PA 10-75—sHB 5435
Finance, Revenue and Bonding Committee
AN ACT CONCERNING THE RECOMMENDATIONS OF THE MAJORITY LEADERS' JOB GROWTH ROUNDTABLE
SUMMARY: This act authorizes programs and policies for establishing or expanding businesses and creating jobs. It authorizes up to $5 million in bonds for developing new business concepts (pre-seed financing). It also authorizes credits for investing in technology-based start-up businesses (angel investment tax credits) and expanding businesses, including those using green technologies (insurance reinvestment tax credits).
The act also authorizes funding and technical assistance for established businesses. It taps up to $15 million in bonds from an existing authorization to provide loans and lines of credit for small businesses, provides technical assistance for all businesses seeking foreign markets for their goods and services, and authorizes financial incentives and technical assistance for businesses developing alternative energy technologies. It authorizes up to $500,000 in bonds to fund the technical assistance. It creates a council to continuously assess the state's strategic business clusters and recommend how to address their needs.
The act also addresses workforce needs. It authorizes tax credits for businesses hiring new employees, including those with disabilities. It provides loan reimbursements and grants to Connecticut students seeking jobs in alternative energy technology and other related fields funded by transferring $3 million from the quasi-public Connecticut Health and Educational Facilities Authority to the General Fund. The act authorizes up to $1 million in bonds for programs to train unemployed people and up to $1. 5 million bonds for the existing Mortgage Crisis Job Training Program.
Besides authorizing new policies and programs for developing businesses and creating jobs, the act addresses government operations. It establishes a task force to boost government efficiency and eliminate waste and requires the Office of Fiscal Analysis to inform the legislature about the resources needed to determine how bills affect the economy's capacity to create and retain jobs.
Although the act authorizes several new tax credits, it sunsets those for (1) donating computers to public and private schools, (2) constructing new facilities housing financial institutions, and (3) paying Small Business Administration guaranty fees. It repeals these credits for income years beginning on or after January 1, 2014.
Lastly, the act makes technical changes.
EFFECTIVE DATE: Various, see below
§§ 12 & 13 — PRE-SEED FUNDING
The act provides investment capital for businesses in different stages of development. It requires Connecticut Innovations, Inc. (CII) to provide capital and support services to businesses developing new concepts. It authorizes $5 million in general obligation (GO) bonds for these purposes and establishes a nonlapsing General Fund account to receive the bond proceeds.
A business qualifies for financing and technical support if it is principally located in Connecticut and at least 75% of its employees work here. It must also show that it received private investments that equal at least half the state funds it seeks. Under the act, the business qualifies for up to $150,000, which it may use only to prove new concepts (pre-seed financing).
The act allows CII to run the program itself or through a nonprofit corporation providing services and resources to entrepreneurs and businesses. If CII chooses the latter, it must enter into a personal services agreement with the corporation.
EFFECTIVE DATE: July 1, 2010
§ 15 —CREDITS FOR ANGEL INVESTORS
The act authorizes personal income tax credits for people who invest at least $100,000 in start-up, technology-based businesses in Connecticut (angel investors). Each credit equals 25% of the cash investment, up to $250,000. CII must administer the credits as the act provides. It may reserve no more than $6 million in credits per year in FY 11 through FY 13 and no more than $3 million in FY 14. CII may reserve no credits after July 1, 2014.
CII may allocate credits to qualified angel investors, who are individuals or groups that usually invest in a business where they can help foster its development, usually as a consultant or mentor. Under the act, an angel investor can be a person who qualifies as an “accredited investor” under Security and Exchange Commission (SEC) rules or a network of people. (Accredited investors are typically upper-income, high-net-worth individuals and entities. ) But they do not include:
1. individuals who control 50% or more of the business receiving the investment;
2. venture capital companies; or
3. banks, bank and trust companies, insurance companies, trust companies, national banks, savings and loan associations, or building and loan associations for activities that are part of their normal business operations.
Businesses Eligible for Angel Investments
Under the act, a business qualifies for angel investments if it focuses on bioscience, advanced materials, photonics, information technology, clean technology, or an emerging technology, as determined by the Department of Economic and Community Development (DECD) commissioner. The business must also have its principal place of business in Connecticut and:
1. gross revenues under $1 million in its most recent income year;
2. fewer than 25 employees, at least 75% of whom are Connecticut residents;
3. operated in Connecticut for less than seven consecutive years; and
4. received less than $2 million in eligible investments from angel investors.
Lastly, the business' managers and their families must be the primary owners and, as described below, the business must have been identified by CII as eligible for angel investment.
