed on this property if we know it's being used for these types of commercial activities.
So I think that's what this bill tries to get to, is a firmer understanding of what types of activities are being conducted, where is it private, commercial, profitable, outside of an academic mission, and I think it would be useful if we could go a step further and rather than just articulating all of that income in aggregate terms, if we could specify which of it is in furtherance of the academic mission, which of it is private, and where those activities are taking place, in which buildings this activity is taking place. I think it helps provide some clarification for private market competitors in the cities, for the city of New Haven as a whole, because I think ultimately folks want to have that constructive positive relationship that we do have. You know, I don't think that we should allow these bills to conflate the reality, which is we do have a positive constructive, wonderful relationship, it just, I think it makes our local elected officials and those of us in the state who are affording this benefit to Yale University, who are being pushed by our local officials to say, you know, why are we allowing Yale to exist under different rules.
So I think clarification of where it's happening, how much is happening, and I think that would be helpful to help delineate --
RICHARD JACOB: I'm having a bit of trouble sort of relating that to the legislation at hand, which doesn't seek new information but instead states that for any institution with a real estate portfolio above some level, if the cumulative activity across the entire campus exceeds $6000 including a set of activities that are specifically part of what you're trying to accomplish in SB 1, if any institution achieves royalties greater than $6000 or even has athletic fees for use of our campus gymnasium of greater than $6000, then the entire campus becomes subject to property taxes is how SB 414 reads. It's not clear to me how that relates to the request for additional information about where certain activities are occurring and --
REP. LEMAR (96TH): Thank you. We could talk off line. Clearly I don't think the intended legislation, or I disagree with you that the legislation itself stipulates that if anywhere on campus they generate more than $6000 the entire campus becomes taxable. That's clearly not the intent of anyone who has spoken here today, of anyone who has pushed this legislation. It's certainly not how I read the tax, and if we can maybe talk off line about your clarification and my clarification of what that primary concern is, that would be wonderful, because if we can just get away from that concern and more towards the focus of I think the concerns that the mayors of West Haven, New Haven advocates, myself, have about taxable property and how it should be treated, I think that would be great.
RICHARD JACOB: I would be happy to discuss it off line.
REP. LEMAR (96TH): Thank you.
REP. BERGER (73RD): Senator Frantz.
SENATOR FRANTZ (36TH): Thank you, Mr. Chairman. Thank you, Richard. You know, after every wonderful thing that the institution has done for well over 200 years now for the city of New Haven, for the State of Connecticut, for this country, if you're feeling under siege right now, I don't blame you. This is serious stuff; 413 and 414 have no business being under this dome. These are precedent-setting bills if they were to turn into law. I think there are constitutional issues with both of them. So let me ask you first. Is it constitutional for a state government to direct you on your endowment spending, and part B of that question is what do you think the effect would be on potential donors going forward. Would it be chilling?
RICHARD JACOB: It would be, well first of all, with respect to the constitutionality of, I would have to either consult with our general counsel about the constitutionality and specific directives about how we spend our endowment. There is at this point now state policy across the country nor a federal policy. It explicitly governs how we spend our endowment, and I think you may know that there is federal law providing that private foundations must spend at least five percent of their endowment every year or be subject to an excise tax. Yale's policy for spending its endowment, which is designed to spend as much as we can for now while preserving the real spending power going forward, we set a target rate of five and a quarter percent per year, which it exceeds the federal stand for private foundations, because we're an operating entity, not a private foundation, and so we have two-thirds of our annual budget, salaries, and expenses, we're very much concerned about annual volatility and revenue from the endowment. So we have a smoothing role that adjust prior year's spending with the target rate and that the practical effect of that has been that over the past decade we've had an actual effective rate over the ten years of 5.1 payout rate. So we've tried to set an aggressive policy as possible towards spending while respecting the imperative and also our obligation to our donors to preserve long-term spending power. We think we have exceeded the federal stand. We would be very concerned about both of the fiscal stability of the university as well as the views of donors if we were subjected to a different set of legal constraints about how we managed gifts to the university.
SENATOR FRANTZ (36TH): Thank you for that answer. Just, you know, personally speaking, sometimes I scratch my head at some of the things that come out of this building. Again, these two bills have no place in this institution. Thank you very much for your testimony. Thank you, Mr. Chair.
REP. BERGER (73RD): Thank you, Senator. Any other comments or questions? Representative Lemar for the second time.
REP. LEMAR (96TH): Thank you, Mr. Chair, for your indulgence. Unlike my colleague, I don't think that it's becoming for us to say things should never be discussed inside of the building. Oftentimes we're told that even having the mere conversation is dangerous, that we should prohibit this type of conversation because it could have chilling effects. The reality is tax policy is public policy. Granting an institution tax exempt status in furtherance of a public mission is really important, and I think Yale University deserves 99.9 percent of that public benefit. I think it's the concern about the utilization of tax exempt properties in furtherance of private ventures or some would say competitive to private ventures that exist in our city, there is some concern about that, and I think you're hearing that expressed both by elected representatives inside the city of New Haven and the city of West Haven. When it comes to the endowment spending, I think the public subsidy that is inherent in treating all related spending is one that deserves some conversation. You've seen that conversation at the federal level oftentimes lead by Republican Senator across the country in which they try to get documentation from some of the hundred largest institutions in the country trying to understand if the original intent of this policy, this tax exempt status, should be applied to institutions, their endowments, and their endowment spending.
So I think it's an important conversation that we're having here today, not one that's dangerous to even discuss out loud, not one that we should refuse to entertain because of its chilling effect. I think it's an important conversation that we get towards understand equity and the appropriateness of these tax policies and how they're applied, and that's my little response. I apologize for your indulgence, sorry.
UNIDENTIFIED SPEAKER: Can I reply?
REP. BERGER (73RD): Oh boy. Representative Davis.
REP. DAVIS (57TH): Thank you very much, Mr. Chairman, and thank you for your testimony. I certainly share concerns that anytime where you discuss tax policy that directly impacts private sector institutions and tries to force them to spend in certain areas I think is something that we do have to be very careful about. My question for you is when you have donors that donate to your endowment fund, I mean is it something that ever comes up? Do they ever ask if they'd have to pay taxes or that this money would be used for taxes or do they see it as a way to use towards going back into the university on infrastructure or student programs or things like that?
RICHARD JACOB: Well three quarters of the gifts we receive are restrictive to some purpose. So only 25 percent is unrestricted money that we can spend on any activity at the university. So three quarters of it is we are legally obligated to spend it on some particular kind of activities, say for example individual professorship, or on student aid, or on collections for the library. So if there were an additional tax on Yale, and I do think that the bottom line purpose of SB 413 and 414 is to increase, create a new source of revenue from Yale that would ultimately come somewhere from the universities offering [inaudible]. It would ultimately, we don't know how it would diminish it, but it would ultimately diminish in one way or another what we do in terms of our generous commitment to financial aid and affordability or it would affect our ability to invest in New Haven. It would affect our ability to invest in our own research that we are currently spending 40 percent of the billion dollars we conduct a year in research is all from the internal Yale funds, and it would affect our ability to continue that research, which again brings us back to SB 1 that if we're not doing the research, SB 1 is not going to work.
REP. DAVIS (57TH): That's an interesting point to make, and certainly I don't want to see a situation where people are going to stop giving money to those kinds of activities because of the fear that that money could go potentially towards a tax payment to the state or whoever, and I certainly don't want to see a New Haven without Yale, because I can't even imagine what a city like New Haven would be like without Yale University in it and all the great things that Yale does do for the city of New Haven. So I thank you for your testimony, and thank you for being here today. Thank you, Mr. Chairman.
REP. BERGER (73RD): Representative Devlin.
REP. DEVLIN (134TH): Thank you, Mr. Chairman. Maybe less of a question, more of a comment. I've been listening to all of the discussion and some of it that even goes back to the great company that was once headquartered in the town that I represent, Fairfield General Electric, that despite lots of different interpretations made very clear that they left our state because of the business taxes that have been imposed on them, and the reason they chose Boston was all of the great things that we've been talking about. You know, I've listened to the discussion about Boston and the vibrant community and the universities and all of these things, and now where we do have that very same qualities within Connecticut that certainly could be improved upon. New Haven is certainly one with Yale University. I don't believe Boston taxes any of its universities at all in terms of property or certainly in terms of endowment. So now we're going after the very thing that is one of the bright spots that we have to offer in terms of the trends, supposedly, that companies are looking for. So, I would concur with my colleagues here, certainly Senator Frantz in terms of his comments, and hope that these certainly wouldn't move forward. I appreciate your testimony today and listening to your comments. Thank you.
REP. BERGER (73RD): Thank you, Representative. Those that feel strongly compelled to make a comment, I think we can agree to disagree on this topic. Does anyone else feel compelled to make another comment? Yes, Representative Yaccarino.
REP. YACCARINO (87TH): Thank you, Mr. Chair, and thank you, Rick, for your testimony. Before you do, I have a question in regards to 414 and the taxable, potential taxable properties off campus for the I think $6000 or greater. How many men and women work at these companies, and how many jobs does Yale provide related to the general area?
RICHARD JACOB: I should clarify that. So the issue with respect to the commercial properties really comes up in the context of any apartments or residences that the university owns or businesses, the space that we own, for example, along the central business district on Broadway, on lower Whitney Avenue and on Chapel Street. There we have 90 businesses. We're the landlord for 90 businesses. I actually do not have we me, but I can get the number of jobs at those companies, but they are part of what we would call as sort of the renaissance of downtown both in having thriving businesses and in drawing sort of people from the suburbs and other places to New Haven. But I should also be very clear that when our faculty are working on their research and finding that it progresses to the point where they may have a potential drug or a potential medical device that could be translated into an actual product, we then hand that off. Yale is not directly involved in -- once we transfer that technology, it really becomes a -- it's a private company that is run by a group of entrepreneurs with scientific and academic guidance from the faculty that's really a separate activity, and that is sort of a, of course that is where we have [inaudible] and a number of other companies in Science Park and in 300 George Street and of course Alexion, and there we estimate well over a thousand jobs from those companies. Over the past 20 years we've created 60 companies. We have our own problem with keeping companies that we create here in Connecticut. We lose a lot of them to Boston as well, but [inaudible] is at least a thousand jobs.
REP. YACCARINO (87TH): Thank you. Thank you for that answer, and that's what we have to think about when we think about policies like this. What are the cause and effects of the net gain or net loss? So, I thank you for what you do, and I thank you, Mr. Chair, for your indulgence. Thank you, Richard.
REP. BERGER (73RD): Thank you, Representative. Any other questions? Seeing none, thank you for your testimony. Derek Cook.
DEREK COOK: Good afternoon. I hope you don't mind that I brought two folks with me. Their reason for being here will be clear in a moment.
REP. BERGER (73RD): Please proceed.
DEREK COOK: I will try to be brief so that they have a little bit of time to talk as well. I'm Derek Cook, CEO and founder of Independent Software, a New Haven business right in Rich's backyard. We're a software development company, and over the course of running the business, one of the things that we found in our own operation and in the operation of other businesses in New Haven and more broadly in Connecticut is that it is very hard to find talent. I think the president of Trinity College used the analogy of seven foot tall basketball players not having basketball courts. I would say we don't even have a draft in some ways. We have two very large ecosystems right in our backyard, and we have one on the West Coast that has an incredible magnetism, so a lot of our young people get drawn out of this state. As an entrepreneur, I look at manufacturers, and I think we need plants. I need people. People who can create what we sell and do work on that product. So they're to me assets, and they're really important ones.
So, with regards to SB 1, there are elements of it that I've love to comment on. I won't have enough time, but when it comes to talent, it's probably the most strategic part of what's being proposed there. It's the most incredibly important, and it has the most long-term impact. So, right now there's a war for talent in the software development world, and I'm sure there is in other industries, but we have a small amount of graduates in Connecticut, and we don't do enough to keep them in the state. So I have Julio Mencia, who is an employee of my company, and also Lily Schachter, both graduates of Connecticut universities. They represent some of the seven foot tall basketball players. They're not wearing their platform shoes today, but I would invite them to just give you a little bit of perspective on what it's like to come out of a Connecticut university and what kind of opportunity is represented in the state and how we can build on hat.
REP. BERGER (73RD): If they can please proceed and then identify themselves for the record. Thank you.
JULIO MENCIA: Good afternoon, my name is Julio Mencia. I'm one of the 174 computer science students that graduated in 2014. When I graduated there were around 1200 computer-related jobs open, and thinking that you have 174 students for 1000 jobs, it sounds like everyone should get hired. Well, the issue is that the companies are looking for something else, something that we're not getting in school. They want everyone to have three years of experience, and they don't do the leg work in order to prepare us, and I'm talking about the companies right now. There is a huge gap, and what my friends did is they went to Boston or they went to New York because they found companies there that were going to offer them all the training that they needed in order to be onboarded into those institutions, whereas in Connecticut we have very little companies that are willing to do that. I work for Derek. We run a program called the A100 program. That's where I got trained. That's where I got the tools that I needed in order to be hirable.
I think a lot of the students are in my same position. We graduate. We have all the skills. Sure we're lacking some that the companies should train us on, but they're not willing to do it, so we go somewhere else where they're willing to afford us the opportunity and the training that we need in order to be on board.
REP. BERGER (73RD): Did you want to make a couple of quick comments to tell us your success story?
LILY SCHACHTER: Sure. My name is Lily Schachter. I graduated from Connecticut College last May with a BA in computer science, and I think that because it's a BA and not a BS, a bachelor of arts, there is definitely a gap between what we learn as computer science majors in school, which is incredibly valuable information and foundational skills. Foundational concepts and thought processes and ways to interpret information that does not necessarily immediately turn into the specific skills and knowledge that the companies are looking for when they want someone who has been working for three years, for example. Utilizing the knowledge that a BA or BS in computer science gives you in Connecticut without requiring three years of actual work experience, bridging that gap, will effectively solve this problem I think is what I have gathered.
REP. BERGER (73RD): Thank you.
LILY SCHACHTER: Thank you.
REP. BERGER (73RD): Senator Fonfara.
SENATOR FONFARA (1ST): Thank you. Derek, thank you very much for coming here and bringing a couple of stars with you and for all your help in helping us understand this complicated world. What kind of training do these companies provide to their new employees?
DEREK COOK: Just to clarify, companies outside of Connecticut or --
SENATOR FONFARA (1ST): Outside of Connecticut, the ones that you described that are doing that Connecticut companies are not.
DEREK COOK: So one of the things that's in SB 1, it actually touches on something that we're starting to do. It's called a startup gap year. What you'll find in a robust ecosystem that has all those things that I think people have mentioned, density, both geographic and actually kind of density between people is that there's a recycling effect. So startups oftentimes give people experiences because they're a purpose made for learning. They're learning how to develop a product that people will buy. So, if there are environments that present an excellent opportunity to develop talent, and in San Francisco and Boston and New York they do exactly that. We've already, I think, touched on the fact that 169 towns and the geography of Connecticut doesn't automatically lead to that effect, but one of the things that happens in these larger places that I think we can replicate in Connecticut is that young engineers go to work for high-risk ventures. They go to work for startups, and they develop a ton of experience in that way. The three years of experience that Julio and Lily both mentioned is really acquired by many software developers by going out and working for a company that really needs their help, a startup. Someone who is out convincing the world that they're building something that's worthwhile. That happens naturally because people are, you know, more proximate. They're in closer contact. They're in the same co-working spaces in other ecosystems, and it could happen here. So when it comes to training, some of it is formal programs, some of it's apprenticeship. Some of it's not. Some of it's very informal, but it's driven, driven by the factors that I think we've all cited. So hopefully that answers your question.
SENATOR FONFARA (1ST): So this doesn't happen within the company that you would ultimately hired by? It's done elsewhere?
DEREK COOK: No usually, it usually does. In most cases it's not a boot camp program that someone goes to in advance of working for a company. It's the process of working on a real company's product that actually generates that experience. It's not necessarily formal training but experience. So the --
SENATOR FONFARA (1ST): This would not happen like in a core informatics as an example, right?
DEREK COOK: It could. I could. But I think what Lily and Julio are saying is that it doesn't naturally happen. If you're coming out of school, you don't have three years of experience, and that's about, in some cases that's about it. That's the end of the conversation. If you're one of those 274 graduates in 2014 --
SENATOR FONFARA (1ST): So what happens to the person that goes to Boston or New York? What's different there?
DEREK COOK: What's different is that there are more startups and more opportunities, and the process basically is fueled by density in numbers. So, you know, both of these guys in New York or Boston would be, would have, you know, a different experience. They would have been at work in a venture that was funded. There are obviously factors in the startup world that are, that influence what happens on the software developer side, but it has a I guess a pernicious effect on the supply side of the equation when it comes to the talent that people are looking for.
SENATOR FONFARA (1ST): So the gap year that you referenced, is that, is that something that happens in Boston and New York, or there's enough startups there that they don't --
DEREK COOK: To my knowledge, there's no similar program. The idea of taking someone coming out of school and saying we're going to put you into a startup for a period of one to two years, and there is going to be support for that, and that's going to generate a bigger pool of talent with more experience. I don't know that it exists anywhere else. It may, so don't, don't take my word for it, but I haven't heard a program like that.
SENATOR FONFARA (1ST): Thank you.
REP. BERGER (73RD): Thank you, Senator. Any other comments or questions? Representative Davis.
REP. DAVIS (57TH): Thank you, Mr. Chairman, and thank you for all of your insight. When these companies, and perhaps you can't answer this because you don't have this issue, but some of these companies that are looking for the three-year experience, are they struggling with finding people to fill those positions that have the three-year experience as well? Like those individuals that perhaps graduate from Connecticut go to Boston, New York, San Francisco, wherever, they're not coming back. Is that true or?
JULIO MENCIA: Yeah, that is true. So, not only are they looking for people with three years of experience, they're not finding them, so they are turning around and they're looking at the junior developers, but they're not happy with the skills that the junior developers have. They want more. The school can only do so much. So in the average Connecticut college, they're going to have two classes where you are working in an actual group as a developer. That is not enough. You need like basically three years of experience, but you need at least six months of experience working as a developer in a group in order to join a company and be productive. Whereas right now, a student from an average college will have very little experience with something called version control, and that's something major that our company is getting in order for as student to jump in as a new developer and start contributing, learning and pulling their weight.
REP. DAVIS (57TH): So from what you've seen going on in these other areas, is it a situation where they are just paying a lot less to bring in these inexperienced developers. Are they paying them good money because there's a flooding of these inexperienced developers and they can kind of pick and choose which ones they want or?
