PA 17-219—sSB 966

Commerce Committee

Finance, Revenue and Bonding Committee

AN ACT CONCERNING ECONOMIC DEVELOPMENT PROGRAMS ADMINISTERED BY THE DEPARTMENT OF ECONOMIC AND COMMUNITY DEVELOPMENT, THE MINORITY BUSINESS INITIATIVE ADVISORY BOARD, THE STATE ECONOMIC STRATEGIC PLAN AND THE EVALUATION OF BUSINESS ASSISTANCE AND INCENTIVE PROGRAMS

SUMMARY: This act requires the Appropriations; Commerce; and Finance, Revenue and Bonding committees to hold hearings periodically on the economic impact of state economic development programs. The hearings are triggered when the Department of Economic and Community Development (DECD) and the state auditors submit certain reports to the committees (i.e., review committees).

The reports are DECD's statutorily required annual report to the legislature and a new report assessing the analysis that the auditors must prepare each time they audit DECD.

The act requires DECD to analyze the First Five Plus program's net return to the state and include that analysis in its biannual report on the program, which, by law, it must submit to the Commerce and Finance, Revenue and Bonding committees. The act also requires the committees to hold a hearing exclusively on the program, which combines financing and tax incentives under various programs into a comprehensive assistance package for business development projects that meet specified investment and job creation targets.

The act establishes a nine-member Minority Business Initiative Advisory Board to (1) advise the DECD commissioner about how to assist minority-owned businesses and (2) administer economic opportunity programs. It also requires DECD to allocate, in FYs 18 and 19, Small Business Express Program (EXP) funds to the board for its purposes.

The act allows the DECD commissioner to collaborate with Connecticut-based banks and a banking industry association on increasing financial assistance for small businesses through EXP, including selling EXP loans to collaborating private lenders. It also specifies that EXP borrowers can use working capital loans to pay rents.

Lastly, the act reduces the required content of DECD's four-year strategic economic development plan, changes the mix of information and analyses required in DECD's annual report, and eliminates several reports on specified issues DECD had to submit to the governor and legislature.

EFFECTIVE DATE: October 1, 2017, except the changes requiring a legislative hearing on the First Five Plus program take effect July 1, 2017, and those regarding the (1) Minority Business Initiative Advisory Board and (2) DECD's annual report, strategic plan, and three-year tax credit report take effect upon passage.

4, 8 & 10 — DECD ANNUAL REPORTING

The legislative hearings the act mandates are tied to changes it makes in the content of DECD's comprehensive report to the legislature, which is due February 1 annually. The act changes the mix of data and analyses DECD must include in the report, eliminating many types of previously required data and analyses but also requiring more data and analyses about the impact of all economic development programs, not just those DECD administers.

As under prior law, the act specifies the topics DECD must address in the annual report and the data and analyses DECD must include under each topic.

Content Eliminated

The kind of data and analyses DECD must include in the report varies by topic. The law prescribes the annual report's structure and content, specifying the general topics it must cover and the data and analyses that must be included under each topic. The act requires the report to address many of the same topics that were required under prior law, but in many cases, without including the kind of data and analyses prior law required. Among other things, the act eliminates the requirement that the report include data about specific businesses, municipalities, and projects that received DECD funding and instead requires the report to identify the website where this information can be found. The act requires the report to include a reference to this data and the website address.

Table 1 describes the information the act eliminates for each reporting topic.

Table 1: Summary of Eliminated Reporting Requirements

Topic

Eliminated Requirements

Description and Assessment of State's Economy for the Reporting Period

Retains topic but eliminates specified factors for describing and assessing the economy, such as a summary of the state's competitiveness as a place to do business

Statement of DECD's Economic and Community Development Objectives, Program Success Measures, and Standards for Providing Assistance

Eliminates topic

Analysis of DECD's Economic Development Portfolio (i.e., businesses awarded DECD assistance)

Retains topic but eliminates:

Names, addresses, and locations of DECD funded business development projects (but requires the report to identify the DECD website where this information is available)

Data on jobs created, anticipated wage rates, and health plan benefits

Portfolio analysis of average and median wages and wage ranges

Wage analysis by municipality (requires wage analysis by industry instead)