Applying for Investment Credits
The act creates a mechanism connecting eligible businesses and potential angel investors. The mechanism is a list of such businesses CII must maintain and make available to angel investors. A business that wants to be placed on the list must apply to CII, which must determine if it qualifies. CII may add the business to the list if it provides:
1. its name and a copy of its organizational documents;
2. a plan describing the business and its management, product, market, and financial plans;
3. a description of its innovative and proprietary technology, product, or service;
4. a statement of its potential economic impact, including the number, types, and location of jobs it expects to create;
5. a description of the qualified securities it offers, their cost, and the amount of cash investment sought;
6. the amount, timing, and projected use of the proceeds from the sale of these securities; and
7. any other information CII requires.
CII's executive director must compile the list monthly, beginning by August 1, 2010. The list must categorize the businesses by the amount of cash investments sought and the type of qualified securities offered.
Accessing the Credits
An angel investor who wants tax credits for investing in a listed business must first apply to CII for them. In doing so, the investor must identify the business and the amount it proposes to invest. If the investor qualifies as an angel investor, CII may reserve credits for an amount based on the act's criteria (i. e. , 25% of the cash investment, up to $250,000).
The investor may claim the credit only for actual cash investments in the business' qualified securities, which can be any form of equity, including general or limited partnership interests, any type of common stock, or preferred stock with or without voting rights and without regard to seniority position that must be convertible into common stock.
Claiming or Transferring Credits
An angel investor can claim credits up to the total income tax it owes in a given year. And it must do so in the same year it invested the funds. It can carry forward unused credits for up to five succeeding years, but not transfer them to other taxpayers. Nor can it claim them against that portion of the wages an employer must withhold from an employee's wages for income taxes.
Although the credits apply only to personal income taxes, businesses qualifying as angel investors may still claim them if they are not liable for business taxes, such as the corporation business tax. Because people who own or invest in these businesses do not pay business taxes, they must pay personal income taxes on the income they derive from the business. These businesses are usually organized as S corporations, partnerships, or limited liability companies.
Under the act, the credits allocated to an S corporation may be claimed by the shareholders or partners. Those allocated to a single-member limited liability company disregarded as an entity separate from its owner, may be claimed only the owners.
The act requires CII to review the credit's effectiveness but specifies no criteria for doing so. CII must complete the review by July 1, 2014 and report the findings to the Commerce Committee.
EFFECTIVE DATE: July 1, 2010 and applicable to tax years beginning on or after January 1, 2010.
§ 14 — NEW INSURANCE REINVESTMENT FUND PROGRAM
Just as the act uses tax credits to leverage private capital for start-up technology-based businesses, it also uses them to leverage private capital for established businesses. But it does so through a different mechanism. Instead of using CII to match investors and businesses, the act uses privately operated, state-certified investment funds to identify and market investment opportunities to business investors. The funds must be certified by DECD and meet performance standards.
The act models this mechanism on the existing Insurance Reinvestment Tax Credit Program, whose phase-out the act accelerates. The mechanism consists of (1) state-certified business investment funds, (2) businesses eligible to receive the funds' investments, and (3) business taxpayers that invest in the funds, for which they receive tax credits and returns on their investments.
The existing mechanism offers insurance premium, corporation business, and personal income tax credits to taxpayers that invest in insurance businesses through a state-certified fund. The taxpayers may claim the credits or transfer them to other investors. Either way, a portion of the credits may be claimed only over 10 years according to a statutory schedule. And those holding the credit may claim it only if the insurance business receiving the investment (1) developed a new facility, (2) occupies it over the 10-year period, and (3) employs at least 25% of its workforce in new jobs. The taxpayers must forfeit or repay the credits if the business fails to meet specific performance standards.
The new program has the same elements, but matches different investors and businesses. Because the act's tax credits apply only to the insurance premium tax, only insurance companies can invest in a state-certified fund and claim the credits. But the fund can invest in any Connecticut-based business, not just insurance companies, as under the existing program. The fund's insurance company investors qualify for credits if the fund invests in a business that:
1. employs fewer than 250 people when it received the investment;
2. netted no more than $10 million in the previous year; and
3. conducts it principal operations in Connecticut, that is, at least 80% of its workers live here or 80% of its payroll goes to Connecticut residents (i. e. , “Connecticut-based business”).
The investors may carry forward unused portions of the credits, but cannot transfer them to other taxpayers.
While the existing program imposes performance standards on insurance companies receiving the investments, the new program imposes them on the investment fund. If a fund fails to meet the standards, investors risk forfeiting unclaimed credits. The act imposes a $40 million annual cap and a $200 million aggregate cap on the amount of credits investors can claim under the new program.