DEREK COOK: Generally speaking from what I've seen in New York, Chicago, and San Francisco, there are a lot of options to find developers, but there aren't a lot of developers out there. You can outsource software development to another country. You can move part of your operation to a development office in Boulder or in London, but even once you get there, the rates are high. It's hard to find people globally. The stats don't look good for closing the gap in terms of what Julio mentioned earlier. Lots of jobs but not a lot of people. So, you know, you don't necessarily find it easier there, but one thing that is true is that there has been a couple mentions of community. Once you have a critical mass of people, people start to see the opportunities in the community more easily. There's more awareness. They also feel like they're a part of a community, and when you're coming out of school those first three years are the time that you usually lay down roots. So to the extent that you see a community of people who are working on what you care about, your craft, and you can be a part of that community and you fee embraced by it, that can actually be quite magnetic and sticky and can be more important in most cases. The surveys that we've looked at indicate that most people will take a reduction in pay to have that kind of feeling of community and mission orientation when it comes to that company. So there's a lot for the issue, but it's not all about money. A lot of it is about density.
REP. DAVIS (57TH): Okay. Of the 274 students that you graduated with at least, how many of them found jobs here in Connecticut? How many of them went out of the state? Just that you know of at least.
JULIO MENCIA: That I know of? Well, I was lucky enough to join the program that I mentioned before [inaudible] program. I actually trained and put three of my friends that graduated with me into jobs in local companies in New Haven. Now, speaking for my friends that's left, I have another three friends that left the state. So we're looking at four students that stayed locally and three that left the state.
REP. DAVIS (57TH): Okay. Thank you. Thank you very much for your insight. Thank you, Mr. Chairman.
DEREK COOK: Thank you for your time.
REP. BERGER (73RD): Thank you, Representative. Any other questions or comments? Seeing none, thank you. Mike Nicastro.
MIKE NICASTRO: Thank you Senator Fonfara. Thank you Representative Berger, Senator Frantz, Representative Davis. My name is Mike Nicastro. I'm the president of Coppermine Advisors, and I'm also an adjunct member of the faculty and the entrepreneur in residence at Central Connecticut State University. So, I'm here to talk about SB 1 today.
I'm glad to hear that the conversation is still a conversation. In a past life, I was also a founder of one of the biggest successes for Connecticut Innovations, and that was Opus [phonetic] Solutions over in Glastonbury. So when I hear some of the conversations with regards to CI and kind of re-creating the wheel, starting another organization that looks and feels and functions the same way, I think we have to have a deep conversation about what our expectations are and do we have the right expectations of venture capital, and if we're going to be in the venture capital game. I think that discussion has kind of been had already by Mr. McCooe, and I think, you know, that's a long discussion for three minutes that we can't have here.
But as I also look at SB 1, I think the bigger concerns are the things that it doesn't do or the things that it doesn't focus on. The demographers tell us that we are facing a generation who is going to face high unemployment or high underemployment if they are not entrepreneur-like of if they don't have entrepreneurial skills at a very, very high level. Yet we look at entrepreneurship, and the kind of focus of entrepreneurship is being very narrow. We focus in on certain technologies, certain areas, and everything seems to revolve around the big hit of Wall Street. In many cases, that's not the case. We have to be entrepreneurial on Main Street as well. The focus has to be across the board.
Why is the last piece of this, which is the last point I'd like to make with regard to that, is we, you may have heard this expression, the silver tsunami. We are facing that silver tsunami, which is an aging out workforce. So not only are we not keeping our young workforce, but our current workforce is aging out. At the same time, it's not just the workers in the big corporations that are aging out, it is the entrepreneurs who started businesses after the war and have run those businesses up through this time, and they are aging out. They are hitting the point where they have either not created a good succession plan or a good exit plan, and they need to be able to turn these businesses over. The people taking over those businesses have to have good entrepreneurial skills in order to take them over, and I don't see a lot of that discussion in SB 1. Some of those numbers are high. They're very, very high. I've heard as high as 47 percent of our small businesses could be in that silver tsunami. Over the next five to seven years they will exit, and what we do know statistically is when these businesses do turn over, if they turn over to someone who either doesn't have the experience or who hasn't been succession planned, they fail very quickly. They have a high failure rate within the first two years after.
So as I look SB 1, I get that we want to have a better performance out of CI. Every organization can perform better, absolutely. But we've had great successes there, and I can tell you about our success at Opus Solutions. We were a big one. I've served on some of their portfolio company boards, and I serve on one of their portfolio company boards now. They have been a key, and the venture community looks to CI as a partner in this state.
But I also think we have to focus on entrepreneurship on Main Street. We have to bring it back to Main Street, and that means not everything is bioscience. No everything is the next Lipitor. Not everything is the next Uber. We need to think about where Main Street goes with this, because entrepreneurship lives there as well.
Lastly, we have to think about what happens when the entrepreneurs we've had for five, six, seven decades age out. From now, I'll take questions.
REP. BERGER (73RD): Thank you for your testimony. Any comments or questions? Senator Fonfara.
SENATOR FONFARA (1ST): Thank you, Mr. Chairman. I greatly appreciate your testimony, and I think that there's no question that I mean if you look at CI it's charged with specific areas, not the areas you've spoken about here today. That's limiting, and I think that limits the state, which is why you see a, there's another entity or a broadening of CI's charge, that's up for debate. But right now there's no one focusing on those folks that you just described on Main Street and beyond those four primary areas that CI is charged with enhancing.
So, I hope you'll be part of this effort. I hope that you and your cohort that would want to see something come from this will be engaged. The opportunity is there.
MIKE NICASTRO: Absolutely, Senator. If I may for one second, I would encourage you. We have a new dean in the school of business at Central who ran the entrepreneurial programs at Drexel and the University of Miami, and I would encourage you to engage him in the conversation as well. I think that that concept of entrepreneurship across Main Street is critical.
SENATOR FONFARA (1ST): If you could provide the staff with some contact information --
MIKE NICASTRO: I will absolutely do so.
SENATOR FONFARA (1ST): That'd be great. Thanks very much.
REP. BERGER (73RD): Thank you. Thank you for your testimony. Peter Propp.
PETER PROPP: Chairman Fonfara, Chairman Berger, Senator Frantz, Representative Davis, committee members, thank you for the opportunity to speak today in favor of committee bill 1. My name is Peter Propp. I live in Westport. I've had a long career in marketing and technology, most notably IBM, and I'm now the chief marketing officer at the Stamford Innovations Center where for the past four years I've been working to support the growth of the local tech and startup community in southwestern Connecticut. At the Innovations Center, we provide services to support early stage companies, [inaudible], job seekers, corporate employees, and importantly large companies like Sikorsky Aircraft and IBM, who rely on the Innovations Center to help them connect and engage with early stage companies who can help them deliver better solutions to the market faster. We've received terrific support from DECD and [inaudible] programs on behalf of CI. We are now host to nearly 25 startups and more importantly formerly host of five significant early stage firms who grew beyond our ability to meet their real estate needs, moved into offices in Stamford and Norwalk. These firms employ dozens of well-paid employees, and each represents a success story for DECD in which the state can take pride, but there's much more we can do.
Regarding the private-public partnership impact, I think there's going to be great gains by allowing a new organization to set the direction for how the state will encourage entrepreneurship and innovation. I would suggest that an important job for this group will be to identify three to four high-growth categories where Connecticut colleges and universities have expertise and where there are already successful early or late-stage companies [inaudible] identified needs for sustained growth in these categories [inaudible] developed to invest in training labs, apprenticeships, etc., to encourage the creation of new startups in those categories and recruitment of established interns from out of state.
Regarding innovation districts [inaudible] places, I believe there's much to be gained by residential density and engagement between tech-related fields and arts, you know, people want to live and work in areas that have energy, night life, and other people in their age group, but I am concerned about the relatively high cost of housing in parts of the state. You know keeping young people around, giving them a place to live that they can afford is a challenge. So, I would love to see something with regards to possibly rent control or subsidy for recent college graduates in the tech field. I want to agree wholeheartedly with Derek's testimony. We need more programmers. I think that's essential.
REP. BERGER (73RD): Okay. Thank you. Any other comments or questions from community members? Seeing none, thank you for your testimony.
PETER PROPP: Thank you.
REP. BERGER (73RD): We have several people from United Here. There was four listed. Would you like to come up together? We'll give you a little bit of extra time. Do you have Glen Mills, Ella Wood, Susan Valentine, and I think that's it, or is there more? If you could just identify when you speak for the record and we'll give you up to -- well we'll give you one extra minute anyway.
GWEN MILLS: Thank you.
REP. BERGER (73RD): We'll see how it goes.
GWEN MILLS: Okay. Good afternoon, Representative Berger and Davis and the rest of the members of the Finance Committee, thank you. My name is Gwen Mills. I'm the national political director for Unite Here International Union. We represent about 300,000 hospitality workers throughout the US and Canada including 8000 of Connecticut's hotels, [inaudible] university workers. I live in New Haven. I was born and raised in New Haven. My parents are proud Yale alums who started businesses there, and we certainly understand the benefit of the innovation hub that Yale helps to ground. I believe it is possible to discuss the ideas in Senate Bill 413 and 414 in that context [inaudible] that world in New Haven. So I'm here today to testify in support of both those bills, and let me just take them one at a time.
I'm certainly proud to stand with my mayor, Toni Harp, and our Board of Alders in support of SB 414. This one is relatively straightforward. The current statute governing Yale's tax exempt status is just unclear. I read it. I couldn't understand what it means, not to "afford and annual income of more than $6000." It seems confusing even to people here today. Yale is expanding. Yale provides enormous benefits and support to our community, and we're thankful for their leadership and positive impact on our region. Without Yale's growth, we would not be growing and our economy would not be growing. There's no doubt about that. However, Yale is increasingly commercializing the research and engaging in commercial activity, and given this trajectory, the city needs clarity on the question of when and whether they have the authority to place Yale property used for commercial purposes on the tax rolls. This bill does not attempt to tax Yale's academic buildings in any way, shape, or form. In fact, if Yale's commercial property is already all on the tax rolls as they contend, then this bill may not even result in a single exempt property going onto the tax rolls. It simply gives the city the authority to tax commercial properties that happen to be owned by Yale. So, we support it, and we think it should pass.
We're also proud to support Senate Bill 414. So Yale University has grown and changed since the State of Connecticut first chartered a small college whose primary goal was the training of ministers. An institution that once needed a helping hand now has the financial capacity to contribute to the economic transformation of our state. With GE's recent announcement to leave the state, it is increasingly obvious that the eds and meds economy, colleges and hospitals, are the future backbone of our state's economy, and we need more private investment in these innovative new economy jobs. We need more affordable access to higher education so our children have the skills to hold these new jobs. Senate Bill 414 accomplishes this by providing an incentive for endowment spending on high education. If Yale spent more each year, providing financial aid, creating innovative jobs, expanding their investment in our state's economy, they could help stimulate growth throughout the region. I just want to say that the tax proposal here is just on the earnings of the endowment, not on the body of the endowment, so all of gifts would remain tax exempt. Everything that goes into the endowment that is not up for grabs here, we want to protect that as much as Yale does. It's just about a question on earnings that are not reinvested in the core educational mission that the law I think protects. So we encourage you to pass 413 and encourage Yale to do for the state what it has already done for New Haven. Thank you.
REP. BERGER (73RD): All right. Did the other two individuals want to make some comments that are different from yours?
ELLA WOOD: My name is Ella Wood. I am a research analyst for Unite Here. I am also another proud Yale alum but one who is concerned to see that over my time there the educational resources that I came for were stretched thinner and thinner while at the same time the financial aid office was asking me for more hours of work every year while I was watching the endowment grow very quickly over my time there.
The goal of SB 413 is to encourage Yale to invest in Connecticut's economy, in stimulating the technology sector, and supporting a higher education for people like me while off-setting the skyrocketing cost of tuition. It does this, as my colleague was saying, by classifying just endowment earnings above inflation that are retained and not spent as unrelated business income. I want to emphasize that this will not hurt the endowment. The endowment principle and all of its restricted funds, which were discussed earlier, are protected and remain protected, and any endowment growth that is spent on Yale's educational mission or on stimulating jobs in the technology sector or all of the many other ways that Yale contributes to our economy, all funds that are spent on those goals remain protected in any year where Yale's endowment grows less than necessary to cover inflation or less than they spend back on our economy, there will be no impact from SB 413. This bill only affects Yale because we're taking our lead from a national conversation led by a number of Republicans in Congress who have recently launched an inquiry exclusively into universities with endowments over $1 billion. That affects only Yale in the State of Connecticut. The next largest endowments are considerably smaller. They are Wesleyan with an endowment of around $840 million, and that's million with an M, and Trinity with an endowment of around 562 million. SB 413 only affects university endowments with over $10 billion with a B, so these schools have plenty of room to grow.
My written testimony, which the committee has, provides more numbers that gives some context for Yale's endowment growth in spending. The overall picture is that over the last three years Yale has spent $3 billion while the endowment has brought in $9 billion of income. There's a great deal more that Yale can do with that money to support their educational mission and to support the ways that they feed back into our economy.
REP. BERGER (73RD): Thank you. Did you have a comment that you'd like to add that's different?
SUSAN VALENTINE: Hi. I'm Susan Valentine. Thank you, Representative Berger, Representative Davis. I'm also a research analyst for Unite Here, and I'm here today to talk about SB 414, and just clarify a couple of misconceptions about the bill.
First, SB 414 does not tax Yale. Current Connecticut statute has two sections under 12-81 that describe university tax exemptions. Section seven grants exemptions to property used exclusively for scientific, educational, literary, historical, or charitable purposes. This applies to all universities and colleges. Section eight grants exemption to property "not affording an annual income of more than $6000." This only applies to property owned by five institutions, Yale, Connecticut College, Hartford Seminary, Trinity, and Wesleyan. SB 414 does not affect the normal section seven tax exempt status. Instead, it simply provides clarity regarding what sorts of income count towards section eight's $6000 threshold. All property that is tax exempt under section seven remains tax exempt if SB 414 were to pass.
Section eight is a broader exemption than the normal section 7. As a result, it is sometimes referred to as a super exemption. Section 8 is the result of an 1834 modification of an original exemption that was contained in the 1745 Yale Charter and then incorporated into the State Constitution in 1818. Some have asked why we shouldn't just remove section eight entirely. That was tried in 1977 and in 1990. It would require amending the State Constitution. However, even in the face of a constitutional amendment, Yale defended itself with the landmark 1819 US Supreme Court Dartmouth College decision, which protects charters as legally binding contracts. Removing the $6000 threshold in section eight is not an option. The State Legislature does however have full authority to clarify what sorts of income do or do not count toward the $6000 threshold. Hence, SB 414 proposes that the following types of income count as commercial and hence count towards the threshold that renders a property taxable. So, first leased commercial property. Second, event venues with audience or participants that aren't from the college. Third, commercial sale of products, and fourth, commercial sale of services.
The goal of this bill is to allow the city to tax property used for commercial purposes that happens to be owned by Yale. It does not permit the taxation of academic property as my colleague said, and as she said, if they're paying everything on their commercial property, it wouldn't change anything.
REP. BERGER (73RD): Very good. Thank you. We do have your written testimony. Any other questions or comments? Representative Lemar, shocking.
REP. LEMAR (96TH): Thank you very much for your testimony here today and for clarifying some of the misconceptions that were unfortunately proffered by prior testimonials. I think you did an outstanding job outlining the real impact of these bills, the real purpose of these bills, and I'm very proud that you graduated last year, Ella, because I was convinced you were a senior this year, and I was a little bit worried about how much time you were spending up here. So I'm glad to hear that you graduated last year. Again, thank you so much for coming in today.
REP. BERGER (73RD): Representative Wood.
REP. WOOD (141ST): Thank you. I do have a question. Is there a list or is it easily attained which properties are used for commercial purposes?
SUSAN VALENTINE: No. There isn't that we can find. You know, I think in their testimony the university referred to a number of tax disclosure forms that they provided to the federal government. That does not list what buildings they own that are taxable or not taxable. Of course, you know, one can look at the grand list in New Haven and see yes they're paying taxes on this or no they're not paying taxes on that. That's all that is out there.
REP. WOOD (141ST): So is somebody able to ascertain which properties need to be taxed if this bill, legislation were to pass?
SUSAN VALENTINE: Right. I think that if this legislation were to pass then the mayor and the assessor would have a tool to say to university can you please let us know what types of activities are going on in each building so that we can see if this should or shouldn't be taxed as would then be in the statute.
REP. WOOD (141ST): Thank you very much. Thank you, Mr. Chair.
REP. BERGER (73RD): Thank you, Representative. Representative Boucher, thank you for joining us. Do you have question?
SENATOR BOUCHER (26TH): Thank you very much. Mr. Chair, I've been missing all of you, and I just couldn't keep myself away even though other pressing did occur today. But this is an issue of great interest of mine, and I do travel in my private sector position all over the country and do visit a lot of other large institutions like Yale. I'm just curious, have you done any research on whether say Johns Hopkins University or say MIT or Harvard or Stanford University for example, given that Yale is our premier top research and one of the nation's, if not the world's top research institutions, have you done a study to see if any of them are under the same regulations that are being proposed?
SUSAN VALENTINE: So I think that on the one that I was speaking on, SB 414, as I was saying, the position of Yale and this handful of other universities in Connecticut property tax is quite different I think than probably anywhere else. It's different than all of the other -- so there's the five colleges, Connecticut College, Wesleyan, Trinity, and Harford Seminary along with Yale that have a specific description in our Constitution that is different than any other college or university in the state on the property tax side. I think Ella could speak to the endowment side.
ELLA WOOD: On the endowment front, so there's been an evolving national conversation about the kind of endowments, the very large endowments that we've seen emerge relatively recently. That conversation at a national level has centered around the 56 universities with endowments of over 1 billion and the roughly ten universities with endowments over 10 billion. Among those rankings, Yale has the second largest endowment. The other schools in that category include schools like Harvard and Princeton and the entire UT system taken as one unit. There has been conversation nationally about potential legislation imposing requirements about spending for schools like this. There's also been recent investigation by the Republican leadership of the House Ways and Means Committee along with Senator Oren Hatch asking some questions about how these schools determine their spending rules and whether they have the right incentives in place in addition to a recent IRS investigation of how schools report their unrelated business income and whether that's done appropriately. The one end there's been similar conversation certainly in Massachusetts and a few other states in Texas. The one important difference between our legislation that makes it a much more modest starting point than much of the similar legislation is that this bill is not interested in imposing any kinds of requirements on schools. We're not interested in controlling how much schools spend on financial aid or whether they meet the minimum spending threshold like Republican Representative Tom Reed's bill or Chuck Grassley's. We're interested in making sure that when the state has creative incentives that maximize growth over spending that there is an incentive that we can created that makes sure that schools have a reason to think seriously about spending opportunities they're facing today.