Proportion of total assistance granted to “high performance work organizations”

Impact on job levels, gross state product and productivity, personal income, and property values

Analysis of Community Development Portfolio (i.e., municipalities and nonprofit entities awarded DECD assistance)

Retains topic but eliminates:

Names, addresses, and locations of DECD-funded community development projects

Community development investments, and the dollars they leveraged, by municipality

Impact on job levels, gross state product and productivity, personal income, and property values

Marketing, Business Recruitment, and Minority and Small Business Assistance

Eliminates topic and:

Description of efforts to market the state and assist small and minority businesses

Summary of business recruitment strategies

Economic Clusters

Eliminates topic and identification of existing economic clusters, the formation of new ones, and efforts to encourage their growth, including bond funds DECD spent on each cluster

Brownfields, Special Contaminated Property Remediation and Insurance Fund (SCPRIF), and Dry Cleaning Grant Program

Eliminates topic and summaries and data about the projects funded under these programs

Enterprise Zones

Eliminates topic and specific information about the program, including an assessment of the zones' performance

Biodiesel Producer Incentive Account Program

Eliminates topic and assessment of the program's performance

Fuel Diversification Program

Eliminates topic and assessment of the program's performance

Connecticut Credit Consortium

Eliminates topic and summary of lending activity

Permit Ombudsman

Eliminates topic and data on each applicant that received the permit ombudsman's assistance (and instead requires summary of assistance given to brownfield projects)

Consolidated Requirements

The act requires DECD to include in the annual report information it previously reported separately about specific programs and reduces other reporting requirements.

Instead of submitting a separate report about film industry tax credits, DECD must report about them in the annual report. In doing so, the act requires DECD to summarize its efforts concerning media and motion picture production in Connecticut and indicate the total (1) amount of credits it issued during the reporting period and (2) production costs and expenses credit recipients incurred in Connecticut.

The act similarly consolidates the requirements for reporting on the dry cleaning remediation program in the annual report statute and requires DECD to summarize only the program's activities for the reporting period. Under prior law, both the statute governing the program and the annual report statute required DECD to summarize the program's activities, provide specified data on grant applications and awards, and recommend whether the dry cleaning surcharge and grant program should continue.

New Content

Although the act eliminates many reporting requirements, it also adds new ones. It requires DECD to include (1) an overview of its tourism, arts, and historic preservation activities and (2) an economic impact analysis of each state economic development business assistance or incentive program, including those administered by other agencies that had 10 or more recipients or awarded over $1 million in assistance during the prior fiscal year. Examples of economic development programs administered by other agencies include the Labor Department's Subsidized Training and Employment Program and Connecticut Innovations' Angel Investor Tax Credit.

The analysis of each program must include:

1. an analysis of the program's impact on the state's economy, including, if available, the number of new jobs it created and its estimated impact on the state's annual revenues;

2. an assessment of whether the program is meeting its statutory and programmatic goals and, if possible, the obstacles preventing it from meeting those goals;

3. recommendations about whether the program should be continued, modified, or repealed and the reasons for each recommendation;

4. recommendations for additional data that must be collected to improve the evaluation; and

5. a description of the methodologies used and the assumptions made to analyze the program.

For the analyses of its programs, DECD must also include how much it cost the state to borrow funds to finance them.

Report Distribution

The act requires DECD to submit the report annually, by February 1 to the governor, the auditors, and the review committees. Under prior law, it had to submit the report to the governor and the entire legislature annually by that date.

4 & 5 — EXPANDED LEGISLATIVE OVERSIGHT

The information and analyses DECD must include in its annual report, along with the requirement that it submit the report to the auditors, provide the basis for the legislative hearings the act requires. The hearings are triggered when the review committees receive DECD's annual report or the auditors' report described below.

Submission of Annual Report to Review Committees

Beginning March 1, 2018, the act requires the review committees to hold one or more separate or joint annual hearings on DECD's report, focusing on the analyses of DECD's community development projects and DECD's efforts to promote international trade. (This appears to be an incorrect reference with respect to DECD's efforts to promote international trade because the act requires only a summary of those efforts.)

Auditors' Triggered Legislative Reviews

The legislative hearings are also triggered when the committees receive an auditors' report about economic development programs, which must be based on the information in DECD's annual report.