The act uses insurance premium tax credits to leverage private investments in Connecticut-based businesses. But insurers can access the credits only through state-certified “insurance reinvestment funds. ” A fund qualifies for certification if it is a Connecticut partnership, corporation, trust, or limited liability company. It can be organized on a for-profit or nonprofit basis, but must be managed by at least two principals or people each of whom has at least four years of experience managing venture capital or private equity funds with at least $50 million invested by people unaffiliated with the fund's manager.
The fund must obtain capital from other investors besides the insurance companies. It meets this requirement under the act if the equity from other investors comprises at least 5% of the capital invested by the insurers. The fund must be closed to additional investments and investors after it applies to the DECD commissioner for certification as an insurance reinvestment fund.
The fund must operate independently of its insurance company investors. The investors cannot control the fund, which would happen under the act if each company invests over $40 million and can vote over half of the fund's equity interest. But they can take interim control if the fund breaches any payment obligation or contractual agreement affecting their ability to claim credits.
Eligible Investors and Investments
As noted above, only taxpayers liable for insurance premium taxes qualify for the act's credits. A taxpayer qualifies for them only if it invests cash in an approved insurance reinvestment fund (i. e. , credit-eligible capital). The cash investment must fully pay for an equity interest in the fund or an eligible debt instrument, at par or at a premium, the fund issued.
A fund's debt instrument cannot:
1. mature less than five years after it is issued;
2. repay the debt faster than paying the principal in equal installments over five years; or
3. base interest, distribution, or other payments on the fund's profitability or investment success.
The company's ability to claim the credits depends on how the fund invests the company's dollars. The fund may invest these dollars only in eligible, Connecticut-based businesses. And, it may invest no more than 15% of the credit-eligible capital in one business without the commissioner's prior approval. The fund may invest this capital in bank deposits, certificates of deposit, or other fixed income securities. (Presumably, a fund would do so until it is ready to invest the capital in an eligible business. The act does not specify how the fund must account for the interest income these investments earn. )
Insurance companies qualify for credits only if they invested in a certified insurance reinvestment fund. To be certified, the fund must submit an application to DECD that:
1. indicates the amount of capital the fund will raise,
2. includes an affidavit from each investor committing investments to the fund,
3. includes a nonrefundable $7,500 application fee,
4. contains evidence that the fund qualifies as an insurance reinvestment fund,
5. commits the fund to invest at least 25% of the credit-eligible capital in “green technology businesses,” and
6. commits the fund to invest at least 3% of the credit-eligible capital in pre-seed investments within three years after the fund was fully capitalized by insurance companies seeking credits.
The act specifies criteria for determining green technology businesses and requirements for making pre-seed investments. Under the act, a green technology business is one in which at least 25% of the jobs use or develop “green technology,” which the act does not define. These jobs may include those corresponding to green technology occupational codes devised by DECD and the Labor Department. The act also requires funds to make their pre-seed investments in consultation with CII's pre-seed financing program, which the act requires CII to establish (see §§ 10-11, above).
The application must also include a plan describing how the fund intends to invest the credit-eligible capital. The plan must:
1. estimate the share of credit-eligible capital the fund plans to invest by third, fifth, seventh and ninth years following the date on which it was fully capitalized by the credit-eligible capital;
2. identify the types of businesses targeted for investment and their respective share of the taxpayers' investment dollars;
3. estimate the share of credit-eligible capital going to businesses engaged in research and development or manufacturing, processing, or assembling technology-based products;
4. specify the number of jobs the fund expects to create or retain after the fund has invested all of the credit-eligible capital; and
5. show that the credit-eligible capital will generate tax revenue that equals or exceeds the credits' value (“revenue estimate”).
The fund may prepare the revenue estimate unless the commissioner requires a third party to do so.
As discussed below, the fund must comply with its investment plan or risk decertification, which could jeopardize its investors' unclaimed credits. But it can, with the commissioner's approval, change its plan because of unavoidable or reasonably unexpected changes, including economic changes; technological advances; high employment; and opportunities for revenue growth. The commissioner cannot unreasonably withhold approval. The DECD commissioner must begin accepting applications by July 1, 2010.
The act requires DECD to approve applications, including credit allocation plans, on a first-come, first-served basis. If DECD receives several applications on the same day, it must approve them simultaneously.
When applying for certification, the fund must also ask DECD to reserve tax credits for an amount equal to the credit-eligible capital. If the commissioner reserves the requested amount, she does so contingent on the fund's investors actually investing the amounts indicated in the application. The investors have five days from the fund's certification to invest the amounts, and the fund manger must confirm that investment on a form the commissioner provides.
The fund must also notify the commissioner by overnight common carrier delivery service if any investor fails to invest the committed amount. In such case, the investor forfeits its credit allocation, which the commissioner must reallocate to the other insurance company investors. The investor and the fund must each pay a $25,000 administrative penalty.