SENATOR BOUCHER (26TH): I thank you for your response. I'm intrigued by your conversation on spending policy. It's quite well known in the industry that if you spend more than say 4.5 or up to maybe 5 percent, if you spend more than 5 percent that your probability of being able to provide the same benefits to future students as you do current students is greatly diminished. In fact, it's highly unlikely that you will. So we can talk about this philosophically, but if you get right down to the financial aspects of this, you could actually be undermining that large university, and many of these have become the singular most important economic engine of many of these communities. I know in Johns Hopkins case they have transformed some of the worse parts of that city and making it work and have brought that city in many cases back to life. So I think this conversation needs to be had treading very carefully about in your issues of wanting to do good that you could actually be harming that institution and those that they serve and how important they are. Too, I think Yale has just I think in the last decade come up to the realization, as many other institutions of how important it is for them to be more locally involved in the economic development of their community, and I think they're doing a really fine job right now. I just hate for us to undermine their progress when we unfortunately we policies have undermined our business sectors and small businesses right now, and we need to, you know, recover a lot of ground. I just say that as someone that has dealt with this in the last couple of decades.
REP. BERGER (73RD): Thank you, Senator. Any other comments or questions? Seeing none, thank you for your testimony. I'm going to call a Jim Boucher and Hyacinth Yennie next please. If you could, we have your written testimony. If we can consolidate your comments in three minutes that would be appreciated.
JIM BOUCHER: Thank you very much, Representative Berger, Senator Fonfara. We're here, again, to speak on the support of bill 463. As you know from our statement we're from two neighborhood revitalization zones in Hartford, Southwest Behind the Rocks and the Maple Avenue Revitalization area. Largely, this bill speaks to penalties for violations of municipal ordinances concerning the operation of dirt bikes and of all-terrain vehicles. We significantly support this effort that would enable forfeiture and destruction of dirt bikes or all-terrain vehicles that are being used in violation of ordinances to occur. I would just again say that over and over again, one of the top concerns in our communities are the illegal use of these ATVs. I mean they largely are leading to urban lawlessness and the ability of law enforcement in the city to respond oftentimes does not have the tools. This will provide significant tools for the city to further get at the enforcement of these vehicles. Also, the Hartford police chief, who was unable to be here at this moment, also wants to show his support for this particular ordinance, and I want to further introduce Hyacinth to talk about this.
HYACINTH YENNIE: Okay, I'm Hyacinth Yennie, and I chair Maple Avenue Revitalization Group. I'm also a member of the town committee sixth district, Democratic town committee sixth district, and I've been involved with our neighborhood culture life issue for a couple of years now, almost 20 years, and one of the biggest issues with our residents and complaints is the fact that we have all these dirt bikes in our neighborhood, on our main streets and they reap havoc on the neighborhood, and it's like, it's really become a public safety issue now. They're out of control. The police cannot trace them. So we're at a point where we're grasping for any kind of help that would make these, you know, bikes go away from our neighborhoods. If this bill can help make that happen in a way, we would really appreciate you all support this bill. I know we have a no chase policy in them, but we're relying on our residents to say where they have parked and so we can get them. So, I think that will work. I've seen that work already. Most times most of these bicycles or motorcycles are stolen, and so it's really important for us to support this bill.
SENATOR FONFARA (1ST): Thank you both. For the members of the committee, and I'm going to get personal for a second. The two people that are testifying before us right now have dedicated their entire adult lives, and Representative Arce can attest to this as well I believe, to the quality of life of the city of Hartford, very often unceremoniously and unselfishly, without fanfare, and I'd like to thank them personally for their dedication all these years. They've allowed me to be here to do this job, and they have committed themselves to improving Hartford. They live in Hartford, and they fight for Hartford every day.
On this particular issue, it is a [ringing], I guess that's for me [laughter], I'll sum up. But they, this issue is one that is no longer just an urban issue but many towns throughout our state now are experiencing these marauding gangs that go down streets and sidewalks, often up on two wheels or one depending on the type of vehicle it is. The problem is is that they cannot, police departments cannot chase these individuals, and they know it. Often they come from New Jersey or New York using social media to communicate. Someone will die soon, probably, because of this, these actions. So this legislation seeks to do something that right now police departments are unable to do, which is to keep the bike, and then if it's not, if the fine isn't paid and if the crime is found to be not valid of the charge that the bike would be returned, but otherwise it would be destroyed whereas right now the bike is given back, much like an automobile is given back. So, I appreciate Jim and Hyacinth, you waiting all day to testify on this legislation. While it may not seem like it's a problem in other areas because I believe you're the only two here testifying on it, but if we can get this passed, it will help a lot of towns and cities beyond Hartford. So thank you for your dedications. Questions? Representative Arce?
REP. ARCE (4TH): Thank you, Mr. Chair. Thank you Jim and Hyacinth for being here today, and I want to thank you for all the good work that you do in our community, and just so the committee knows, these are two great people that do a great job in our community and keeping it safe and making sure that, you know, things like this are brought up.
But I want to say that this is a situation that is not only bad for public safety and is causing a public safety issue but is also affecting our businesses in the areas of Franklin Avenue as well as Wethersfield, and any given Sunday, and I know that you remember this day, Senator Fonfara, when on a Sunday when we were getting phone calls because there were like at least 100 of them running up and down Franklin Avenue. When people come to Franklin Avenue to use our restaurants and they see this kind of thing, you know, they don't want to come back. This is causing some of our restaurants to close because they can't get enough business because of this kind of activity. So what's happening is that because, I don't know if it's in the entire State of Connecticut, but in Hartford maybe it's a city ordinance, police are not allowed to chase them. So they know this, through social media or whatever, and they come from our neighboring states to gather in Hartford and run all over our streets, which is affecting again our businesses, our public safety, and I think that we need to get something done, and I hope that we call could support this bill so we could at least get some of these bikes off the street. A lot of them are stolen. Some are not, but they're not supposed to be on the street because it could cause accident and hurt somebody. I mean, you will see them on the sidewalks. You will see them popping a wheelie on the street, stopping traffic, and I'm talking about 50 to 100 at a time. So with that, I want to thank you guys for being here and the great job you're diastolic doing. I'm hoping that this community will really take this very seriously because it is a safety issue and again is causing our businesses money. People don't want to come to Franklin Avenue for the fact that, you know, that's all you see, bikes on Sundays running back and forth. So I appreciate you guys being here, and thank you so much for all the work you do. Thank you, Mr. Chairman.
HYACINTH YENNIE: One more thing before I leave, I'd also like to say I'm supporting the president of Trinity bill, the bioscience. If we can develop something within that south area of Trinity or wherever it needs to be developed, we would really appreciate the neighborhood because the fact is that I have a son that is a science person, professor at Brown University, and I would love for him to move back to Connecticut, because when he graduated he could not find a job. So I'm hoping that, you know, that sounds really great, and I'm hoping that you guys will support that.
SENATOR FONFARA (1ST): That's coming from a single mom, who raised three children, all successfully, one as she said a scientist at Brown. Another is a physician, and the third is a teacher, I believe.
HYACINTH YENNIE: To go for her doctorate too. So, again, and these are all Hartford grown, Hartford Public School graduates. So, we can do it if we all work together as parents and get involved. So I'm hoping to bring my kids back to Connecticut, all of them. I mean two of them are here already, but I would like the middle one to come back from Brown to Connecticut. So I'm hoping we can push to get [inaudible] for Trinity to have it. Thank you.
SENATOR FONFARA (1ST): Thank you, Hyacinth. Hold up, one second Hyacinth. Representative Wood.
REP. WOOD (141ST): Just, I hope this is a moment of humor. I understand you're a mother wanting her children nearby. Perhaps if you wore a UConn sweatshirt.
HYACINTH YENNIE: That's okay, I'll go for a new one. [laughter] I'm a Brown mom.
REP. WOOD (141ST): Thank you, Mr. Chairman, and thank you for your testimony.
HYACINTH YENNIE: Thank you.
SENATOR FONFARA (1ST): Senator Boucher.
SENATOR BOUCHER (26TH): Thank you, Mr. Chair. I couldn't let this go by. You have such an inspirational story. Congratulations for a job well done and also for being here to talk about this. Just for the record, I don't think that we're related, are we, Jim? You know, Boucher and Boucher? But I'm happy to be associated with you in any event.
But just to back up, Representative Arce's comment. We both serve on the Transportation Committee. He's brought this issue up to us before, and it is not just in Hartford. It's a problem in a lot of our major cities. I will say that, you know, Franklin Avenue is right up there with Arthur Avenue New York and Maybe Wooster Street in New Haven for wonderful ethnic food and bakeries and so one, and it is really sad to see a lot of this disappearing. This just adds fuel to the fire. But just to support both your testimony and Representative Arce and our Chairman on this issue, it is not just your issue, but it seems to be more widespread, and it's terrific that you're doing this. I heartedly support it and Trinity as well. So thank you for being here. I'm glad I was able to get back in time to hear your testimony. Thank you, Mr. Chair.
HYACINTH YENNIE: Thank you, Senator John Fonfara [inaudible] helping you with this.
SENATOR FONFARA (1ST): Thank you. Any other questions? Seeing none, thanks very much. Lou Manzione and John Soderstrom.
BRUCE CARLSON: Senator Fonfara, Representative Berger, members of the Finance, Revenue and Bonding Committee, thank you for the opportunity to speak with you today. We are speaking in support of SB 1. I am the dean of the college of engineering, technology, and architecture at the University of Hartford. I've been in Connecticut for 10 years. I came from a long career at that lab and industry where I had 17 patents. I have extensive experience in technology transfer. I've been involved in a number of different roles in the state that have given me a very unique perspective on building the economic base for Connecticut. I am chair of the Connecticut Engineering Dean's Council. This is a [inaudible] with the Connecticut Technology Council. I am past president of the Connecticut Academy of Science and Engineering, a member of the CTC Talent and Workforce Committee, as well as a number of other roles.
I wanted to speak on the parts of the bill relating to partnerships with industry and how critical these are for a college of engineering or any STEM program to produce the graduates that Connecticut need to remain competitive well into the 21st Century. Connecticut universities need the resources and particularly the private institutions. We need the resources to be excellent partners with Connecticut industry. We need to have the state of the art labs, that these companies are looking for our students to have experience with when they join their firms and make a difference in Connecticut.
We need well-funded internship programs. We heard many small businesses are looking for students with experience. Well often they get that experience in internship opportunities. We need well-equipped makers spaces to unleash the creativity of our students. The students that come to us in engineering and STEM just have unbounded creativity that they need to excercise in maker spaces.
Finally, we need to build the entrepreneurial skills, the preparation, the support for them to take their ideas and create strong Connecticut companies. All of our graduates go on to work in Connecticut industry. We want them to be starting the next generation of strong Connecticut companies.
I certainly like the idea of innovation districts. I am on the board of Hartford Healthworks, which is planning to build a very innovative healthcare campus in the north end of the city, and we are also part of the CCAT incubator. Thank you.
JOHN SODERSTROM: Thank you. My name is John Soderstrom. I am the managing director of the office of cooperative research at Yale University, and I would like to thank the Chairman and the members of the committee for the opportunity to speak. Like my distinguished colleague here, I come in vocal and strong support of SB 1 and the ideas that it embodies.
It is remarkable that we are here talking about trying to create something that is actually part of the heredity of the this great state, the idea of innovation and entrepreneurship. This was the birthplace of the industrial revolution where those things took place. The fact that we have to now reinforce those concepts is a bit mind boggling. In my role at Yale, we have been running a 20-year experiment in terms of the role of a major research university in promoting just exactly those types of activities, and I'm here to report that we have been extraordinarily successful in terms of what we've been able to accomplish with those things. Over the last 20 years, we've been able to create something on the order of 40 to 45 biotech companies. Collectively those biotech companies have attracted over a billion, that's with a B, a billion dollars in professional venture capital. But more recently in the last ten years we've turned our attention to our students because we agree with my distinguished colleague at the University of Hartford that the students represent our future.
So for the last decade, we've been working with students at Yale and elsewhere in terms of promoting the idea of converting their ideas from their dorm rooms to actually becoming profitable companies on the outside. Over the last decade, we have created about 150 of those companies as well. Collectively, they've raised less than a billion but still over $100 million dollars in professional venture capital, and some of them have actually gone public already. So my point is that the ideas that are embodied in SB 1 can work. They will work. They should work. We need to do more to support these kinds of activities at the other campuses around this state. Thank you.
SENATOR FONFARA (1ST): Thank you both very much for staying today and carving time out of your schedules to testify. John, you already lent your knowledge and ideas to this effort. I hope that you will continue to be engaged, and Lou, we have not worked together yet, but I'm hopeful that you too will bring your reputation proceeds you, and that I'm convinced that you can be very helpful from the perspective of students, engineering students in particular around the state to get their ideas and their talents and put them to work here in Connecticut creating businesses, creating jobs, So thank you very much for your testimony today. Any questions? Thank you very much. Amber Suess, I hope I'm pronouncing her name right. If not, I apologize.
AMBER SUESS: Good afternoon, Senator Fonfara, and Representative Davis just left. My name is Amber Swiss, and I'm 19 years old. I'm proud to be a lifelong Connecticut resident. I grew up in Wallingford, and I moved to New Haven when I turned 18. I love this state, and I spend a lot of my time organizing with young people to make our communities stronger and more welcoming to people like us. I have led other young people in New Haven to be involved with local politics and to build our own spaces where we can support each other. Connecticut is my home. But people my age are worried about our future here. Growing up, I knew a lot of people who were focused on getting out of Connecticut because they knew that they wouldn't have many options for their careers here. Like right now I'm working at Panera about 30 hours a week. I look around and I see people like me, smart, driven students who are stuck working low-wage service jobs for years after graduating because that's all there is. I'm proud of the work I do now, but what's going to happen to people my age when we're ready to move onto other kinds of work? A job in the service sector doesn't usually set you up for a career. For a lot of people, the kinds of jobs that they want mostly exist outside the state. Young people need good jobs now, and we need good jobs waiting for us later in our careers. We don't see that when we look around at Connecticut right now. What we do see is a university in our backyard with billions of dollars of income every year. We see the good things that Yale can do for our communities, but we also see those good outcomes in only a handful of places. Job growth isn't going to come from having more service jobs like the one that I'm working. It's going to come from bringing new industries to the state and making sure that they're strong enough to support good jobs, the kind where you can like move upward and support a family.
I'm here to support SB 413 because if Yale had an incentive to do more with its money here in Connecticut, we could change the picture for people like me. I don't want to leave Connecticut, and I don't want to live in a state that loses talented young people. Yale could do a lot more for my community if it invested as much in as it does in expanding its bank account. If this bill passes, then Yale will have a reason to help create the kind of economy that can raise my generation's prospects. With more jobs and better jobs, people my age would look around and see a state where we can picture ourselves as successful adults. Thank you.
REP. BERGER (73RD): Any questions from the committee? Seeing none, thank you.
AMBER SUESS: Thanks.
REP. BERGER (73RD): Gabriel Bayard.
GABRIEL BAYARD: Good afternoon, Senator Fonfara, Representative Berger, and all members of the Finance Committee. My name is Gabriel Bayard, and I will be reading testimony on behalf of Victor Fleischer. Victor Fleischer is a the professor of law at the University of San Diego where he teaches and writes about tax policy, corporate tax, venture capital, private equity, and higher education. Before moving to San Diego in 2013, Professor Fleischer was visiting or tenure-track professor at UCLA, NYU, Georgetown, Illinois, and Colorado. Professor Fleischer is also a contributor to the New York Times where he writes the standard deduction column.
Should university investment income be tax subsidized? Thank you for the opportunity to address the committee on this important topic. In my opinion as a tax scholar, proposed SB 413 is a fair and sensible approach to the issue of excessive endowment accumulation. The excessive accumulation of endowment assets is understandable but not justified. Managers manage what can be measured, and the size of the endowment offers an objective metric in an area, higher education, where success is difficult to define, measure, and observe. But even as a minute of clear thinking reveals, the only possible proper measure of an endowment's success is how it is spent to further the charitable mission of a university. Few tax scholars believe that the unlimited tax exemption for the investment income of charities is good tax policy. All would agree that a general exemption from the income tax is consistent with our desire to incentivize charitable donations with a tax exemption. After all, it would be odd to allow donors to take a tax deductions when giving cash to a university only to turn around and tax the university on receipt due to Senator Frantz' question, right?
The issue rather is what the university does with the cash after receiving it. Harvard's Daniel Halprin, writing in the Tax Law Review in 2011 concluded that subsidizing the investment income of charities is not good policy. In his view, exemption should depend on a value judgement as to whether public policy should favor less accumulation and relatively more current spending by charities. In light of an apparent bias towards accumulation, Halprin concluded that it is reasonable for the tax system to place a thumb on the scale in favor of current spending perhaps by imposing a tax in some circumstances. I agree with Professor Halprin. So too does David Miller, a law firm partner and well-respected tax scholar and practitioner, whose proposed solution tracks very closely to the approach of the proposed legislation.
There are circumstances where a tax exemption for an investment income arguably makes some sense. New universities for example may want to accumulate funds prior to expansion and large building projects. Federal tax law already caps at 150 million the amount of tax-exempt debt that a nonprofit may issue unless the proceeds are used to finance capital expenditures. One fifty million makes more sense than 10 million as the floor of the tax. Really quickly. Investment income lacks a close relationship to the charitable mission of the university that we normally demand in order to justify a tax exemption. If Yale University were to open a spaghetti factory we would treat the income from the factory as unrelated business income and subject it to a tax per the discussion on 414. The fact that Yale has chosen to enter the investment management business instead of the pasta business should not change the results.
REP. BERGER (73RD): Thank you for your testimony. Any questions? Representative Lemar.
REP. LEMAR (96TH): Thank you, Mr. Chairman, and thank you for your testimony today and sharing with us Professor Fleischer's testimony. It really is extraordinary research and development of an argument, and I implore all of my colleagues to read it. It's actually very well done. The fact that we didn't quite cover in the testimony due to lack of time was an interesting thing that was focused on the New York Times article he wrote last year was over $500 million of endowment spending was directed towards investment fund managers last year, and clearly that's not something we envisioned when we extended this public policy, this tax policy, this charitable tax exempt status to a university that they would be spending over half a billion dollars per year on fund managers. He goes through this really, you know, wonderful process of articulating what tax exempt statuses are intended to develop and the policy we're attempting to achieve, it clearly falls outside of that, this idea of a half a billion dollars being spent on private fund managers. I know you didn't get chance to indicate it in your testimony due to lack of time, and I wanted to make sure my colleagues had a chance to see that. Thank you.
REP. BERGER (73RD): Thank you, Representative Lemar for that clarification. Senator Boucher.