Business Assistance and Incentive Programs. The auditors must assess the performance of business assistance and incentive programs (e.g., business tax credits, abatements, grants, loans, or other economic development assistance) and report the results to the review committees. The act refers to these assessments as “performance audits” and requires the auditors to conduct them according to generally accepted government auditing standards or other methods they deem appropriate. The auditors must prepare these performance audits whenever they audit DECD, either as part of the regularly scheduled audit or as a stand-alone audit.

DECD Annual Report Evaluation. Each time the auditors conduct a regularly scheduled audit of DECD, they must also evaluate the accuracy of those annual reports DECD submitted to the review committees since the last DECD audit. The evaluation must:

1. determine if there is evidence to support the accuracy of the report's data,

2. evaluate whether the incentive programs are being managed and operated so as to make it easy for taxpayers to comply with their requirements,

3. recommend how the agencies can improve their programs' administrative efficiency and effectiveness, and

4. evaluate whether the reports provide all the information the law requires.

The act specifically requires the evaluation to include the analyses of DECD's community development programs and international trade promotion efforts. (But, as noted above, this appears to be an incorrect reference with respect to the department's international trade promotion efforts.)

Auditor Reports and Legislative Hearings. The auditors must submit a report on each performance audit and annual report evaluation they complete to the governor, Office of Policy and Management (OPM) secretary, and review committees. They may submit these reports separately or as part of a statutorily required audit report. The act requires the review committees to hold at least one separate or joint hearing on these reports.

1 — FIRST FIVE PLUS PROGRAM

The act expands legislative oversight of the First Five Plus Program by requiring DECD to provide more information in its biannual report to the Commerce and Finance, Revenue and Bonding committees and directing the committees to hold a joint hearing on the report.

Under the act, DECD must include in each biannual report an analysis of the net rate of return to the state for all First Five Plus-funded projects, taking into account the value of tax credits and forgiven loans. The reports must also include recommendations as to whether the legislature should modify or continue the program based on the net rate of return analysis and the other information the report provides, such as number of jobs created.

The first report with the net rate of return analysis is due September 1, 2017. The other reports are due January 1, 2018, September 1, 2018, January 1, 2019, and September 1, 2019. The program terminates June 30, 2019, unless the legislature extends or eliminates this sunset date.

The act requires the Commerce and Finance, Revenue and Bonding committees to hold a joint hearing on the most recent report by February 1, 2019.

6 & 7 — MINORITY BUSINESS INITIATIVE ADVISORY BOARD

Purpose

The act establishes a nine-member Minority Business Initiative Advisory Board within DECD. The board must (1) advise the commissioner on how to make technical assistance more available to minority-owned businesses and increase their access to capital and state contracts and (2) develop and administer financial literacy, minority employment, and entrepreneurship programs, which may include internship and externship, apprenticeship, entrepreneurship, and job- creation subsidy programs.

Composition

The board consists of the DECD commissioner or her designee; four representatives whom the commissioner appoints in consultation with the minority business community; and one member each appointed by the House speaker, Senate president pro tempore, and House and Senate minority leaders. The commissioner's appointees must meet at least one of the following criteria:

1. have skill, knowledge, and experience in business and business development, procurement, and state and federal contracting;

2. have skill, knowledge, and experience in developing minority-owned businesses;

3. be a member or hold an office in a community organization that serves minority populations with economic development, including entrepreneurial development, as part of its mission;

4. have business development education and training expertise;

5. represent a business or organization that primarily engages in business development; or

6. own a business.

Appointments

The commissioner and the legislative leaders must make their appointments by September 1, 2017. The members serve two-year terms, up to three terms consecutively. Each member whose term is expiring must continue to serve until the member's successor is appointed. The appointing authorities must fill any vacancies. Members are not compensated for their services.

Meetings

The commissioner must schedule the board's first meeting by September 30, 2017. The members must elect a chairperson, who may call board meetings as he or she deems necessary.

Funding

The act requires the commissioner to allocate funds from the EXP account to the board to fund its duties. She must allocate $2 million from the account in FY 18 and $1 million in FY 19. The board may use up to 5% of each year's allocation to cover the administrative costs it incurs in performing its duties.