As noted above, insurance company investors may claim the credits over 10 years according to the act's schedule. Their right to do so depends on whether the fund meets its annual investment goals. The act provides a mechanism for determining if it did. The mechanism consists of performance standards the fund must meet, annual performance reports and DECD reviews, and, depending on the outcome of those reviews, fund decertification, and credit forfeiture.
Performance Standards. The act's performance standards address the rate at which a fund invests its credit-eligible capital, the share of capital it must invest in certain types of businesses, and the state revenue its investment generates. The fund must meet its own investment schedule, as specified in the business plan it included in its application for certification. It must also show that its business investments generate tax revenue that at least equals the credits' value.
In addition, the fund must invest at least:
1. 60% of its credit-eligible capital in eligible businesses within four years after DECD approves its credit allocation and
2. 100% of the funds within 10 years of that date.
It must also invest in certain types of businesses. By the tenth year, it must invest at least 25% of the credit-eligible capital in green technology businesses.
Annual Performance Reports and Commissioner Reviews. By every January 31, each fund must submit a performance report to the commissioner showing:
1. the year-end balance for credit-eligible funds;
2. each business receiving investments in the prior year, including its location and industry classification code;
3. the percentage of credit-eligible funds invested in green technology businesses; and
4. distributions or payouts the fund made during the previous year.
The annual reports for the third, fifth, seventh, and ninth year must also show if the fund (1) is investing credit-eligible capital at the rate it projected in its business plan and (2) generating tax revenues that at least equal the credits' value. Besides these reports, each fund must also submit its annual audited financial statements to the commissioner.
Decertification. The commissioner must review the annual reports to determine if a fund is complying with its investment targets and the act's distribution rules. She may decertify a fund if it fails to submit the reports, meet its targets, or comply with the distribution rules. Before doing so, the commissioner must notify the fund's officers in writing that she can decertify the fund after 120 days unless she waives the deficiencies or the fund corrects them.
Forfeiting Credits. The act specifies when decertification triggers forfeiture. A fund's insurance company investors must automatically forfeit future unclaimed credits if:
1. the commissioner decertifies the fund within four years after she reserved the credits and
2. the fund invested less than 60% of the eligible capital by the fourth year after the reservation date.
When these conditions trigger forfeiture, the commissioner must notify each investor in writing that it must forfeit or recapture the credits. It is not clear if the commissioner can order recapture because the act does not authorize it. Recapture requires taxpayers that claimed credits to repay some or all of them. The law allows recapture under the existing Insurance Reinvestment Act program.
A fund cannot begin paying investors returns on investment (i. e. , distribution payments) until it meets specific requirements. The fund must have invested all of the credit-eligible capital in eligible businesses, with at least 25% of the amount invested in green technology businesses. The businesses receiving the investments must still be primarily operating in Connecticut when the fund distributes the dollars. But the act specifies conditions under which the fund may distribute funds before it meets these standards.
1. The fund may do so if the way it is owned, managed, or operated affects its earnings or other tax liabilities to the point where the equity owners must pay additional federal or state taxes, including interest and penalties.
2. The fund may also distribute funds to make principal and interest payments on its debt. But, if it does so, the total value of the fund's cash and other marketable securities plus its cumulative investment in eligible businesses must equal at least 60% of its credit-eligible capital.
3. Lastly, the fund may distribute funds to cover the reasonable costs and expenses of forming, syndicating, managing, and operating the fund as long as it does not distribute or pay funds directly or indirectly to an insurance company investor.
Reasonable costs and expenses for organizing and operating the fund include accounting, legal, and other related professional services and annual management fees up to 2. 5% of the fund's credit-eligible capital.
Although the fund receives no state investment dollars, the act specifies conditions under which it must include the state in a distribution. The fund must include the state whenever it:
1. distributes funds to credit-eligible investors for reasons other than those cited above and
2. failed to create or retain at least 80% of the number of jobs specified in its business plan.
The money the state must receive depends on the extent to which the fund missed the job goals. The state must receive:
1. 10% of any distribution if the number of jobs that were actually created or retained falls between 80% and 60% of the planned totals and
2. 20% when the number is 60% or less of those totals.
These requirements do not apply when the fund distributes returns to those investors who do not qualify for tax credits.
Insurance Premium Tax Credits
The credits under the new component apply only to the insurance premium tax and equal 100% of an insurance company's investment in a fund. The company must claim the credits over 10 years, beginning in the fourth year after it invested in the fund. It can claim up to 10% of the credit per year in years four through seven, inclusive, and 20% per year in the last three years. As under the existing program, the company may carry unused credits forward for up to five years.
Companies may claim the credits under the same rules that apply under the existing program. These address how companies submitting a combined return may claim the credits.