SENATOR BOUCHER (26TH): Thank you very much, Mr. Chair. You obviously know I have a great deal of interest in this subject matter. I just question for you, have you all spend any time with your university's chief investment officer to discuss the concerns and issues you have?
GABRIEL BAYARD: I can't speak to that, unfortunately myself. We have experts that will be able to answer that question, but what I would like to say is that Professor Fleischer, who is based out of San Diego, is very happy to contribute to the discussion of this bill as it goes forward.
SENATOR BOUCHER (26TH): I think it would be very helpful and instructive to have that discussion because if you understand a lot about the endowment world, you would see that a vast amount of the large donations they receive is restricted. Very small amounts are unrestricted, which means they could use it for some of the intended purposes you're talking about. The vast amount is typically a large donor who wants to build a building, research something, endow a chair, and in Yale's case they even have someone that has endowed the entire music program so any student accepted doesn't pay one penny of tuition. So that's one of the constraints around this issue that needs to be explored and needs to be discussed with those individuals. I know that some of the very largest that you're talking about also contribute a great deal to the operating budget of a university, helping to reduce tuition, whereas that's probably not the intended purpose of an original endowment, that operating funds are usually done through fees, tuition and other profits from even so far as athletic programs in some really great cases like UConn that really does better. They contribute more than the big salaries that people like to criticize. When you're talking about creating an investment office that you're just alluding to, you have to also compare like salaries of those that work on Wall Street, and you would be able to see that their salaries are substantially less, and the kind of expertise that they might be able to go.
So the issue is not as simple as it might seem or present itself. So a lot of other factors need to be considered, and I think it would be really helpful to have a few of those chief investment officers, people that are VPs of finances, people that are really involved in this arena to explain maybe some of the constraints that they have regarding, you know, the altruistic purposes behind this bill, which I do commend you for coming forward and having this discussion, because it's a great interest that I have as well. Thank you.
REP. BERGER (73RD): Thank you, Senator. Thank you for your testimony. Bruce Carlson.
BRUCE CARLSON: Good afternoon, Senator Fonfara, Representative Berger, Representative Davis, members of the committee, as we head toward the end of our sixth hour of hearing, I'll be as short as I can be. My name is Bruce Carlson. I'm the president and CEO of the Connecticut Technology Council, here today to talk about Senate Bill 1. You have my written testimony. It is predominantly on the issue of the reauthorization of the Angel tax credit. I wanted to offer some statistics to be able to support the reauthorization. The chart in the middle of my testimony shows that for the six years prior to the Angel tax credit being on the books, thanks to Representative Berger when he was chair of the Commerce Committee. We had only 28 companies that we were invested in in that six-year period, $4 million of investment and the creation of about 84 jobs. In the six years since the Angel tax credit has come on board, we had 86 companies invested, over $44 million of Angel investment, 484 different Angel investment representing that 44 million, and 490 jobs.
So we've had a significant multiple based on just having the tax credit in place, but there's more than numbers associated with this, and let me give you the example of iDevices. IDevices is an Avon-based company, a member of the Connecticut Technology Council. It four years ago received its first Angel investment. It was able to use that and then ultimately turned it into some seed capital through Connecticut Innovations. Just recently you probably saw that they signed their first contract for their device with Weber and Weber Cookers. It's going to be throughout the entire country. This is a company that has doubled in number of employees in just the last year. I imagine it will continue to grow as it uses this platform that it has to be able to develop additional devices.
I'd like to move on for just a minute to the rest of Senate Bill 1. I just want you to know that we put together in the fall, we the Connecticut Technology Council a public policy agenda called the Growth Agenda. Many of the issues that are in Senate Bill 1 are represented in that growth agenda, and I applaud the Chairman as well as the members of the committee for the work that's been done. I'd like to hit three just quick areas where I think there's been great thought, and we would love to continue to work with the committee.
One is in this issue of innovation districts, where we have a number of places within the State of Connecticut that with just a little more help could become the live, work, play areas that many of the millennials are searching for. In the statewide tech transfer office, many of you know I started the tech transfer office at the University of Connecticut, and I believe that one of the areas that is missing is the fact that there is not a tech transfer office available to a number of the small private colleges and universities. In fact, Lou Manzione, who was here just a few speakers ago, he and I talked about four projects that were at the University of Hartford, which were unfortunately not able to go forward as a result of no tech transfer office at that university. So having a statewide office to be able to bring those ideas out of those universities and create new companies, new opportunity in Connecticut is a great thing.
Then finally, this whole question about how do we support our students. You know, what we have in this is issues about startup zones, student loans, forgiveness of student loans for those students who want to come out and actually start companies in the State of Connecticut. I think all of this is very helpful for creating that ecosystem that we've been talking about.
Lastly, I would simply ask from my experience in government that what we look for is a transition between what we have today in the way of CI and the creation of Impact. It's a very aggressive schedule that's laid out in Senate Bill 1 and maybe a slightly longer transition period will allow for those things that are currently being done not to be stopped and then get started again. If we could work this so it's a smooth transition, that would make a lot of sense. With that, that's my testimony.
REP. BERGER (73RD): Thank you for your testimony. Any questions? Senator Fonfara.
SENATOR FONFARA (1ST): Bruce, thank you very much for sticking around today and testifying. I know it's been a long day for everyone. You've been great in lending your expertise from the beginning in our work here. I hope you'll continue to do that. Your comments are noted and with respect to your organization, I don't know if there is, I think everyone on this committee, wherever they may come down on, various pieces of this bill all agree that those companies that you represent need resources such as we've been discussing here in this bill to connect with industry, to support innovation coming out of industry, to connect young people and others who are innovators, would be innovators, to understand what industry needs going forward, not to be teaching yesterday's engineering but five years from now engineering, ten years from now engineering, and unleash the power of the students and others that maybe they're in their garage, maybe is in their head, but there's no mechanism or they don't know of one to be able to bring that to commercialization. So we really need your help and your organization's help going forward. Thank you, Mr. Chairman.
REP. BERGER (73RD): Thank you, Senator. Any other questions? Seeing none, thank you for your testimony.
BRUCE CARLSON: Thank you very much.
REP. BERGER (73RD): Mary Glassman.
MARY GLASSMAN: Senator Fonfara, Representative Berger, members of the Finance, Revenue and Bonding Committee, my name is Mary Glassman, and I serve as the manager of the Office for Regional Efficiencies at the Capital Region Education Council. I know you've had a long day today, but I appreciate the opportunity to testify on behalf of the six regional education service centers throughout Connecticut. The RESCs who have been in operation for more than 50 years provide support and services to towns and schools throughout the state in areas such as professional development, cooperative purchasing, special education, and regional transportation. As an alliance, the RESC support the raised bill number 466. Particularly the section which provides incentive funds through the RESCs to allow towns and schools to voluntarily share back office functions. While many towns and schools already share noneducational services to save money, the additional incentive grants would assist towns and schools in developing shared office back office function. I know this is a small piece of a bill and a very small piece of what you heard today, but it's really significant because currently there is no mechanism to provide incentive funds to education's side of the ledger to work on regional cooperative efforts. There are the regional performance incentive grants, which the legislature already offers, but those are not a vehicle which is provided through the RESC.
The need for these incentive funds was identified earlier in the December 2015 program review and investigations report, which I'm sure you're all familiar with, which has noticed that school districts are more likely to partner with local municipalities for administrative and back office functions. So I'm happy to answer any questions, but I think this bill, this particular section, is really important in order to get three quarters of more municipal budgets to be able to save money through cooperating with towns on back office functions. Thank you for the opportunity.
REP. BERGER (73RD): Thank you, any questions? Seeing none, thank you, Mary. Tom Avray.
TOM AVRAY: Hi, good afternoon, Representative Berger, Senator Fonfara, and members of the Finance Committee. I appreciate your time and the opportunity to speak in support of House Bill 5636, in particular section 5, which would expand the apprenticeship tax credit program to more companies than just subchapter, C corp businesses. I'm coming from the Connecticut Association of Smaller Manufacturers. We're comprised of SMA, which is out of Waterbury, smaller manufacturers, New Haven Manufacturers Association, Manufacturers' Education in Training Alliance (METAL) of Bridgeport, and New England Spring and Metal Stamping Association, otherwise known as NESMA. One of my colleagues has provided some testimony, and he's also in support. He's got two apprenticeships in Berlin [inaudible] company, and he gets his students out of Vinal Tech. I believe he's using Manufacturing Innovation Fund to get some relief while there's no tax credit available because of the tie up with the credits.
I'm from Bridgeport Fittings. We're a family owned business, started in 1925, 205 workers. We have, we've expanded our skilled labor force in recent years, but we've always had tool and dye makers, progressive dye makers. These are guys that, some of the older ones, they've been in the apprenticeship program, and certainly the new ones, the ones coming out of Platt Tech. We've got a number of kids coming out of that. We have an electrician that works on the floor that's, you know, part of the apprenticeship program. Then in our tool room, we have two kids on now, one that's completed. We have an intern that, he's a junior right now in school. He'll, you know, if he transitions into an employee, a full-time employment position, he's likely to be a part of that apprenticeship program. But the program provides great benefit to transition these kids. They're coming out of school into a business and with the cost, I mean we're training, these kids are going to get training in SolidWorks, Asfrey [phonetic], Mastercam, Mazak, ProtoTrak. It's about four grand in education funds to get these kids up to speed with that because we have a whole slew of machines. We're now making our own molds in our facility versus going outside, not just our building but going outside the country too. So this is allowing more work to be done within by training these kids.
REP. BERGER (73RD): Tom, I think we've got your written testimony, so --
TOM AVRAY: Okay, yes, [inaudible].
REP. BERGER (73RD): Yep.
TOM AVRAY: Okay.
REP. BERGER (73RD): Any other questions? Okay. Thanks so much for your testimony. Jorge Klor de Alva
JORGE KLOR DE ALVA: Thank you co-chairs, ranking members, and members of the committee for permitting me to speak today and for holding this hearing. SB 413 correctly seeks to incentivize increased educational spending and economic stimulation. The expected effect of this bill is that an institution of higher learning seeking to limit the amount it owes will strategically set aside more of its endowment gains than is currently its practice for appropriate educational concerns such as student financial aid and faculty research. The concern with maximizing the good that can result from large university endowments has a long history. Today, revising the tax code to help make more effective use of large university and college endowments is in the air.
As such, SB 413 is part of an important public policy movement as the nation rethinks how best and more equitably to educate it's millions of low income and middle class students. Along with my co-author last year at Nexus Research and Policy Center, where I work, last year we published a widely discussed study. Rich schools, poor students tapping large university endowments to improve student outcomes, which examines why a tax on endowments is a tax whose time has come. Using widely available US Department of Education and tax data, we explored a number of issues germane to the rationale behind bill 413. First, we showed that not all private universities are private. Many of the richest universities in the country sitting on hundreds of millions if not billions of dollars in tax exempt endowments received through the tax laws government subsidies that greatly eclipse the appropriations received by public universities and colleges. For example, Yale University's tax exempt status generates over $69,000 per student each year in taxpayer subsidies, compared to 23,000 per student subsidy at the University of Connecticut, the state flagship, or the $6700 per student at the Regional Central Connecticut State University or the $6200 per student at Tunxis Community College. Put another way, Yale, an ostensively private institution with an undergraduate enrollment of about 5500 students received a tax subsidy per student that is three times the per student subsidy at UConn although UConn educates well over three times the number of undergraduates and 11 times the per student subsidy of Tunxis Community College where the enrollment is only slightly smaller than Yale's.
Our study also shows --
REP. BERGER (73RD): If you can consolidate, sir, please.
JORGE KLOR DE ALVA: Yes, I will.
REP. BERGER (73RD): We have your written testimony.
JORGE KLOR DE ALVA: Yes, you do. I will. Let me just say that our study also shows that rich schools receive large tax-generated subsidies, but enroll a disproportionately small share of low income students. I'll summarize with one paragraph, brief paragraph, two sentences.
In many cases given this, the average taxpayers are subsidizing the education of students and the well-endowed, more selective schools to a far greater extent than they are supporting the education of their own children, most of whom attend broad-access public institutions. In other words, the majority of taxpayers are poorly served by the tax exempt status of large college endowments, and providing a public benefit is the purpose of granting tax exempt status to private, not-for-profit institutions.
REP. BERGER (73RD): Thank you, sir. Senator Boucher has entered the committee room again with a bunch of papers, so it's a very concern to the Chairs. Senator Boucher.
SENATOR BOUCHER (26TH): No worries, Mr. Chair. Thank you so much, but I did meet this wonderful testifier in the hallway. He was actually encouraging me to come back in the room so that I could ask him a question. But I do have a question, in fact. Did you know that Yale University has of their large endowment three quarters of it, three quarters of it is restricted for certain purposes that are from the donors and not the university necessarily?
JORGE KLOR DE ALVA: Let me answer that this way. My recent Senator has been working with the House Ways and Means Committee and with the Senator Finance Committee in order to do an analysis for them of the 990 form for the IRS. What we have seen, having reviewed many, many 990 forms, is that in fact it's impossible to tell how much an institution actually has in restricted funds. Much of the restricted funds are in fact quasi-restricted funds. They are funds that the university itself has set aside as restricted but in fact are not set aside by the donors, so in fact the reason why the House Ways and Means Committee and Finance Committee has sent out a letter to all these schools is because we in fact don't know very much about endowments throughout the United States.
SENATOR BOUCHER (26TH): You make an excellent point and why the suggestion to work more closely with those finance officers before policy is formulated or enacted so that we don't, you know, put a knife in the heart of some of our best educational institutions, and in fact many of the very largest would contribute more to the operating funds voluntarily than some of the smaller and less endowed, and in fact, there are some very sad examples, like Sweetbart [phonetic] College that has basically gone broke, that has to close up their door because what they did was they took their endowment and then spent it and then spent it. It's like spending the principal of something that you were inheriting, and then after a while then your children or grandchildren have nothing left. So the idea of preserving some of that for hopefully these institutions will be on [inaudible] in the future way before we're, after we're gone. So some of that financial security has to come from preserving some of that funding going forward.
So it's a very complex issue, as you've pointed out. So I would hope that those that are spending this much time on it would involve particularly the financial officers and investment officers, and also by the way, they are also handcuffed by policies that are made and voted on by their committees and by their boards and by their trustees and by their investment committee members that have to report to the main board as well to approve or disapprove those policies .
JORGE KLOR DE ALVA: Yeah, that is correct, and that's why we're so concerned with the 990 form. But let me just say with regards to your first point, we've interviewed probably around 50 of the leading folks responsible for this endowment, and we have some of them on our advisory board as well, so we're very familiar with the responses. I'm a former professor at Princeton, and the head of that committee we have been working closely with, so we're quite familiar to the extent we can be about these issues, so I appreciate your point. It is a complicated affair, and I do invite you please to look at the testimony that I presented in detail.
REP. BERGER (73RD): Thank you. Thank you for your time.
JORGE KLOR DE ALVA: Thank you.
REP. BERGER (73RD): Clifford Carr.
SENATOR FONFARA (1ST): Mr. Chairman, while we're waiting for the next speaker to come up, I would just like to recognize the manner in which you run the committee in terms of speakers and their ability to finish their final thought. I had a co-chairman who had a rule that when the bell went off that the speaker should finish uttering the last word that he was or she was saying. So I think hopefully people appreciate the latitude that you afford people compared to predecessors of other committees. Thank you, Mr. Chairman.
REP. BERGER (73RD): Thank you for giving me that idea, Senator [laughter].
SENATOR FONFARA (1ST): Thank you, Senator, please proceed.
CLIFFORD CARR: Representative Berger, Ranking Members, and members of the committee, my name is Clifford Carr. I'm an undergraduate at Yale University and the co-chair of the [inaudible] Democratic Town Committee in New Haven. I'm here supporting SB 413 because of the work I've done with the undergraduate group Students Unite Now, asking Yale to fix major problems with its financial aid system. I'm going to read testimony about financial aid from one of my peers who is out of town.
Here it is. My name H. McCormick, and I'm a junior at Yale University. I'm testifying in support of SB 413. I'm concerned because I've watched Yale's endowment grow, but the university has been charging low income students more instead of less. I'm on full financial aid at Yale. On good years, my family barely makes half of what Yale's tuition costs without aid. In fact, I only applied to Yale because a Yale representative told me that I would be able to go there for free. But as I learned, that wasn't actually true. Even though my parents' contribution is zero dollars, Yale adds an extra charge that consistently have to pay every year just because I'm on financial aid. The student contribution was $6400 this year, and every student on financial aid has to pay it no matter how much financial aid they get. The fee has become larger almost every year since it was created. But $6400 is a lot of money for a student who is working hard on their education on top of the bills they have to pay, the cost of repairs on my lap top, and the need to buy clothes warm enough to get me through the winter. The student contribution falls on me. Meanwhile, the wealthiest half of students don't have to pay at all. The student contribution just doesn't exist for them.
The financial aid website says that the student income contribution can be met by working nine to ten hours a week. On average I work 17 to 19-1/2 hours a week at my student job. I rarely work below 15 hours. I've had professors tell me I should work less because of the impact on my school work. Yale claims to offer students the opportunity to learn from famous scholars of diverse and numerous conferences, symposiums [inaudible], but I've never been able to attend them because I cannot afford to miss work. Sometimes I skip lectures and take more shifts. Lately I find myself skipping shifts I can't afford to miss because I can't get out of bed. Because of the student income contribution, I don't have the time to take care of myself. In short, I do not have the same access as my peers to what Yale claims to offer it's students. Freshman year I'd get home from work and sit down to start assignments I hadn't had time to do because I'd worked all week. My friends would ask me if I'd go out with them, and I'd tell them came to Yale to get an education, I came here to learn, and I'd resign myself to working late while they relaxed after a long week. Now I sit in the office pushing 20 hours a week on timesheet wondering if it's going to be enough, thinking of the papers piling up, and I wonder if I really came here to learn or if I just came here to work.
But even though Yale's endowment has grown 59 percent since 2009, so it's definitely not disappearing, and that's not a worry that I think we should really be concerned with, the student contribution has increased by almost 30 percent. They're lowering the student contribution for next year by a little bit but only after years of students campaigning against it. Most years, the burden on lower and middle class students has become heavier.
If Yale had an incentive to spend more when its endowment is doing so well, they could spend it on making sure that people like me have access to the education we came here for. It would take a tiny fraction of their income to make me feel like I was here to learn instead of feeling like all I'm doing is working, and so I'm asking you to vote yes on SB 413.
REP. BERGER (73RD): Thank you. Any questions from the committee? Representative Lemar.