9 — ECONOMIC DEVELOPMENT STRATEGIC PLAN

Overview of Strategic Plan Structure and Content

The law requires DECD to prepare a four-year economic development strategic plan that, among other things, assesses the state's economic growth, sets goals for increasing it, and recommends how those goals can be achieved. The law also specifies the topics DECD must address in the plan and, for each topic, the data and analyses it must include. DECD must incorporate the act's changes in the plan's content beginning with the next four-year plan, which is due July 1, 2019.

Eliminated Requirements

The act eliminates certain requirements for specific data and analyses, thus giving the commissioner more discretion over how she addresses each strategic plan topic. It also eliminates requirements that the plan include evaluations of specified programs.

Table 2 identifies each strategic plan topic and describes the data, analyses, and program evaluations the act eliminates with respect to that topic.

Table 2: Summary of Eliminated Strategic Plan Information

Topic

Eliminated Requirements

Review and Evaluation of Connecticut's Economy

Specific conditions to be included in the review and evaluation, such as demographic, housing, and labor market analyses

Review and Analysis of Factors, Issues, and Forces Affecting Economic Development and Responsible Growth

Specific factors, issues, and forces to be included in the review and analysis, including transportation, health care delivery and cost, and capital availability

Review and Evaluation of the State's Economic Development Structure

Review and analysis of past and current economic, community, and housing development structures, whether they met their statutory responsibilities, and an assessment of how they affected economic development and responsible growth

Vision Statement for the State at Specified Future Intervals

Specified intervals for vision statement

Recommendations for Achieving Strategic Plan Goals

Plan implementation cost estimates and projected returns on investment

Review and Evaluation of Specified Economic Development Programs

Review and evaluation of the following programs:

Urban Jobs

Enterprise Zones

Railroad Depot Zones

Manufacturing Plants

Entertainment Districts

Enterprise Corridor Zones

R&D Matching Grant Program

2 & 3 — EXP-PRIVATE LENDER COLLABORATION

EXP provides loans and grants to small businesses under an expedited application process. The act allows the DECD commissioner to establish a new EXP component and allocate up to 10% of EXP funds to cover the component's administrative costs. It allows DECD to establish the component in consultation with Connecticut-based banks and a banking industry association. Such banks include out-of-state banks that have branches in Connecticut for taking deposits. The component may have lending limits and terms, matching fund requirements, and other conditions different from the ones for EXP's other components.

DECD must operate the component in collaboration with the Connecticut-based banks. The component may provide loan guarantees and short-term loans that businesses need to secure private financing (i.e., bridge loans) and other forms of financial assistance. Borrowers may use the financing available under this program only to purchase machinery and equipment, construct facilities or make leasehold improvements, cover relocation and working capital costs, pay rents, or cover other business-related expenses the commissioner authorizes.

The component may also include an arrangement under which DECD may transfer EXP loans to private lenders and, in the process, replenish the program's loan funds.

The act requires the commissioner, by February 1, 2018, to include in DECD's annual report (1) a description of the new component and (2) the number of Connecticut-based banks she consulted with and the extent of the consultation.

11-14 — ELIMINATED REPORTS

The act eliminates four DECD reporting requirements unrelated to its annual comprehensive report to the legislature. It eliminates the report DECD had to annually submit to the (1) Labor and Higher Education and Employment Advancement committees on how it collaborates with the technical high school system to address businesses' workforce training needs (CGS 10-95h) and (2) governor and legislature on the extent to which the state and its regions depend on prime defense contracts (CGS 32-58).

The act eliminates the requirement that DECD submit a separate, triennial report on state programs that provide tax incentives to businesses, including those administered by other agencies. Under prior law, DECD submitted this report to the governor, OPM, and certain legislative committees. Under the act, DECD must include information about all of these programs in its expanded annual report (CGS 32-1r).

The act also eliminates the requirement that the governor annually report to the legislature on job conditions and how to improve them (CGS 31-362).

BACKGROUND

Related Act

PA 17-226 also requires DECD to include economic impact analyses of all economic development programs in its annual report, requires the auditors to assess these analyses each time they audit DECD and report their findings to the review committees, and requires the committees to hold hearings each time they receive DECD's and the auditors' reports.