Lastly, companies claiming credits under the act cannot claim the other credits the law allows for same investment.
EFFECTIVE DATE: July 1, 2010
§ 14 — CHANGES TO EXISTING INSURANCE REINVESTMENT ACT PROGRAM
The act pushes up the deadline for allocating credits under the existing program and limits investors' ability to claim allocated ones. As noted above, the program provides business and personal income tax credits for investing in an insurance business. Investors may obtain these credits only through a DECD-registered insurance reinvestment fund. Further, they may claim only a specified portion of the credit total over 10 years and may do so only if the business develops a new facility; creates new jobs; and, during the 10-year period, continues to occupy the facility and retain those jobs. The business must annually certify to DECD that it meets these requirements.
Under prior law, DECD's authority to allocate credits expired on July 1, 2015. The act pushes up the expiration date to June 30, 2010 by prohibiting DECD from issuing new eligibility certificates after that date. Presumably, DECD may continue issuing certificates of continued eligibility to businesses that received their initial certificates before that date.
The act temporarily lifts the ban on allocating credits to funds formed after July 1, 2000 until June 30, 2010, the date on which DECD's authority to issue eligibility certificates expires. But it also ties an investor's ability to claim the credits to the fund's investment rate. In doing so, the act implicitly distinguishes between established funds that have received DECD's certificates of continued eligibility from newly formed ones that have not. Investors accessing credits through established funds may claim them only if the fund invested at least $1 million by July 1, 2011.
Newly formed funds must also meet this investment threshold and prove that they did so. A fund must provide the proof by June 30, 2011; otherwise, the commissioner must revoke its eligibility certificate. The proof may include canceled checks, wire transfers, investment agreements, or other documentation that satisfies the commissioner.
The act tightens the eligibility criteria an insurance business must meet to qualify for credit-eligible investments. It specifies that Connecticut residents must hold the new jobs the business creates and retains. Under prior law, a business met the job requirement if it employed at least 25% of its workforce in new jobs, which by law must be one that did not exist in the business when it applied for its initial certification. The jobs must be held by new employees, excluding those the business reassigned from another facility.
Lastly, the act specifies that investors who received credits before January 1, 2010 may carry them forward as the law allows. This provision applies to investors and taxpayers to whom they transferred the credits.
EFFECTIVE DATE: July 1, 2010.
The act also provides different types of financial and technical assistance to established businesses and provides forums for identifying and addressing the state's strategic business needs.
§§ 6, 7, & 31 — Small Business Loans
The act establishes a revolving loan program for small businesses and nonprofit organizations (the Connecticut Credit Consortium) and funds it by tapping up to $15 million in previously authorized bonds for the Manufacturing Assistance Act (MAA) program. The DECD commissioner must administer the consortium, under which she may provide up to $500,000 in direct loans and lines of credit to businesses and nonprofit organizations employing fewer than 50 people. She must establish guidelines and eligibility criteria. The act imposes a $15 million cap on the total amount of loans and lines of credit the commissioner can provide.
The act establishes a separate, nonlasping General Fund account and requires the bond proceeds to be deposited there. Although the act funds the program with bonds issued under the MAA statutes, it exempts the loans and lines of credit from (1) MAA eligibility criteria and procedural requirements and (2) the law imposing penalties on businesses receiving state economic development dollars that leave the state before repaying them. The act also requires loan fees and principal and interest payments to be credited to the fund and used for additional loans and lines of credit.
DECD must report on the program's performance in its comprehensive annual report to the legislature. It must specify the number of applications it received and approved, the size of the applicants, the amount of assistance it provided, and the amount repaid.
EFFECTIVE DATE: July 1, 2010
§ 18 — Manufacturing Assistance Act (MAA) Expansion
The act authorizes the DECD commissioner to use MAA funds to support exporting. Prior law allowed her to use these funds to create and support organizations that provide technical and engineering services to businesses. The act allows her to create and support activities, as well as organizations, that leverage federal resources that provide export services.
The act specifically allows the commissioner to use MAA funds to promote exporting, including sponsoring export support programs, helping companies access U. S. Department of Commerce export assistance services, and providing export-related marketing materials and website improvements. Lastly, the act makes export assistance eligible for MAA funding. The act's changes also allow the commissioner to use regional economic development infrastructure funds to support exporting (CGS § 32-327 (4)).
EFFECTIVE DATE: July 1, 2010.
§ 17 — DECD Commissioner Business Development Powers and Duties
The act directs the commissioner to take specific actions in certain policy areas.
Exports, Manufacturing, Clusters, and Regulatory Assistance. The act requires her to take more steps to promote exports and manufacturing by assigning enough available staff to (1) provide technical assistance to businesses regarding exporting and manufacturing, (2) help groups of businesses in the same industry implement policies designed to improve their overall competitiveness (i. e. , cluster-based initiatives), and (3) help businesses understand regulatory requirements. She must do these things by reallocating funds from other DECD accounts and programs.