REP. LEMAR (96TH): Thank you, Mr. Chairman. Thank you so much for your testimony today and coming up and spending all day with us. I think you highlight one of the primary drives for this type of bill. You know, in 2014, Yale University through its endowment spending spent close to a billion dollars on associated fees and two plus 20 contracts and endowment managers, fund managers, and about $127 million. You know, about a fifth or sixth, about an eighth actually, an eighth of the amount that they spent on fund managers and associated fees they spent on financial aid. Clearly we extend these tax exempt structures and these tax policies to benefit the public good, you know, to the tune of a billion dollars. I don't think the public good is spent on enriching fund managers, but it should instead be spent on ensuring that the low income and middle income students at Yale University, my neighbors, don't have to put in 17.5 to 20 hours per week in additional work to meet their student contribution. Clearly that's the type of investment that Yale, if they would make to eliminate the student contribution, would qualify them to not pay any tax or penalty at all. That's what we're getting to, is trying to provide adequate mental services for students, trying to get rid of the student contribution, trying to ensure that our tax benefit that we provide this institution is used to advance a public policy goal. Clearly enriching fund managers is not that public policy goal, and clearly you articulate perfectly what that is. So thank you so much for coming up.
REP. BERGER (73RD): Thank you. Thank you for having a day with us today.
CLIFFORD CARR: Thank you.
REP. BERGER (73RD): Bob Petzole.
BOB PETZOLE: Good afternoon. In an effort to be mindful of your time, I've asked one of our colleagues, Brian Luby, to sit with me.
REP. BERGER (73RD): Please proceed.
BOB PETZOLE: Thank you. My name is Robert Petzole. I own and operate a family-fun boat sales and service facility started 71 years ago in Portland. In addition to my Portland facility, I operate two satellite facilities, one in Norwalk, Connecticut, and one in Wakefield, Rhode Island. I'm asking for your support of HB Number 5636, specifically the boat sales tax cap of 3 percent, and I thank you for putting in this important provision and allowing us to be competitive again.
A little history lesson. Since 1993, when Rhode Island eliminated the sales tax on boats in its state, the marine industry in Connecticut has been working at a severe disadvantage. The elimination of that tax in Rhode Island has all but forced Connecticut boat owners to purchase and keep their boats in a neighboring state. This has had a resounding effect on our dealers, leaving them with unsold boats, marinas with larger than normal vacancies, decreasing the numbers and services as well as winter storage. While our industry is struggling, Rhode Island's marine industry is flourishing, boasting the shameful statistic that 70 percent of the boats in their state are owned by out-of-state residents. I'll repeat that again. Seventy percent of the boats in that state are not owned by Rhode Island residents. Because of this competitive disadvantage, my dealership was all but forced to open up a new office in Wakefield, Rhode Island.
In 2010, the State of Florida, noticing a large group of boaters who were no longer frequenting or purchasing their boats in the state due to the high sales tax enacted and $18,000 sales tax cap on boat purchases. In the year following that cap, the dealers roughly reported a 291 percent increase in tax receipts. I think you'd be very happy if I could supply you with a portion of that.
Another example, one that encouraged out-of-state residents to purchase and keep their boats in the stat would be Maine's 2010 enactment of a 2 percent sales tax on boats purchased by residents outside the state of Maine. This was also a great boost to the industry. Further examples, Maryland in 2013 capping its boat sales tax to 15 percent, New York in 2015 passing a budget where the boat buyer would pay tax only on the first $230,000 of the purchase, and lastly New Jersey just this past season looking to boost their industry cap enacting a 3.5 percent sales tax with a cap of $20,000. These were all successful instances proving that states can support the industry and remaining competitive.
As you can clearly see, we are not asking for something new, something that hasn't been proven. These tax caps and in Rhode Island total elimination of boat purchase tax have had very positive outcomes.
There are two problems in operating the status quo. One is the dealers we are losing to surrounding states. Buyers will make purchases in lower tax states, keeping and registering their boats there also. Secondly, we are selling and delivering boats out of the state at record levels. Since the state of my business fiscal year, this September 30, through March 16, just a few days ago, my total boat sales were $6,815,000 and change. Half of that, $3,426,000 was in out-of-state sales. If we were to tax that, the state would be out, well the state is out, $222,250 in tax. The number of registered boats in Connecticut has steadily declined, and this year is no exception, losing 15,000 votes over the previous year and 12,000 votes since 2009.
There are a lot of factors when a boat is sold out of state. Slips aren't sold. Fuel is not pumped. Mechanics aren't making repair, and these are just a few examples.
I'd like to thank you for your opportunity to express my concerns. I hope I have brought you some knowledge, and I firmly believe that this 3 percent tax would be a positive outcome both monetarily for the State of Connecticut and the marine industry.
REP. BERGER (73RD): Sir, did you have something different in the comment that you wanted to add in your testimony because we have your written testimony. But go ahead if you had [inaudible].
BOB PETZOLE: Yeah, I just have a quick similar thing to go through if that's okay.
UNIDENTIFIED SPEAKER: [Inaudible Comment]
BRIAN LUBY: Yes, I have a few things to add to that. Thank you. Chairmen Fonfara and Berger, Ranking Members Frantz and Davis, members of the committee, my name is Brian Luby, sales manager of Beacon Point Marine, located in Cos Cob and Shelton, Connecticut. We sell multiple boat lines and prods and have been a proud, active member of our communities for 25 years. I'm here today in support of House Bill 5636, an act concerning municipal tax districts, the sales tax, the apprenticeship tax credit, certain fees, and a tax credit report. Specifically, propose a 3 percent tax cap on the sales of boats and motors. I want to thank you for having a conversation that may give Connecticut, the Connecticut boat business a competitive advantage.
We currently do not have a competitive advantage in this state. While during our 25 years in business, we have weathered storms and recessions, there has always been an end to those activities. What we can't end is the competition from our neighboring states and now from states where many of our residents actually are maintaining dual residencies. We are watching our competitive edge diminish with Rhode Island continuing to offer no sales tax and sales tax caps in places in New York, New Jersey, Maryland, Maine, and Florida, just to name a few. The customer is going to go where they can find the best deal, and right now the best deal is not in Connecticut. What does that mean to our economy and to the future for the deal to start here?
First, the boat is not being purchased here in Connecticut. It's not registered here. No fees. Our riggers are not preparing the boat for delivery. Our dock masters are not preparing the slip for that boat. Our fuel dock is not readying fuel for that boat, and our restaurants and venues where boats will travel to are not being readied for their arrivals. Simply put, nothing happens, no revenues are generated, no sales tax is generated if the boat is not purchased here. If that boat was sold here, we would be collecting sales tax on the sale, registering it here. We would collect sales tax on the parts that we add to the boat like electronics. We would collect sales tax on the slip, the slip that it sits in. We would collect tax on the fuel and other expenditures at restaurant in different areas where the boat would go. Our mechanics would keep busy, and keeping them employed, they're generating income tax. Our dock master would need help, and we would also be hiring, and so on. You see my point. It may sound simplistic, but it is just that simple. We have to start with the sale of that product.
We need to work together to make and keep Connecticut competitive, and helping this industry compete and the sales tax arena regionally is the most effective way today. Help us help you generate the revenue this state needs. Thank you for the opportunity to speak today.
SENATOR FONFARA (1ST): Thank you. Questions? I'm afraid to look to the right. [laughter] Senator Boucher, briefly.
SENATOR BOUCHER (26TH): Since I wasn't here for most of the day, I have to make up for lost time, I guess. Thank you very much, Mr. Chair, and I will be --
SENATOR FONFARA (1ST): I'm glad the rest of the committee heard that.
SENATOR BOUCHER (26TH): I honestly will be very brief. I just was going to ask you, do you think that this bill is enough to really improve your industry?
BRIAN LUBY: It can only help. Right now the situation of other states that we have, we find that boaters find it much more advantageous to buy boats elsewhere, and they're actually going there. You know, and when they go there, they're spending all their money there and that becomes there destination. That money and that opportunity should be back here in Connecticut. That's kind of what we're driving towards.
BOB PETZOLE: If you'd allow me just a minute. If you look at the numbers that I have, that half of my sales are leaving the State of Connecticut, I'm one dealer. There's 120 dealers. Do the math. It's a big number that's leaving the state. That's money on the table for the State of Connecticut. I can tell you by example, New York capped their sales tax. I sold a customer a boat, which could have generated $36,000 worth of tax for the State of Connecticut. He's always kept his boat in Greenwich. It's been there all it's life, bought his fuel there, stored the boat there. When New York capped their sales tax just last summer, he bought the new boat, decided to go to Mamaroneck, eight miles away. Saved himself $18,000. That's to ourself. Now if we go to Rhode Island, for at least my dealership, and I imagine the 120 others, it's a weekly occurrence. I have a fellow right now, we're selling a boat, he's been in Mystic. It's a $129,000 boat. Again, he's been in Mystic all his life. His buddy from Warwick says why don't you come to Warwick? It's great here. You don't have to pay tax. It's $8000 in change for him to drive 30 miles to Warwick. That pays for his slip, pays for his fuel for the season. Once he's gone, he's not coming back. So I just ask you to do the math. I think the math is there.
SENATOR BOUCHER (26TH): So these are really smart buyers, right? Really smart buyers.
BOB PETZOLE: They are, right.
BRIAN LUBY: Absolutely.
BOB PETZOLE: You know, you think about the logic of the people. They'll cross the street to save two cents on a gallon of gas. They're certainly going to drive a few miles to save thousands of dollars if not tens of thousands of dollars.
SENATOR BOUCHER (26TH): Thank you for testifying. I have to tell you, what's old is new again. I can't tell you how many times we've had this debate, and it was done nationally. People should be reminded that the national policy experiment for 18 months was to have a luxury tax on boats, and it lasted 18 months before they had to rescind it because it killed, killed the boating industry, and it killed commerce, killed sales, killed construction workers, kills the trades particularly. I think that's the part that really got them. Carpenters, painters, people that actually work on the guts of the boats, and Connecticut has a history of boating as well. It's a shame. So thank you for your testimony. Thank you, Mr. Chair. I hope that was brief enough for you.
SENATOR FONFARA (1ST): Thank you very much, Senator. Further questions? I'd like your response to the following. We currently have an exemption during the winter months on the sales and repairs of boats.
BOB PETZOLE: Correct.
SENATOR FONFARA (1ST): If we were to move forward with this proposal, what would your position be regarding making that three percent exist and be applicable throughout the year.
BOB PETZOLE: Well I think you would still want the exception for the winter months because what we're asking for is out-of-state boats to come into the state for repairs. So as the Senator, you know, was speaking earlier about how our history and the boat building and repair and the fine crafts people that we have and we want to keep employed year round, you know, we need to have those out of state boats come back to Connecticut for the winter months. The 60-day exception on the summer months I would imagine would stand. At this point, you've got 60 days for an out-of-state boat to come into our state for the summer months, and after that it would be applicable to the tax. But I think for the winter months we would certainly want that to keep our service facilities busy during the winter months.
SENATOR FONFARA (1ST): Well my question is that seeing that we are modifying the 6.35, the luxury tax that shouldn't we not be also addressing the fact that we provided the exemption in the first place in the winter months because of the great difference between Rhode Island, which has no tax, and Connecticut. That's why we did it in the first place.
BOB PETZOLE: No, it actually was to encourage out-of-state votes to come in here during the winter months for repairs so that they would not be subject to the tax.
SENATOR FONFARA (1ST): Right. But that's because our tax differential is so great compared to other states.
BOB PETZOLE: Well, I don't, you know, I don't follow the logic there. If I was to bring my car to Rhode Island for repair, should I pay a three percent extra tax to do that? I don't see the logic over winter, I do see it during the summer, because they're here enjoying themselves. During the wintertime we're working on those boats and as doing that they're paying taxes on the materials that we're putting into the boats and so on and so forth.
SENATOR FONFARA (1ST): I agree with your analogy of the person making the decision. We all do when we're in automobiles. Will we drive, make this almost instantaneous decision as to whether, or calculation as to whether we're going to drive an extra three or four blocks to save a few pennies in our gasoline. The question is whether someone will go to Rhode Island or down to New York to have their boat repaired to save 3 percent. That's a calculation that the committee will have to decide as we move ahead. Questions? Representative Candelora.
REP. CANDELORA (86TH): Thank you, Mr. Chairman. Just I guess to follow up on that questioning, if I'm correct. For instance, a neighboring state like Rhode Island does not tax the boat repairs. Correct?
BOB PETZOLE: Correct.
REP. CANDELORA (86TH): So that if people live in Rhode Island, they currently if they had the option of bringing the boats to Connecticut for repair were equal with each other, but if we started taxing boat repairs, we wouldn't be getting out of state voters to come to Connecticut to get the boats repaired.
BOB PETZOLE: That's correct. That would be a [inaudible].
REP. CANDELORA (86TH): That was also one of the reasons why we kept the exemption in place, for repairs, it's to compete with Rhode Island to not just have our own residents stay here and get their boats repaired but also to get the out-of-state boaters to bring their boats here as well?
BOB PETZOLE: That's correct. I mean Connecticut has had a history of servicing boats from all over the country because of it's fine repair facilities, but that certainly diminished when we didn't have that grace period. Boaters, out-of-state boaters were afraid to bring their boats into the state during the winter for fear that they would be taxed on them.
REP. CANDELORA (86TH): Thank you, I appreciate that. I just want to flush this out because I know we've tinkered with this in the past, and we've always come back to the conclusion that we need to keep the sales tax in place to be competitive with the neighboring state. It's a similar analogy when I think we were looking at taxing architectural services in Connecticut. We did that back in the '90s, and that caused a lot of the architects to leave, and people were shopping out of state for architectural services, so therefore we didn't tax that service. It's the same analogy here. If we impose a tax on repairs, maybe people would leave the state to get their boats repairs, but even worse we wouldn't get the out-of-state business for repairs.
BOB PETZOLE: Correct.
KATHLEEN BURNS: If I might, Representative, Kathleen Burns from the Connecticut Marine Trades Association, it was --
SENATOR FONFARA (1ST): Are you on the list to speak, ma'am?
KATHLEEN BURNS: Sorry, I am not. I just was helping if there was a question regarding this issue from a global perspective of the marine trade.
SENATOR FONFARA (1ST): Okay, well we have people who are on the list to speak, but if you keep it short --
KATHLEEN BURNS: I understand. Indeed, just to clarify on the issue of the storage as Bob has said, it was critically important for our master craftsman to be able to have some of these vessels coming in for work. If that 3 percent is added back into these projects, not only are we losing that business, not only are we losing the parts that are already taxed on that, but we will also be losing a critical piece of our workforce, and I don't think that our industry can sustain a significant loss to our overall workforce here in Connecticut, being attracted very quickly and very easily away to Rhode Island, Maine, New York, and New Jersey, and I thank the committee for that opportunity.
SENATOR FONFARA (1ST): We'll clearly have some more discussions offline on this, but let me understand what you just said. That in a state that charges 6.35 percent for most of the year, and we sustain those master craftsmen now, that if we for two months raise it to 3 percent, which is zero now, that we would potentially lose those people. Is that what you're testimony is?
KATHLEEN BURNS: No, sir. The 6.35 percent is related to the sales and use tax of selling these new products and selling of boat products. Your question related to, as I understand it, a give back of 3 percent, if you will, removing the winter storage exemption. Have I misunderstood?
SENATOR FONFARA (1ST): No.
KATHLEEN BURNS: That's the way I had, I had interpreted it.
SENATOR FONFARA (1ST): But it's also on repairs, correct?
KATHLEEN BURNS: I'm sorry, sir.
SENATOR FONFARA (1ST): The exemption during the winter months is on repairs as well is my understand.
KATHLEEN BURNS: It is on the labor portion, labor only. There is still a 6.35 percent tax on all parts and materials as well. So it is only the labor portion where that exemption sits. It is the winter storage portion, mooring, storage and slips, but then that 6.35 percent kicks in for the summer months on slip, mooring, and storage.
SENATOR FONFARA (1ST): But on repairs, on labor during the rest of the year, what is the tax?
KATHLEEN BURNS: The tax on the materials is 6.35 percent and on the labor there was no tax on the labor.
SENATOR FONFARA (1ST): During the rest of the -- not during the two months but during the rest of the year?
KATHLEEN BURNS: That is correct, on the labor portion.
SENATOR FONFARA (1ST): So what happens in the two months that we provide this exemption?
KATHLEEN BURNS: That sir is the 60-day period for out-of-state boaters to visit the State of Connecticut without penalty.
SENATOR FONFARA (1ST): I'm speaking during the winter months now. We provide an exemption during the winter months. What does that apply to?
KATHLEEN BURNS: The exemption during the winter months is for storage.
SENATOR FONFARA (1ST): Solely storage.
KATHLEEN BURNS: Correct.
SENATOR FONFARA (1ST): Not on repairs?
KATHLEEN BURNS: Labor is exempted from tax year round. So on bottom painting or waxing or mechanical repairs, labor is exempted.
SENATOR FONFARA (1ST): Okay.
KATHLEEN BURNS: Materials are at our sales tax rate.
SENATOR FONFARA (1ST): Thank you for that clarification. Questions? Thank you. Kris Lorche.
KRIS LORCHE: Good evening. Thank you for the opportunity. My name is Kris Lorche. I'm the president and owner of a manufacturing company called Alloy Engineering in Bridgeport. I'm going to talk to you about SB 1. It appears as though you've put a lot of thought into it. I'm thrilled to see some of the things that are in it such as building technology campuses in our urban cities in the state. However, I do believe that this bill should be rolled into the Connecticut Innovations. You've gone out in this bill and changed a lot of the statutes in 581, which I believe it's heading is Connecticut Innovations. We're in a fiscal crisis. Can we really add another quasi organization to the state? It's time that we stop spending the money. They might be supported by bonding, but I think we've reached our max there too. So you did something unique. You decided to redirect some of these dollars, including very small amounts from like tourism marketing dollars. You decided to take or change the manufacturing innovation fund, which has a committee that oversees there funds and makes the decisions on them, and you decided to change those amounts. Very clever, but it's not your job. It's their job. You didn't have their permission. Furthermore, you're giving more money to CCAT. I must see four or five bills this year. You've been throwing spaghetti and CCAT, and sooner or later it's going to stick, but in this bill, you gave them more money for Dream It, Do It. Frankly, I'm at my limit. I was involved in Dream It, Do It starting in 2010. I was one of probably 60 businesses that was brought together on a monthly basis to talk about Dream It, Do It and to make it happen. We talked every month through probably the middle of 2012, and that's the last time we talked because at that time the three organizations that were running it were CBIA, NAM, and CCAT. The other two walked away, and I think CCAT saw this as a cash cow, and you've been giving them money for it ever since, yet when was the last time that you looked at its matrix? When was the last time that you found out how many students were served?
SENATOR FONFARA (1ST): Please summarize your testimony ma'am.
KRIS LORCHE: That is my testimony sir. Don't withdraw the money from Dream It, Do It. I like CCAT. They're a fine organization. But the Dream It, Do It has to be reviewed. Any questions.
SENATOR FONFARA (1ST): Thank you very much. Questions by the committee? I will just say that your comment that it was not our job, the job of this body is to write law. No one elses.
KRIS LORCHE: Law?
SENATOR FONFARA (1ST): That's what we're doing here.
KRIS LORCHE: So when you spend my tax money you call that a law?
SENATOR FONFARA (1ST): It is the job of this legislature, the one obligation it has is to pass a budget. The expenditures --
KRIS LORCHE: Is this the budget? I'm sorry, I misunderstood.
SENATOR FONFARA (1ST): Everything in this bill relates to capital investments or tax credits. You're welcome to review the bill again if you'd like.
KRIS LORCHE: I'm sorry. I'm hard of hearing.
SENATOR FONFARA (1ST): You're welcome to review the bill again.
KRIS LORCHE: Okay. Well, I would like you to review the funding that you give for Dream It, Do It because it's not working. It's broken, and you're just throwing money away, my money, my tax dollars. Thank you.
SENATOR FONFARA (1ST): Thank you very much for your testimony and for waiting. Wayne Weikel.
WAYNE WEIKEL: Good afternoon or good evening as the case may be, Chairman Fonfara, Ranking Member Davis, and members of the committee. I commend your stamina. Thank you for the opportunity to speak to you today in support of House Bill 5636, particularly section two, which seeks to roll back the additional tax paid on vehicles with a sales price over $50,000. My name is Wayne Weikel, and I am here on behalf of the Alliance of Automobile Manufacturers, who are a trade association representing 12 of the world's leading car and truck manufacturers who together sell three out of four of the new cars sold each year. As I have provided my testimony in writing, I just want to take a moment to highlight two points.
Most importantly, I want to emphasize that in our view it is not correct that this is called a luxury tax as it impacts a lot more residents than just those of considerable means. If you take a look at the vehicles that fall in the $50,000 plus category, you will find some luxury vehicles. If you look closer though, you'll see that the vehicles are also listed there that you may not associate as being luxury vehicles. You will find Ford and Chevrolet and Ram pickup trucks. You will find higher occupancy SUVs that are purchased by large families. You will find vehicles that are purchased by small businesses all across the state, contractors, trades, farmers. The reason this is so is because the law applies to the sales price of the vehicle and not the manufacturer's suggested retail price. That means a lot of consumers may walk into a dealership and looking a vehicle that starts in the low to mid $40,000 range, but with the addition of a few features or options, they're quickly above the $50,000 mark. That results in a lot more of your constituents being captured by this tax.
The other point I wanted to highlight is something that's often overlooked, and that is that this bills works as a disincentive to consumer's, this tax works as a disincentive on consumer's purchasing vehicles with advanced safety or advanced environmental technologies. It is a reality that new technologies when first brought to market cost more. This tax creates an additional barrier to consumers adopting such technologies. Experts believe that 90 percent of all accidents and traffic fatalities are caused by human error. Technologies like automatic breaking, lane departure, blind spot warnings, adaptive cruise control, can put a big dent in this number. On the environmental front, we see the continued development of electric vehicles and soon hydrogen vehicles, which have zero tailpipe emissions, which is in keeping with the zero emission vehicle mandate that's been adopted by this legislature. This tax is a disincentive for consumers to invest in these new technologies.
I commend the committee for starting the conversation about rolling back this so-called luxury tax. I thank you for your time, and I am happy to answer any questions. My apologies for going over. I thought I had it under.
SENATOR FONFARA (1ST): You did great. Thanks so much. We would have been home already if people on this side, including this Chairman, and the people on that side were more conservative. Questions? Thanks very much.
WAYNE WEIKEL: Thank you.
SENATOR FONFARA (1ST): Doug Dix, to be followed by Paul Pescatello.
DOUG DIX: Thank you for letting me speak to you. My name is Doug Dix. I'm a professor at the University of Hartford. I'm here to speak in support of 413, a bill that would tax only the unspent portion of the earnings on the endowment, on the Yale endowment. These earnings amount to about $2 to 3 billion a year. Yale spends less than half of that, reinvests the remainder, and therefore doesn't need it. Why are we not taxing it at a time when budget cuts are going to cause the poor of our country to suffer, our state to suffer. Now other people have spoken before me on all the details, and I don't want to repeat that. It occurs to me that I might be able to be of use to you by reminding you perhaps, reminding all of us, that colleges have a purpose, to inspire youth to public service, and when the university hoards its wealth at a time when the citizens of its state are in great need, it's not teaching what its intended. It's not teaching the mission its tax exempt to teach. So I think that it would be important for this General Assembly to help Yale realize it's mission, to inspire it's students to public service.
If I could just leave one more comment. Yale is not private in the sense of other private universities. Yale was founded by this body. It was founded by the General Assembly on October 15, 1701, with a 120-pound grant, annual grant, and through the 18th and 19th Century, it was the people of Connecticut that provided more than half of all the wealth that came to Yale. So when you think that you're perhaps trespassing on a sacred area where private universities should not be tampered with, go back and look at the history. Yale owes its existence to the Connecticut General Assembly, and the Connecticut General Assembly only gave that money and made it tax exempt to get public service from the youth that would go to Yale. Now when we see that CEOs, college-educated people, are hoarding their dough, are not, you know, paying fair taxes, we have to imagine that the colleagues, the universities, they're not doing their job. So I guess I'd like to leave you with that.
Let's pass 413 in order to help Yale accomplish its mission, the mission that the General Assembly empowered it to do.
SENATOR FONFARA (1ST): Thank you, Mr. Dix. Questions? Seeing none, Mr. Dix, you began your comments by thanking us for allowing you to speak. It is your right, as is every citizen, to come before this body, and it is our requirement to provide you with the opportunity to speak your piece and give us your opinions in a democracy. So, we're glad that you stayed this long day. You're thoughts are important to us as are everyone's. Thank you.
DOUG DIX: Thank you. I guess my thanks are really for your staying the long day and waiting for me to talk.
SENATOR FONFARA (1ST): Thank you, sir. Paul Pescataello followed by Bev and Alex Dacey.
PAUL PESCATAELLO: Good afternoon. My name is Paul Pescataello. Thank you so much for giving me this opportunity to speak before you. I hope my time isn't up already. I oversee three organizations in Connecticut, most importantly the Connecticut Bioscience Growth Council for the CBIA. I also oversee New England Bio and I'm chair of We Work for Health Connecticut. I should also say that I am a board member of Connecticut Innovations, but I'm here today to speak primarily in my role overseeing the Bioscience Growth Council, a very important industry that we all hope so much, we invest so much hope in that industry for Connecticut's future.
So I'm here to speak on Senate Bill 1 to make some comments on Senate Bill 1, which has some excellent ideas and concepts that I hope we can work together on. I would say most importantly in Senate Bill 1 is section 24, which would reauthorize and make saleable the Angel Investor tax credits. It's really critical to Connecticut's entrepreneurial and Angel investor and biotech and technology community.
As I listen to testimony today, all the really excellent concepts and ideas in Senate Bill 1 in some sense reflect on Connecticut Innovations, and I'm looking at the bill, I've read it over several times, and it seems like many, many of the concepts are already in place in many other economic development programs in the state especially of Connecticut Innovations and the DECD. I think to some degree there is a frustration with the risk tolerance in our economic developers and at CI, and I would just say as a board member and having looked, you know, sort of under the hood at CI for many years, CI takes on a lot of risk. They are the only show in town who are early stage investing. They tread where Angels and venture capitalists fear to tread. They're investing where the VCs will not invest, and so in some sense they're taking on more risk now than anybody else is willing to take on in Connecticut. So, to some degree I would advocated for many of these concepts to be just kind of reinvigorated and built into something that already works very well, Connecticut Innovations. In some sense, they could use a lot more funding to do more of what they do. This bill I fear would actually take away from what they do, and they would do less of it. They actually need more resources. Think of it, if they had more money to invest in early stage companies, we would have more companies. If they had more funds for their early stage investment funds, they could stay in their investments longer. So, when you think about what they do now is because of the relatively small amount of funds they have for investing in early stage companies, they get out of their investments early versus a venture capitalist, which will stay in the investment and actually follow on putting in, you know, five, ten, tens of millions more, which CI doesn't have. If they had more money, they could say in longer, or if they didn't stay in longer and got out early as they often do, they could invest in more early stage companies.
Finally, I would just make the comment, I would also say my colleague Bonnie Stewart at the CBIA is going to make some comments more broadly about the Connecticut business climate and this bills effect on the larger business community. But what I hear from talking to biopharma and technology but primarily biopharma executives from the startup companies to the larger legacy companies we have here, is it, these measures, these economic developments are critical to the state, but paramount is fixing our fiscal picture. That's number one. Then fixing the tax structure and getting things like our tax credits on an even, stable keel that it can be relied upon by the companies and their investors. Then finally, many things, many things geared towards things like getting millennials to set up shop in our cities. Great ideas. They should be pursued. But something first and foremost is transportation. I hear that liking our cities and linking our cities to Boston and New York, the Boston and New York metro areas, is key to getting those groups, like the millennials, to set up shop in places like New Haven and Hartford, but I've run out of town. I'm happy to answer any questions you have. I will be submitting written testimony.
SENATOR FONFARA (1ST): I listened to your testimony, Mr. Pescataello, and thank you for waiting. Thank you for testifying. You started by saying many of these points are very important but then you proceeded to say, but other things should happen first. So what's important then? What is it that you believe is good about the bill that CI is not doing now or not doing enough of right now. What is in the bill that you find worthy of support?
PAUL PESCATAELLO: I think almost everything that's addressed in the bill is part of CI's mission and part of what it actually does. It perhaps doesn't have the resources to do enough of it.
SENATOR FONFARA (1ST): Do you believe that CI is right now charged with identifying the innovative and entrepreneurial environment in Connecticut and to determine where we're weak and where we're strong and in those areas where we're weak to recommend changes.
PAUL PESCATAELLO: Not as directed as that, but that's certainly part of their overall mission. So, in terms of --
SENATOR FONFARA (1ST): Do you believe they're doing that right now?
PAUL PESCATAELLO: I do.
SENATOR FONFARA (1ST): In what capacity?
PAUL PESCATAELLO: Through their investing and through their mentoring of entrepreneurs.
SENATOR FONFARA (1ST): No, I'm not speaking about their investing, Paul, I'm asking you where is the charge as is currently written for the responsibilities of Impact in this bill, where is that particular responsibility to oversee and to review where Connecticut is strong in innovation and in entrepreneurship and where it is not and then to recommend and take action to change that. Where, where is that currently in CI?
PAUL PESCATAELLO: I'd have to look at the statute, I think that that is implied and is part of their broad charge, but you're absolutely correct, those specific goals are not part of the CI statute, and I endorse those. So you believe that that, which is from my perspective, one of the most important things of SB 1 is there's not what you call it a visible hand or invisible hand right now, and as I said earlier in my comments, much much earlier today, because these things have not happened organically in Connecticut the way they have in so many other places around the country, it's unfortunate that we have to through this legislation inject ourselves into that process, to encourage it, to support it, to incubate it, to use the term of our industry, right? Do you disagree with that?
PAUL PESCATAELLO: I do not.
SENATOR FONFARA (1ST): So, I hope that you will be involved in this process. I think your voice is an important one, and I think that we're probably much closer with all the speakers today than what might seem to be the case in terms of how the testimony was presented today from where you sit and from on this side. So, I look forward to working with you.
PAUL PESCATAELLO: Thank you.
SENATOR FONFARA (1ST): Yes, Representative Piscopo.
REP. PISCOPO (76TH): Thank you, Mr. Chairman. Thank you for your testimony. I was just, I was curious because I think when Connecticut Innovations first started, you did have, I think a lot more freedom, is to see if you will that word, a lot more freedom to invest where you thought you may. Do you feel over the years that the legislature maybe has changed your mission or kind of changed the way you go about investing your dollars over the past.
PAUL PESCATAELLO: I think certainly other duties have been added to Connecticut Innovations. I mean, for example, the regenerative medicine, the stem cell fund, now overseas that fund, which it does well. That's just added to its mission. I think there's always for the type of investing it does, and again I can't stress enough that that early stage investing done by CI is the kind of investing, it wouldn't be necessary, they wouldn't be doing it if the venture capital community was doing it, but it's in some sense so risky that you need this quasi-public entity to do it and they do it very well, and they make very good assessments of the companies and the investments they make. So, again, but because they're in such a risky environment, I think we should all bear in mind that they're bearing in mind, that the nature of that early stage of very risky investment is that there is a lot of failure. What fit is easy in hindsight to say something was so obviously not going to work out, but that concerns anybody in that space whether it's a venture capitalist or Angel investor or Connecticut Innovations coming before bodies like this and explaining the things that don't work out. If you really want them in that high-risk environment, there are going to be a lot of failure.
REP. PISCOPO (76TH): Thank you. Thank you, Mr. Chairman.
SENATOR FONFARA (1ST): Thank you, Representative. Representative Wood.
REP. WOOD (141ST): Thank you, Mr. Chair, and just very simply, thank you for your testimony. You certainly bring a lot of experience from a variety of sectors, and your voice is appreciated, so thank you, and thank you for staying here so long.
PAUL PESCATAELLO: Thank you.
REP. WOOD (141ST): Thank you, Mr. Chair. Thank you, Representative Wood, and if I could ask you a question, Paul, regarding the infrastructure at CI, it's my understanding they have approximately 40 employees, and I've looked at their portfolio versus other entities that are private venture capital with a similar portfolio with two or three folks dedicated to that portfolio. How do we justify that? You're a board member. How do we justify having 40 something employees with an organization that manages a portfolio of a similar size, of one size, that a private, and I've looked at a couple of private entities that are doing work in Connecticut, dedicated funds in Connecticut with one having two employees managing those investments and another with three.
PAUL PESCATAELLO: CI is a unique organization, so it's not comparable directly to a venture capital firm. So remember they have equity investing, they have several different equity investing funds from, you know, very early stage to start up. They're certainly not in the very later stage companies. They also have a lending program, so they're --
SENATOR FONFARA (1ST): They are though, they are in growth stage companies.
PAUL PESCATAELLO: They are, but as I, my comments earlier that they also do not stay in an investment. They get out early to make the funds available to do some, to recycle those funds to make new investments. And they also have other duties, like as I said, the regenerative medicine, the stem cell fund, I mean the item-set of things that they do beyond pure investing, the economic development duties that they've taken on. The Jackson Labs contract, for example, runs through Connecticut Innovations, so that's an entire separate duty apart from just equity investing. So in my, you know, limited experience with state government I have to say everytime I'm there, you know, I'm on the Eli Whitney Investment Committee as well as attending board meetings. I mean, I'm impressed with, you know, how hard everyone works, how late they stay, how invested they are outside of the office in all the work they do. It's not a nine to five job.
SENATOR FONFARA (1ST): One of the aspects of the bill is to require that those that choose to stay after one year at CI as an investor or a manager I guess they're called, managers, that they would receive a base salary much less than what they are now, and the rest would be on performance, much like in the private world. What is your opinion on that?
PAUL PESCATAELLO: I think that's an excellent idea to explore more. I think that in venture capital world, the investor world, the salaries are far higher than they are at CI, and that's a constant issue for CI to attract and retain. I mean there are a lot of people in the venture world who have been trained in CI and gotten some very good training. So, that type of measure could go a great distance to solving that problem, but I think we have to make sure that the base salary isn't so low that it dissuades people from joining CI to begin with.
SENATOR FONFARA (1ST): Lastly, you commented earlier about the, what you believe should be priorities of the state, transportation, fiscal management, when I began my research on this, it began with a conversation about what the role of tax policy is in growing an economy, and the comment was made to me that if tax policy were a key driver, then people would not be flocking to California to be part of the innovative and entrepreneurial environment that is Silicone Valley, which has California, a state that has the worst tax policy and the worse regularly policy probably in the country. That started me on this journey because I wanted to understand it. I sometime later came across an article written by a North Carolina think tank in which this individual wrote, North Carolina, which many in Connecticut hold up to be sort of the, sort of the beacon of what we should be like, this gentleman wrote that North Carolina has a decision to make, whether it wants to be like South Carolina and Georgia or like Massachusetts and California, part of the low tax/low regulation environment that is South Carolina and Georgia or one that has embraced innovation and entrepreneurship.
He went on to make the point that the states like Massachusetts and California have recovered from the recession faster than low tax, low region states. But what I observed from that, and I'd love your comment on, is that Connecticut is never going to be a low tax, low regulation state. That's just a reality, but neither are we, have we embraced fully, the world of innovation and entrepreneurship, so we're somewhere in this middle that is hurting us significantly in my opinion. So here you have North Carolina struggling with this decision. I don't think there's much to struggle over for us. I just hope that we can through this vehicle and going forward, this is not going to be a one-time deal. We have to have the state develop a culture of innovation and entrepreneurship because that's what we see at MIT. That's what we see at Stanford University. It's a culture. Some states and some regions of the country are embracing it as a culture. I'd welcome your thoughts.
PAUL PESCATAELLO: For sure. I have a lot of thoughts. First, I would just say, I agree with you. We need to build that culture. We need to nurture that culture. But one aspect of that culture in say California and Massachusetts, and I'm speaking about it more directly with the biopharma world that I'm most familiar with, that as to things like tax credits. So there will be research and development tax credit, and biopharma companies, you know, spend an inordinate amount of money on new medicines. It takes a huge amount of time, as you heard people like me say over and over again, so they watch that R and D tax policy, despite all the problems that Massachusetts and California have had over the last two decades, they've been remarkable stable as to R and D policy for the biopharma community.
So that plays, that sends a message about, that's part of building that culture, that we care about R and D, and it's not on the table, versus Connecticut where the R and D policy has been in flux often. You know, many legislative sessions in flux, leading companies not to be able to depend on it, and I hear, you know, from the small companies when they're trying to project the cost of doing business here and compared to other states like Massachusetts or California, we have some very good R and D tax credits, very competitive, great economic development and policy, but they can't even take it into account in making those projections because they look at the record and they see it's in play, it was reduced, it came back. So there's that issue.
SENATOR FONFARA (1ST): Well I have to say, I've been on this committee for many years, and tax credits, much to the chagrin of some people on this committee, have never been seriously considered as on the table or seriously threatened. Never. R and D tax credits in particular never. It's never been a serious challenge in this committee.
PAUL PESCATAELLO: It certainly is interpreted --
SENATOR FONFARA (1ST): I just don't accept that as reality.
PAUL PESCATAELLO: It is certainly interpreted, you know, going from 100% to 70% to 55% and then just being in flux. I'm just saying that that in terms of building that culture that we can count on these policies not being out there.