Marketing and Technology Development. The act requires the commissioner to develop a marketing campaign that promotes Connecticut as a place of innovation. It also requires her to implement a 2000 agreement with Massachusetts to promote the biomedical device industry in the Connecticut River Valley region between Hartford and Springfield (i. e. , the New England Knowledge Corridor). The commissioner must complete both tasks by reallocating funds from other DECD accounts and programs.
Applying for Federal Funds. Lastly, the act requires, rather than allows, the commissioner to apply and qualify for and accept, federal funds related to economic development. It also requires her to describe what she did to secure these funds in her comprehensive annual report to the legislature.
EFFECTIVE DATE: July 1, 2010
§ 11 — Renewable Energy Sales and Use Tax Exemption
The act exempts from the sales and use tax items sold, stored, used or consumed in the renewable and clean energy technology industries. These industries produce, improve, or develop solar energy electricity generating systems, passive or active solar water or space heating systems, and wind power electric generation systems and related equipment. The exemption applies to machines, equipment, tools, materials, supplies, and fuel sold, stored, used, or consumed in these industries.
The law already exempts the sale and use solar energy electricity generation, passive or active solar water or space heating, and geothermal resource systems, including related equipment and their installation.
EFFECTIVE DATE: July 1, 2010 and applicable to sales occurring on or after that date.
§§ 29-30 — Green Manufacturing Pilot Program
The act authorizes $500,000 in bonds with up to 20-year terms for a pilot program to help manufacturers convert their facilities into green operations or implement energy efficiency measures by using lean manufacturing strategies. Manufacturers qualify for assistance if they are principally located in Connecticut and have fewer than 250 employees, at least 75% of whom work here.
DECD must implement the program. It may contract with a third party to provide services to eligible manufacturers. The services may include increasing operational efficiencies, reducing wasteful practices and processes, and engaging managers and workers in practices that improve service delivery.
EFFECTIVE DATE: July 1, 2010
§§ 19 & 20 —Connecticut Competitiveness Council
Organization. The act establishes a 21-member council to promote the state's industry clusters. The members include specified state officials and representatives of different sectors appointed by the governor and legislative leaders. The state officials are the governor and the six legislative leaders or their designees; the labor, transportation, developmental services, and higher education commissioners; and the Office of Workforce Competitiveness executive director. The governor appoints the chairperson.
As Table 1 shows, the governor and legislative leaders must appoint representatives of specific sectors.
Table 1: Appointed Members of Connecticut Competitiveness Council
Total Number of
Appointing Authorities and Number of Appointments
House minority leader: 1
Senate minority leader: 1
House speaker: 1
Senate president pro tempore: 1
House majority leader: 1
Senate majority leader: 1
The council's business representatives must be chief executive officers or chief operating officers or people holding an equivalent position. They must come from key industry clusters and large and small firms.
Terms and Vacancies. The appointed members serve four-year terms, except for five of the initial members, who serve only two-year terms. Those serving initial two-year terms are the members appointed by the governor and the House majority and minority leaders. Each appointing authority must fill any vacancy, and the person filling the vacancy must serve for the balance of the term. The members serve without compensation, but are reimbursed for necessary expenses while performing their duties. The council must meet at least quarterly. A majority of the members constitutes a quorum.
Purpose. The council's major purpose is to promote the formation of industry clusters—groups of businesses providing the same products or services, using similar processes and techniques, having similar workforce needs, and buying mostly the same types of supplies and support services. (DECD has designated nine clusters: aerospace components manufacturing, agriculture, bioscience, insurance and financial services, maritime, metal manufacturing, plastics and plastics manufacturing, software and information technology, and tourism. )
The council must help businesses form clusters and use them to address their strategic needs and monitor, assess, and evaluate their activities. The council must also help state officials develop and implement policies supporting clusters. Specifically, it must:
1. recommend how clusters should be defined;
2. advise and assist legislators and executive branch officials, as well as businesspeople, on economic competitiveness, industry clusters, and economic development; and
3. develop medium- and long-term strategies for enhancing clusters' development and economic competitiveness.
To perform these tasks, the act authorizes the council to obtain any assistance and data it needs from any state entity. It also authorizes the council to obtain funds from any source and other resources needed to fulfill its mission, which it must do in compliance with the rules governing these funds and resources. Lastly, the council can do other things needed to fulfill its statutory purposes and objectives.
Report. The council must report annually to the governor, the DECD commissioner, and the Commerce Committee on the competitiveness of the state's industry and economy, beginning January 1, 2011.