SENATOR FONFARA (1ST): Fair enough.
PAUL PESCATAELLO: I just want to make another comment about building the culture. It is certainly the fashion right now, and I use that word for a reason, to be in what I would call very dense clusters where the intellectual soup so to speak is very dense and rich as opposed to 15, 20, 25 years ago where we played to Connecticut's strengths, where companies wanted to be in walled off corporate campuses. That is not the fashion now. You know, we might say ten years from now there might be a reproachment back to being in more beautiful, rural Connecticut. But since that is the fashion, and so when you say that the tax rates are very high in Massachusetts and California, that's true. People are willing to pay those taxes, that high cost, because of the attributes that are in California and Massachusetts.
Unfortunately, we don't have those attributes that are in fashion right now, so that plays into a lot of things like transportation. All the time I'm trying to make a case to companies that aren't in Connecticut, especially in the Boston and Cambridge area. Have your front office in Cambridge. Have your connection to Cambridge. We can't compete with that. Cambridge and MIT and all the research hospitals there, we have a lot here, but the truth is we don't have it all yet. Have your office there but have some space in Connecticut, which is much cheaper, in the New Haven area, in the Hartford area, in the Branford area, has some very good competitive space, and that, that's a winning argument up to a point, and then we have transportation issues. If we solve the transportation, we link Connecticut, which is, you know, many of the biopharmaceutical companies have links to European companies or are European companies, and they look at the map and they say, gee, getting from north Jersey to Boston, being in Connecticut is ideal. Then they actually try to do it, and they realize how -- and of course it's not all our problem or something that we can solve independently, but we can be a part of the solution.
SENATOR FONFARA (1ST): Thank you very much for your testimony.
REP. WOOD (141ST): Thank you for the second time, and I've really enjoyed the dialogue here. Connecticut Innovations, what do you see -- it seems like the issue is creating the culture of entrepreneurship and innovation, and what do you think you on the board of Connecticut Innovations could do to encourage that culture without setting up another agency in our state?
PAUL PESCATAELLO: Well, I'm obviously biased, because I'm on the board of CI, but again, I think the most powerful thing we can do, actually, let me just back up a second. The two things that drive getting companies, and I'm again speaking for biopharma companies, to set up shop in a place, in Connecticut, two things are the strength of the research institution, so we're lucky to have Yale. We're lucky to have UConn. The Jackson Labs investment is in a sense bringing in another research institution, so that makes so much sense.
The number two criteria is where the money is. So, you know, where the money, where the venture capital is. So the venture capital, the Angel investors, but especially the venture capital, which are in it for the long haul and put in huge amounts of money, they want to be near their investment. So the more, and I think we can do to get more VC firms here, and I can talk about that separately because we have very few actual VC firms in the state, but I think we do get the money decisions here, and once the money is here, the money will say I want my investment here. I want to be able to walk across the street and check out the lab and check out what's going on. So that gets to Connecticut Innovations, and the more -- it is an investor, and the more money it has to invest, and it's invests well, so the more companies it can seed, if it can double the number of companies it seeds, not by cutting in half the amount of money as in putting half the money can double the companies, but putting the same amount or more in more companies, that will do a lot to nest companies here and create -- and so I am more a believer that innovation and culture, all these different programs are necessary, they're all part of the mix, but the more companies you have, it will happen organically itself.
REP. WOOD (141ST): It'll happen organically. I'm just trying to get to the point of does it make sense to have another quasi-public agency when a lot, a number of people testifying have said Connecticut Innovations is already doing this and DECD is doing another piece of it, and well, you've answered the question. It's a good debate, and I appreciate your testimony and being here. Thank you. Thank you, Mr. Chair.
SENATOR FONFARA (1ST): Thank you. Representative Davis.
REP. DAVIS (57TH): Thank you, Mr. Chairman, and I didn't have any questions. I think you have been very thorough with your answers, and then that last answer sparked a question of mine. You mentioned that you have other ideas regarding attracting venture capitalism to the State of Connecticut that you didn't mention, and part of this bill is, in a sense, is trying to get that private investment in these companies so that they can get up off the ground. I was just wondering what specific ideas did you have about trying to attract venture capitalists to the state outside of CI or a new quasi-public agency?
PAUL PESCATAELLO: Well certainly getting venture capitalists to set up shop here, you know, the more we can do that again, that's like the second-most powerful driver of where a company will set up shop. So, it gets to, again it gets to that larger issue of, you know, getting our fiscal house in order, getting tax policy, getting things like infrastructure in place to make Connecticut a place where VCs want to be. I don't think this is, I don't want, I'll just -- this comes up often, but there are things like, there are tax policy issues that could be explored in terms of exempting, for example, venture capital income from state income tax, and so to the extent that would mean it would almost be the reverse of people moving to Florida. This would mean you would have to be in Connecticut for six months and a day in order to take advantage of that. I mean that type of thing.
REP. DAVIS (57TH): Thank you. Thank you very much. Thank you, Mr. Chairman.
SENATOR FONFARA (1ST): Thank you. Thank you, Mr. Pescataello.
PAUL PESCATAELLO: Thank you all.
SENATOR FONFARA (1ST): Bev and Alex Dacey to be followed by I think Jen Widness left, am I right? If I'm right, then the next speaker would be Paul Alides [phonetic]. Is he still here?
BEVERLEE DACEY: Good evening. I can't even say good morning now.
SENATOR FONFARA (1ST): Nor good afternoon.
BEVERLEE DACEY: Thanks very much for having us here. I hope what I'm going to say is actually going to bring some good news and smiles to all your faces, which after sitting through all of this today, I think you guys deserve because it's a long day. My name is Beverlee Dacey. I own a small manufacturing company in Bridgeport by the name of Amodex, and what we make is a stain remover, so when somebody spills coffee in the hall and bumps into you, you'll know what we do. My company was started by my parents in '58, so we're not new. But I took over the company in the mid 2008-ish, just before the recession, and we were a fledgling business. It was not doing well, and I was struggling.
I'm here today to talk to you wearing two hats. One hat is my hat as the business owner, and what you and your initiatives have done have worked. You've done a great job to help businesses like mine get reestablished and grow. I call my company a restartup, because we really were, I wasn't the entrepreneur so to speak, my Dad was, but when I took it over, because it was fledgling, I had all the challenges that a new business has, including working capital. As you all know during the recession, getting any kind of capital was nearly impossible. Through a DECD business express loan and matching grant, I was able to grow and relocate my business to another location in Bridgeport. I took a building that was city owned and have turned it into tax revenue generating income, and we have grown from me, one, to six employees, in not a very long time, all of this through the programs you guys put out there with I believe an expectation of this kind of accomplishment. I'm not the only one; there's lots of us out there.
So first of all, I wanted to tell you this and thank you, because if it weren't for all your vision, we wouldn't be accomplishing all that we are accomplishing to reestablish manufacturing here in Bridgeport and in Connecticut. The other piece of it though that I do want to tell you is about the other hat that I wear. I serve on the state's manufacturing innovation fund, and I don't know how much you know or don't know about the fund in terms of what we've accomplished so far. I wanted to share that with you. We just finished our first year, and we have funded a voucher program, an incumbent worker program, and an apprenticeship program, all to meet the challenges that you envisioned warranted attention with regard to job training, job mobility, and manufacturing growth. To date, I just wanted, I don't know, have any of you seen our annual report? Yes, no? Has anyone seen it and the data that we --
SENATOR FONFARA (1ST): Did you submit that as part of your testimony.
BEVERLEE DACEY: I certainly can. I just kind of --
SENATOR FONFARA (1ST): I'm sure members have reviewed it, yes.
BEVERLEE DACEY: I'd like to because within that, I don't even know if you know, within that bill you asked that we fund programs within what you identified as designated communities. Those designated communities include all of our distressed cities, and a significant percentage of our funding has gone to that. So I think that that somewhat dovetails to what you're envisioning in SB 1 with regard to these innovation districts. It's what we're doing with the manufacturing fund program. What I am here to ask today is that you consider removing MIS from this bill. It's just getting going. The momentum is building. We've accomplished a lot. I think we've reached over, looking at the report before I came here, we have reached over 100 companies through Voucher and 32 companies through Incumbent Worker that represents 1400 trainees. That's just in year one. That included our setup time, and believe me it took a little while for us to get going and to really look at the challenges that we saw within the state and the charge that you gave us to try to reenergize our work force and to get people what I call from heroin to hope, get them off the streets and into jobs. Because that's people need. They need hope.
Part of this program, part of this fund, is doing just that. It's helping to get people trained to fill those voids in the workplace that we have right now and give them something else to do with their lives that has a future. I see that as the baseline for rebuilding our state's economy, because these are businesses that are established. Once these businesses get going and get growing, it's going to give, you know, and believe it or not also with the voucher program, some of the money has also gone to R and D and to innovation and new products. We launched a new product. We couldn't have done it before. We didn't have the resources. We're all -- many, many businesses like mine are doing this as well. So you're getting innovation, you probably got, you probably don't even know about it yet, from these businesses through this MIS program. That innovation is leading to the companies' growth, but not only the companies' growth but their ability to work with, they're working with the technical schools, the universities. It is the incubator for exactly what you're talking about in this bill.
My thought is also, I hope you can take some time to look at what we've accomplished. One also, the voucher program is a matching program. When it's a matching program, it means you put skin in the game. When you put skin in the game, you don't want to take, people aren't going to take this on unless they're fairly comfortable that it's going to be successful. So the investment that you're making into these businesses is less risky, and the chances for success are greater. I think that's what Connecticut has needed is to see us being more successful, and MIS is doing that.
The other piece of it that you probably don't even know either is that this board also took on the responsibility of working with DECD on the IMCP designation we got from the federal government, and that's the manufacturing committee partnership. It's an important designation because it can help us leverage federal funds, which will help bring more money to your budgets to help us build Connecticut. One I'm chairing is subcommittee --
SENATOR FONFARA (1ST): Please summarize if you could, thank you.
BEVERLEE DACEY: -- on, sure, on imports/exports, and one of the initiatives we're taking is working with our federal rep to look at revitalizing our trade zones and possibly with that rebuilding some of the transportation infrastructure that feeds to those zones. New London, New Haven, Bridgeport, Hartford. A way to possibly get some revenue to help with our transportation issues.
So this project is, it's active, it's vital, it's diagnosing a lot. I don't think we've been visible enough to all of you to see what's happening and that I think it can become a model for what you're envisioning for startups. Because through our successes you can use that as a guide. So that's what I wanted to talk to you about, and then I want to just pass this over to Alexander to give you a different useful perspective.
SENATOR FONFARA (1ST): Please be as brief as possible.
ALEXANDER DACEY: Brief as possible is --
SENATOR FONFARA (1ST): Your mom --
BEVERLEE DACEY: Sorry, I'm sorry.
ALEXANDER DACEY: It's just the time, well, I thank you for having us here today, Senator, Representatives, and the rest of the committee. It's been a pleasure. It's been a long day, but I appreciate your time. The one thing I guess I will add at this point to be as brief as possible is that there is a lot of great things about this state. Senator, I think you brought up an amazing point before, a very compelling one, which is, you know, there are places that are expensive. There are places like you have out in California where are a state where it costs a lot to live there. Connecticut has access to major cities. You can go skiing. You can be on the beach. You have wonderful amusements. You've got an educated population. Why aren't we doing well?
One of things that we are trying to tap is this innovation and workforce that we do have. It is here, and it's a matter of keeping them here and what it's going to take to get us, this next generation moving, getting them to stay here. I can tell you right now, I have a million and one peers that are either deciding whether to stay now, whether to leave. Some have already left, but the ones that are staying have these wonderful, innovative ideas, some of which, I have a twin brother actually who benefited by going to Trinity College as an engineer. He works with us right now and was able to get a scholarship. That was funded partially through the state, and in doing so, he was able to not only get his education there but has since stayed there.
Those types of programs have been really helpful, but the thing I think that matters the most at this point is cost. No matter what we do, no matter what we say, I want to stay here. I'm third generation. Our business has been around over 50 years. As long as the costs remain high, it's going to be a challenge for us. You know, looking to purchase down at Fairfield County is not easy at this point. Even though there are areas that the costs are high, the jobs are great, it sort of begets itself. Everything sort of moves very quickly, and when you've got people that are excited and happy to [inaudible] you've got the Austin, Texases of the world. You've got Boulder, Colorados, etc., etc. It sort of begets itself. I see that happening down in the Black Rock region where we work. I see that in other parts of the state, and so long as we can find a way so that the young people can start, live, and thrive, we're going to go a lot of great places, and, yeah, thank you for your time.
SENATOR FONFARA (1ST): Thank you. Question? Thanks very much.
BEVERLEE DACEY: Thank you very much.
ALEXANDER DACEY: Thank you.
BEVERLEE DACEY: Thanks for the work you're doing.
SENATOR FONFARA (1ST): Thank you for the work you're doing. I don't think Jen Widness is here. Going once. Peter Poledas [phonetic], is he still here? No. Sorry Peter. James Wolfe, to be followed by I believe Bonnie Stewart and then Maryann Rooke.
JAMES WOLFE: Senator Fonfara, Ranking Member Davis, and members of the Finance, Revenue and Bonding Committee, my name is James Wolfe. I'm a proud resident of the Hartford and the director of advocacy and external affairs at Reset, and organization that supports entrepreneurship in Hartford and social entrepreneurship throughout the state, and I'm submitting testimony today in support of the reauthorization of the Angel investor tax credit, which is included as an element of Senate Bill Number 1. The Angel investor tax credit has been a key driver of investment in Connecticut startup companies and a point of pride within the state. We support the language within SB 1 that reauthorizes the Angel investor tax credit but recommend that the definition of the qualifying Connecticut business that can receive the tax credit located at line 1248 of the bill is expanded to include social enterprise businesses.
At Reset we define a social enterprise as a business structure to solve a social or environmental problem. Think of a business like Newman Zone [phonetic], which donates it's profits to an associated foundation to drive social impact or Glastonbury's own Fresh Farm Aquaponics, which sells Aquaponics systems to help fresh produce in municipalities plagued by food deserts.
Connecticut has a tremendous opportunity of becoming known as the state for social enterprise businesses, and that's outlined in my written testimony, but to take advantage of that opportunity, I was appointed as a member of the commission on Connecticut's leadership in corporation business law and drafted a report in 2015 to put together policy proposals to make Connecticut the state for these types of businesses. It was endorsed by the chairman of the Connecticut Bar Association, the secretary of state's office, the DECD, and other prominent members of the business law section of the bar, and it included this policy proposal.
Expanding the definition would be revenue neutral and would incentivize the flow of capital to businesses that work to alleviate social or environmental issues. Additionally, it would help Connecticut take another step in creating the perception that it is the state for social enterprise businesses. By expanding the definition, Connecticut would become the first state in the nation to provide Angel investors with a tax credit for investing in these types of businesses, and it's often stated that perception is reality, and making this change to the Angel investor tax credit we would go further in furthering that perception.
In addition to changes to the Angel investor tax credit, we also recommend changing the maximum geographic area of innovation districts discussed at line 648 from one-half of a square mile to three and a half square miles. This expansion of the geographic footprint of an innovation district would ensure that it is large enough to include the various types of organizations and entities that make up innovation districts, as outlined in reports on the subject by the [inaudible] institution.
Thank you all for the opportunity to speak, and I'm happy to take any questions.
SENATOR FONFARA (1ST): Thank you very much. You know, because of Connecticut's, maybe we reached our limit timewise, because of the size of so many of Connecticut's cities, I think that if we were to expand it to that degree we would, you know, many cities around the country are, three miles is nothing, in Connecticut very often you could be in three different towns with that kind of space, so that's why we're recommending smaller areas and trying to concentrate that it's often said that these folks in this space want to walk to wherever they're going. They don't want a car. That's Connecticut. You know, people in Connecticut drive across the street, you know, that's what we are. So we want to encourage walking. We want to encourage this concept of [inaudible] hours to maximize the interaction between people. So we can certainly look at what we have right now, but I doubt very seriously that that kind of, extending it to that level would really produce the kind of density that everywhere we read is so critical.
JAMES WOLFE: Okay.
SENATOR FONFARA (1ST): But you'll, you'll have an opportunity James, you know that, to participate in the discussion.
JAMES WOLFE: Great. Thank you, Senator.
SENATOR FONFARA (1ST): Thank you for waiting around. Representative Davis.
REP. DAVIS (57TH): Thank you, Mr. Chairman. Thank you, James, for your testimony. I had the opportunity to visit Reset a couple years ago at your prior location. I haven't seen the new one, but I certainly hope it's expanded and doing much better. As far as the companies that have been incubated there, how many have spun out and stayed here in Connecticut?
JAMES WOLFE: The vast majority have stayed within Connecticut. We're actually, our accelerator program, which is in its fifth iteration, is actually bringing in companies. We have a company from California, two companies from New Jersey that are coming into our impact accelerator, which supports businesses that may not exactly fit the definition of a social enterprise, but they are taking into account the social environmental impact that they have.
So, we are, we get some funding from the state, and we are absolutely driven to support businesses that create a positive social and environmental impact within this state. So we're focused on keeping the companies that we work with here. You know, these companies that are coming from New Jersey, that are coming from California, this time in our accelerator, we see that as an opportunity to show them what's great about our capitol city and also what's great about this state in the hopes that if they aren't establishing headquarters here that at least they'll set up a satellite office.
REP. DAVIS (57TH): Thank you, and so those companies that are coming from out of state, there's no requirements for them to stay here or open up shop here after they come out of your accelerator, however?
JAMES WOLFE: Not through our accelerator, no. We're excited to bring these companies here, and we see that it, we think it's incumbent upon us to try and prove that Connecticut is a place for them, but, you know, at the very least what they are going to take back with them is the fact that, you know, there are people in Connecticut that are doing innovative, exciting things in the area of impact to the businesses and social entrepreneurship, so at the very least, it's growing our brand outside of Connecticut, even if they're not staying here.
REP. DAVIS (57TH): All right. Thank you. Thank you, Mr. Chairman.
SENATOR FONFARA (1ST): Thank you, Representative Davis. Are there further questions of Mr. Wolfe? Seeing none, thank you.
JAMES WOLFE: Thank you.
SENATOR FONFARA (1ST): Thank you for waiting. I believe, unless, I'm sorry, we have Bonnie Stewart to be followed by Maryann Rooke. I believe that will be it.
BONNIE STEWART: Good afternoon, at least I think so. My name is Bonnie Stewart. I'm the general counsel of the Connecticut Business and Industry Associate, and I'd like to comment on two bills before you today. The first is House Bill 5636. In that you have a section 5 that concerns manufacturing apprenticeship tax credits. This bill actually modifies the existing statute to allow these past two entities to be able to take the manufacturing apprenticeship tax credit against their personal income tax, similar to the job expansion tax credit, and we are strong supporters of that measure.
The other bill before you today that's of significance to us is SB 1, and I'd like to thank you for that measure and looking at innovation in Connecticut's economic future. Clearly that's important to all of us in the state including the business community. Looking at how to encourage entrepreneurship in the state is extremely important. We've worked with a lot of people at the Beehive in Bridgeport and at the Grove in New Haven, and we think that anything we can do to try to encourage innovation here in Connecticut is really important.
Having said that, we're not sure exactly how is the best way to go about that, so we actually brought some of the people that we work with here today, or you had some of those people testify before you, like Derek and like Mike Nicastro. We're pulling a group of people together to get that feedback, as you and Senator Looney requested, Senator Fonfara, so that we can find out is this exactly the best thing. Is there any tweaks that could take place? How do we make it better in an effort to encourage more activity in our state? So we are doing that, and we'll get back to you on that.
As for the discussions surrounding CI and the new organizations, earlier this evening, no longer afternoon, earlier this evening there was a comment well possibly instead of creating a new entity we may want to look at broadening CI. I understand what you're saying about CI in the sense that people would like to see more or possibly additional things, and to the extent that it's possible to do that with NCI and give them those charges so that we don't have twice the administrative costs, that would be something that we would support greatly. We've been working a lot on different structural spending reforms and trying to streamline processes within the state, so if that could work together, that would be something that we would be supportive as well.
As far as where the dollars come, I would like to actually give you a shout out for that because we are concerned, as is everyone with the state's fiscal situation right now, and while we do feel it's extremely important to focus in on structural spending reforms so that we can policies that incent activity here in the state, you've actually looked at how to do it, how to go about this program within existing funds.
The one thing that I would ask be modified are looking at taking the monies from both the MIS that was mentioned earlier, the Manufacturing Innovation Fund, and then the second MMA manufacturing fund. In Connecticut now we have over 5000 jobs, manufacturing skilled labor jobs that are going unfunded. I'm sorry, unfilled. That's really important for us to actually get people in that. Several years ago you passed the Aerospace Reinvestment Act. That was extremely important to us not only because of UCC and Pratt and Whitney but because of their supply chain, many of whom are our members. The biggest issue that those companies face now is not that they don't have jobs, they don't have people to fill those jobs. These are great careers, good paying, benefits, etc.
So some of the things that Beverlee spoke to you about earlier, that that MIF group is working on, are extremely important, and they are kind of like, I actually see you on parallel tracts. Yours is looking at opportunities of innovation that may become, you know, a manufactured product, but they are specifically looking at the next step. We've got that manufactured product. Now how do we make it, how do we bring it to market? How do we have the people there to make it? Unfortunately right now, we have a huge gap in terms of the lack of skilled workforce. So if you were to take those MIS funds and divert them to this program, you'd be taking from one area where we know we've got jobs waiting and putting in another. So, if that's one area we could leave alone, that would be greatly appreciated.
I thank you for your time today.
SENATOR FONFARA (1ST): Thank you, Bonnie. Thank you for waiting. Thank you for giving up your spot on the list for others. I want to say that if it were up to me alone, and it's not, it's not a dictatorship, but a lot of the things that are in that bill would be done privately, but we couldn't figure out in the time we had how to write something where we would fund a nongovernmental entity a private, public partnership as you will, to do these things that are many of the things that are now under impact in this bill.
So that people who wake up in the morning and go to sleep at night knowing that the only way they get paid is by success. Now, if we can identify how to do that in the coming weeks, that would be great. So there was no intention. I want everybody who remains here tonight to know, and those watching on television, never an intention to create another agency. That is not what this bill is about. We just believe that the current construct is not working. So if we can figure out a better mousetrap to do that, we will embrace it.
BONNIE STEWART: I appreciate that, and to the extent possible, as we're looking at the different issues that are raised in this, the bill, and we're having those groups of entrepreneurs and existing businesses look at it to see if they've got feedback that could be positive in terms of moving us forward, if we've got some specific recommendations on how to do that, we will share those as well.
SENATOR FONFARA (1ST): We look forward to hearing from the group that you're putting together. I mean, Derek Cooke has been wonderful to us, for us, so far.
BONNIE STEWART: Right.
SENATOR FONFARA (1ST): I know he has indicated since he's left that he will be doing more and bringing more people to the table, so that's only going to help us even more.
BONNIE STEWART: There's a great, I always call it the underground community. I didn't realize how many entrepreneurs were out there until a few years ago. We started participating in the White Board Roadshow where I got to the Grove and meet people, got to go to the Beehive. I didn't know what the Beehive in Bridgeport was, so I went there in one night. You had all these entrepreneurs, you know just streaming out of this small space and all over the street selling products and showing what they, you know, created in Connecticut. It's phenomenal.
The question is how do you encourage more of that? That's something that we don't know, and we've been struggling with because when we talk to entrepreneurs oftentimes they're like don't tell me what to do, where to go, or whatever. Then, well how do we help you? That's what we're trying to find out as well. So we appreciate the acknowledgement that it's an important part of our future. The question is, how do you encourage them to create those ideas here, and then once we've created the idea, more importantly, to stay here afterwards and either manufacture that product or perform that service. So to the extent possible, we will do that. Derek is a great person, and he's the one who first started speaking to me regarding entrepreneurs several years ago, and he's a phenomenal resource.
SENATOR FONFARA (1ST): I'd just say one of the things that we're really lacking is having a concentrated environment involving research-related, not just universities, although as I said earlier the fact UConn is in Storz really hurts us as soon as state, really hurts us, particularly with $1.5 billion more to do research, or not all of it research, but a good portion of it, will create more and more research, you know, to challenge, to wonder how many young people want to stay in Storz with their new business when they're done. But also having Jackson Labs as an example in Farmington. No knock on Farmington, but it would have been better in New Haven or Hartford to take advantage of the activity surrounding that institution. So these are decisions that we are stuck with, and we're going to have to try and make due and make better from some realities. I think a lot of these things are contributing to why we don't have the -- we have the natural resources, but we don't have the activity that comes from that yet. Hopefully we can find a way working together, Democrats and Republicans, business, government, and the private sector to figure this out for all of Connecticut.
Thank you, Bonnie, for your testimony.
BONNIE STEWART: Thank you.
SENATOR FONFARA (1ST): Representative Mushinsky.
REP. MUSHINSKY (85TH): I wanted to ask you this, you may not know, but if we, if we do section five in House Bill 5636 and expand the tax credits for apprenticeships to the income tax on the group that's not covered now, do you have any idea what that would cost us in tax revenues?
BONNIE STEWART: Yes. It actually should cost you nothing because they're allowed to take that tax credit now. The problem is they can't apply it themselves against their business tax, which is the personal income tax. That's because pass-through entities don't pay through the corporate or what's known as the business income tax. They pay through personal income taxes.
A significant portion of this personal income tax is collected in Connecticut are actually business revenue taxes. So while they can't do that there, they can sell it to a C-corporation and have that corporation then claim the credit. If you sell it to a C-corporation, so if I'm company A and I'm the pass-through, I'm selling to company B, who is the C-corporation. They get the full credit. I don't get the full credit as the pass-through because I'm going to have to either pay a broker or I have to pay a discounted portion. The person buying the credit from me will pay less than obviously what they're going to take it for, otherwise they wouldn't take it. So in the end, the impact should be no different than it is now in terms of the state revenues where there will be a difference if those smaller companies in our state, those pass-through entities, will actually get the full value of the credit as opposed to passing it on to one of the C-corporations.
Having that, so say you think that there's not -- and I don't know what the numbers here are, everybody who has earned one of those credits has not taken it yet, the total number of manufacturing apprentices in our state is actually quite low. That's one of the problems that we face, is that there's not a lot of them out there. There are a lot of apprentices as a whole, but the majority of apprentices are in the building trade, so they're plumbers, electricians, that type of thing, and there's thousands of them, but when we calculated the total cost if every one of the apprentices at a pass-through entity -- because the C-corporations can already take this credit, so this would only apply to the pass-through -- if every single one of them who had an apprentice took it, at most it would be $600,000. That was two years ago. We may have some more apprentices, but we definitely don't have as many as we need, and it hasn't grown significantly in the last two years.
So in terms of the total impact, even if you had nobody collecting it now, you're talking less than a million, and given the fact that they're eligible to earn this credit right now, there really should be not cost. It's just a question of where do they take it from.
SENATOR FONFARA (1ST): Okay, thank you.
BONNIE STEWART: You're welcome.
SENATOR FONFARA (1ST): Anyone else? Thank you. Thank you, Bonnie.
BONNIE STEWART: Thank you.
SENATOR FONFARA (1ST): Finally, Maryann Rooke.
MARYANN ROOKE: Hi, my name is Maryann Rooke, and I'm really thrilled to be here, to be the last one to bring up the SB 1, an act concerning innovation, entrepreneurship, and Connecticut economic future, specifically in support of section 24, the reauthorization of the Angel tax credit. So, I'd really like to thank Senator Fonfara, Representative Berger, Senator Frantz, Representative Davis, and members of the Finance, Revenue and Bonding Committee that are still here and others that will be listening to the video later.
My name is Maryann Rooke, again, and I am a very active leader in the entrepreneurial and investor ecosystem here in Connecticut. I'm executive director for Crossroad Venture Group, CVG for short. I'm on the state board of directors, have been for several years. Vice president also and on the board of directors for Angel Investor Forum, been a member for about 10 years. I'm an active leader in New England for the Angel Capital Association, and I've worked on the public policy committee, on the national level.
I mentored and advised a lot of startups at Yale, at UConn, at Quinnipiac, at Fairfield, and other universities and have for probably the last eight years. I mentor and coach a lot of tech companies that are being either spurned out of the university or are growing here in Connecticut or that we are actively recruiting to Connecticut. I'm probably different than many of the other folks that have testified here today because after college, after getting educated here in Connecticut, I grew up in Griswold, went to school here in Connecticut, and there were very few jobs and moved to Boston. So I was in the Boston entrepreneurial community. I then spent 20 years in Silicon Valley and moved back here a little over 10 years ago. I was involved at the corporate levels and C-level positions as well as startup companies. So I bring a very different view to Connecticut.
When I first sat here, probably in this same room, gosh, ten years ago, 2007, 2008, I remember several of the faces in the room and was one of the folks that was really looking to get the Angel investor tax credit in place, and I thank you very much for your leadership doing that because you may not know it, but the Connecticut Angel tax credit program is what Senator Christopher Murphy has set for a federal program as well, and he submitted that last year. That is, really will benefit from a national level as well, but he did it based on the success here in Connecticut. So I definitely want to recommend that you do promote that here in Connecticut.
One last point that I would like to make, and that is that there's a lot happening here in the ecosystem. Ten years ago there wasn't, and now there is. A lot of the companies, a lot of the folks that you've heard from tonight or you've heard of, you talked with Derek, and his organization, Stanford Innovations Center, the Beehive, which is an accelerator, the Grove. All of these organizations got their seed funding from Connecticut Innovations. So the CT Next program, which is part of Connecticut Innovations, has really helped those companies. Our Angel investor group, we invest alongside CI, and that Angel investor tax credit is critical to our group. We ended up setting up a fund, and we then invested in more Connecticut companies than we had previous to the investor tax credit.
I also, you know, would like to mention that we have really built a strong Angel community here in Connecticut. We're up to, our Angel group is up to about 44 members. We have several folks from out of state, and with my role at CVG, I am really active with bringing in investors from out of state. We have monthly entrepreneur and investor meetings, network meetings, that we have 10 companies that showcase to investors. We have pretty much 15 to 20 investors form all around Connecticut and out of state, that I invite in to be on the investor panel to give feedback and to hopefully connect those companies to their next investment dollars.
So there's a lot happening. We definitely need to continue to put monies into the seed funds for the Connecticut companies and for the programs that will support the organizations that provide the resources for Connecticut companies like all the accelerators around the state.
I think I'd like to mention two more things if I will. In real estate it's location, location, location. Well in the entrepreneurial ecosystem, it's network, network, network. It's really knowing who the resources are, knowing the players, building the relationships, and that's what brings capital investment into our Connecticut companies. It's bringing our Angel investor relationships from all over New England, and I've had Angels from all over the state, all over New England, New Jersey, and New York sitting in on our investor panel, and those folks are investing in Connecticut companies. So we have to continue to do more of that.
The last piece I will last say is that I'm a parent of an 18-year-old who's off to college, wants to study entrepreneurship and accounting, which is great because those are two areas that I've been involved in. I'm really confident that if he goes to college here in Connecticut, which he is looking to do, he's going to come out in four years, and I do think that Connecticut is really poised, if it can continue on with the Angel tax credit and continue to put monies into early stage Connecticut companies that there will be opportunities for the next generation of really talented kids coming out of our schools and out of our Connecticut universities that they'll stay here in Connecticut, and that's one of the things I'm very passionate about, and I would love to help in further conversations and help you figure out what you need to do in order to make that happen. Thank you very much for the opportunity.
SENATOR FONFARA (1ST): Thank you for coming in to testify, Maryann. I'm a little confused because if I listen to your testimony, other than your encouragement of us passing the Angel investor tax credit, it seems like from your perspective everything is really good in Connecticut, so why do we need SB 1?
MARYANN ROOKE: Oh, without SB 1 and the Angel investor tax credit, we wouldn't have as many investments in Connecticut companies.
SENATOR FONFARA (1ST): Right, but the Angel investor tax credit is a relatively small portion of this bill. What is it about the rest of the bill? Your testimony would suggest that everything is working pretty well.
MARYANN ROOKE: Well, I think that, you know, I would almost say if advice that we give some of the early stage companies is that they have to have enough capital in order to be able to launch and scale. Raise enough capital so that you're not starved for capital, because if you're starved for capital, you're starved for cash, you're going to fail.
I would say that the same thing happens here in the state. If we starve an organization like Connecticut Innovations, we're not having enough seed money to invest in early stage companies, then our ecosystem here in Connecticut will fail. I mean, that's one of the wonderful things about the strength of the success in Silicon Valley and in Boston. It's got a lot of capital flowing in, and if you don't have capital flowing in, your ecosystem is just going to, it's going to grow but probably at a very small rate, and we're going to lose those companies to other places.
So, yes, you know, if there are some programs that were not happy with that may not be producing the results and the expectations, I think we need to understand expectations. Because I know as an investor, and I'm invested in a number of companies here in Connecticut, your expectations going in the door might not be quite right as to where you end up getting, you know, five years down the road. But we also know that with the right guidance and mentoring and capital and coachability, you have the ability to grow those companies and to come out on the other side.
You know, we have, I think Derek was mentioning earlier, when companies that do really well, and this is what has really grown Silicon Valley and is now happening in Boston and in New York, because New York is really growing at a really fast pace right now in the ecosystem, is you have companies get started, they do success, they're really successful. They either go public or they have an exit, and then those base entrepreneurs that have learned so much and know how to get a company started and grow a company, then go out and they start their own company. So all of a sudden it's one company gets started, does well, you have ten more companies that get started afterwards.
We're starting to see that here in Connecticut. One company that in December of 2014 our Angel group invested over a million dollars. It's our largest yield yet, was device 42. Now device 42 had a lot of key ingredients, and several of the ingredients were folks that came from Tango, who did really well, were part of this startup. We knew them. They were Angels. So you bet a lot of Angel monies flowed into that company. We invested alongside CI, who also invested a million dollars, and I think it was the 3.5 million that went into that company, came from other Angel groups as well as other investors outside the state as well.
So, we're being recognized, and Connecticut, you know, is being recognized nationally as our Angel tax credit. I've bid on the public policy committee for ACA and have a lot of other states call me, Angels from other states call me looking for our information, how we did it, and the success of it because they're trying to do that in their states as well.
So it's not perfect. My gosh, you know, we are not a Silicon Valley and we're not a Boston, but we also have a lot of the key ingredients to be there. We've got great educational institutions. We've got a tremendous amount of wealth here in the state. What we don't have is that we're not a densely populated area, and that's not going to change. So what you have the think about is what can you do in the environment that we have to make things really grow, and maybe the innovation districts, maybe that would be great, but we also have to know that what really spurs a lot of entrepreneurial ecosystem growth is a lot of people being in the same room.
You go to the Grove or you go to places like that, you have a lot of entrepreneurs and investors, and they're networking together, talking, creating good ideas and creating relationships. That's what grows an ecosystem. If you have a lot of small little pockets with not a lot of expertise, I worry about that. So, you know, maybe they need to be more, I don't know, but I'd love think about it. I just read the complete bill in the last two days, so I would love to, you know, do some brainstorming and bring some other investors into the, into the group to try to come up with what could we do differently to grow.
SENATOR FONFARA (1ST): We would welcome that very much. I this you would bring a lot along with your cohort to this process. This bill is just beginning. We have a couple of months to, not even a couple of months, we have a month in which to hone this to be -- okay, no one's counting, because we know what's ahead of us. But seriously, we would hope that you and those that took time out today, and I'm sure there are many people who either didn't know about this.
MARYANN ROOKE: Yeah, we found out Thursday.
SENATOR FONFARA (1ST): I've had some text messages and emails throughout the day and people who are commenting on the hearing. I suspect that will increase as this gets played a few times in the next few days on CTN. So, we'll have to figure out how to take advantage of your knowledge.
I mean we all want Connecticut to do really well, and there are a lot of people like you who are pro Connecticut. I know that we're caught in this virtual death spiral right now, and I don't want to go into that today. That's for another conversation with other people. We should be about how to -- you know, I said when I took this job I wasn't interested in being the tax man. I wanted to grow our economy, and this is a real opportunity to help do that. If you're on the left, you should be embracing this. If you're on the right, you should be embracing this. At least that's my position. So, thank you for coming in and giving us your perspective. I hope, have you left any testimony that we can contact you?
MARYANN ROOKE: I did, yes.
SENATOR FONFARA (1ST): Great, thanks much. Representative Mushinsky.
REP. MUSHINSKY (85TH): I just wanted to thank you too. I believe you came to Program Review and Investigations and first talked us into the Angel investor tax credits.
MARYANN ROOKE: That's right.
REP. MUSHINSKY (85TH): We were listening very carefully to you and recommended it as a key strategy. It started small, but as you said it is now 44, so we did, you're always ahead of everybody, and we did listen to you, and we think it paid off, so thank you for your good advice.
MARYANN ROOKE: Thank you.
SENATOR FONFARA (1ST): Anyone else. Seeing none, has anyone signed up or not signed up that wanted to testify?
UNIDENTIFIED SPEAKER: Thank you very much.
SENATOR FONFARA (1ST): Thank you. If not, then we will adjourn this public hearing, and I thank all the committee members who stayed for this very long hearing and for those that had to go to meetings or what not --
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