Innovation Network Task Force. The act substitutes its Connecticut Competitiveness Council for the Governor's Competitiveness Council as advisors to a 2005 interagency group formed to recommend a plan and budget for establishing an innovation network. Governor Rowland's 1998 Executive Order 13 created The Governor's Competitiveness Council to promote, among other things, the development of industry clusters. Governor Rell's 2009 Executive Order 24 eliminated the council along with several other advisory bodies.
EFFECTIVE DATE: July 1, 2010
The act authorizes several programs to create jobs and ensure that the workers have the skills needed to fill them. These include tax credits for creating jobs, incentives for students majoring in specific fields, authorization for creating short-term training programs, and funds for an existing job training program.
§§ 8 & 10 — Small Business Job Creation Tax Credit
Applicable Taxes. The act authorizes insurance premium, corporation business, and personal income tax credits for small businesses (fewer than 50 employees in Connecticut) creating new full-time jobs. Businesses qualify for the credits only for jobs they create between May 6, 2010 and December 31, 2012. The act imposes a combined $11-million-per-year cap on these credits, the vocational rehabilitation job creation credits it creates (§ 9), and those authorized under the existing job incentive tax credit program (CGS § 12-217ii).
Credit Amount. The act authorizes three-year credits for small businesses that create new, full-time jobs filled by new employees who reside in Connecticut. The maximum credit is $200 per month per new employee.
Businesses can apply the credits against the insurance premium, corporation business, or personal income tax, but not the withholding tax. The existing job creation tax credit applies only to the insurance premium and corporation business tax. Depending on how they are organized, some businesses do not pay business taxes, but their owners pay personal income taxes on the income they received from the business. The act allows these taxpayers to claim credits against the income tax, but specifies that the value of the credits cannot exceed the tax owed.
Businesses claiming the act's credits for hiring new employees cannot count these employees toward other credits the law allows, including those authorized under the job incentive and the enterprise zone (CGS § 12-217) programs.
Qualifying For the Credit. Businesses qualify for a credit if they create a new job and hire a new employee who lives in Connecticut to fill it. The job and the employee must meet specific criteria. The job must require the new employee to work at least 35 hours per week on a regular, full-time basis for at least 48 weeks per calendar year. New temporary or seasonal jobs do not count toward the credit.
Under the act, a business cannot count as a new employee someone who:
1. owns the business or is a member or partner in it,
2. worked in Connecticut for a related business during the previous 12 months, and
3. no longer works for the business at the end of its income year.
An employee worked for a related business if:
1. it controlled the business that subsequently hired him,
2. the business that hired him controlled the business that previously employed him,
3. the business that employed him is part of a larger business entity that also controls the business that hired him, or
4. both businesses belong to the same group of controlled businesses.
The act specifies criteria for determining if a business controls the business applying for the tax credits. The criteria reflect how the controlling business is organized (i. e. , corporation, partnership, etc. ).
As noted above, a business qualifies for the credit only for jobs it creates between January 1, 2010 and December 31, 2012. The business must claim the credit for the income year in which it created the job and hired a new employee to fill it. It may also claim the credit for each of the two subsequent years if the employee held the job for the full year. Unused credits expire and cannot be refunded.
Accessing the Credit. To claim the credits, businesses must apply to the DECD commissioner for a certification letter. The business must use a DECD form and provide enough information for DECD to determine its eligibility. The information must describe the business' activities, indicate its North American Industrial Classification System code, specify the number of people employed as of the application date, and identify the new hire's name and job title or classification.
The commissioner must act on the application within 30 days of receiving it. She must issue the certification letter if she approves the application. In doing so, she must state that the business may claim the credit if it meets the act's requirements. The commissioner must annually give the revenue services commissioner a list of the businesses that she approved for credits and the credit amounts.
If the business is an S corporation or partnership, the credit may be claimed by its shareholders or partners. If the business is a single-member limited liability company that is disregarded as an entity separate from its owner, only the owner may claim the credit.
EFFECTIVE DATE: Upon passage and applicable to income years beginning on or after January 1, 2010.
§§ 9 & 10 — Vocational Rehabilitation Job Creation Tax Credit
Applicable Taxes. The act authorizes insurance premium, corporation business, and personal income tax credits for businesses hiring Connecticut residents with disabilities under terms and conditions similar to those governing its small business job creation credits. A business cannot apply the credit against its payroll withholding taxes. The act imposes a combined $11-million-per-year cap on these credits, the job creation credits described above, and the credits authorized under the existing job incentive tax credit program (CGS § 12-217ii).
Credit Amount. The act authorizes three-year credits for businesses that hire people with disabilities who meet the act's criteria. The maximum credit is $200 per month for each new employee. Businesses claiming the act's credits for hiring new employees cannot count these employees toward other credits the law allows. These credits include those authorized under the job incentive and the enterprise zone (CGS § 12-217) programs.
Eligible Employees. A business can claim the credit if it hires new employees who live in Connecticut and who have a physical or mental impairment that makes it hard for them to find work. (PA 10-1, JSS expands the range of new employees that qualify businesses for the credits include people with blindness. The business qualifies for credits only for employees hired after May 6, 2010 for the income years beginning on or after January 1, 2010. The employee must work at least 20 hours per week for at least 48 weeks per calendar year. He or she must also be on the payroll at the close of the business' income year.
As under the act's small business job creation tax credit program, the employee must be someone who did not work for a related business during the previous 12 months.
Accessing the Credit. The application requirements and process is the same as the one for accessing the small business job creation tax credits. So is the requirement regarding reports to the revenue services commissioner.
The business must claim the credit for the income year in which it created the job and hired a new employee to fill it. It may claim the credit for each of the two subsequent years if the employee held the job for the full year. Unused credits expire and cannot be refunded.
The act allows shareholders and partners of S corporations and partnerships to claim the credit against the personal income tax. With respect to single-member limited liability companies that are disregarded as entities separate from their owners, only the company's owner may claim the credit.
EFFECTIVE DATE: Upon passage and applicable to income years beginning on or after January 1, 2010.
§§ 1-3 — Student Loan Reimbursements
Eligible Fields. The act authorizes reimbursements for student loans and training grants for Connecticut residents with educational backgrounds and jobs related to green technology, life science, or health information technology and holding jobs related to these fields. The Board of Governors of Higher Education may adopt regulations for providing these loans and grants.
Under the act, green technologies are those that promote clean, renewable, or energy efficiency; reduce greenhouse gases or carbon emissions; or apply chemical products and processes to eliminate the use and generation of hazardous substances. Green technology jobs include those classified as such by the U. S. Bureau of Labor Statistics and the codes DECD and the Labor Department use to identify green jobs.
Educational backgrounds and jobs in life sciences involve studying genes, cells, tissues, and the chemical and physical structures of living organisms. Those in health information technology involve creating, executing, or implementing electronic data systems for recording or transmitting medical or health information.
Eligible Residents. The eligibility criteria for the loan reimbursements vary depending on whether a resident holds a degree or certificate. A resident holding a bachelor or associate degree qualifies for reimbursement if his or her expected family contribution, as determined by the federal Free Application for Federal Student Aid, falls below $35,000 for the most recent full academic year. (Family income is one of the factors that affects family contribution. ) The resident must also:
1. graduate from any Connecticut institution of higher education on or after May 1, 2010 with a degree related to one of the fields mentioned above and
2. work for at least two years in Connecticut after graduation in a job related to one of these fields.
A resident receiving a training certificate qualifies for a grant if he or she:
1. is unemployed, received a layoff notice, or earns less than $40,000 per year;
2. is 18 years or older;
3. graduated from high school before July 1, 2008; and
4. was not enrolled as a full-time student at any institution of higher education before July 1, 2010.
Loan Reimbursement and Grant Amounts. The reimbursements apply to federal and state student loans. (No state loans are currently available. ) The amount depends on a resident's degree. A resident with a bachelor's degree qualifies for reimbursements of up to $2,500 per year or 5% of the loan amounts, whichever is less, for up to four years. A resident with an associate's degree qualifies for the same amount, but only for up to two years. The act caps the total value of reimbursements a resident can receive under the act and any other state program. The cap is $10,000 for residents holding a bachelor's degree and $5,000 for those holding an associate's degree.
Residents with certificates qualify for a grant equal to the cost of their training certificate, up to $250.
Funding Source. The act funds the reimbursements by transferring $3 million from the quasi-public Connecticut Health and Educational Facilities Authority to the General Fund specifically for reimbursing students.
EFFECTIVE DATE: Upon passage, except for the provision transferring funds to the General Fund, which takes effect January 1, 2012.
§§ 4 & 5—Short-Term, Non-Credit Workforce Development Initiative
The act authorizes $1 million in bonds for addressing the training needs of unemployed Connecticut residents. It requires the Community-Technical Colleges (CTC) Board of Trustees to develop short-term, noncredit programs providing job-related skills and workforce credentials. It must also establish an advisory committee consisting of the DECD, Labor Department, Workforce Investment Board, Connecticut Center for Advanced Technology, Connecticut Business and Industry Association, and labor representatives.
The committee must identify workforce needs and recommend how to address them. It must identify the types of education, training, support services, and partnerships needed to fill jobs (1) in regions with persistently high unemployment and (2) in occupational fields with job openings.
The act specifically requires the committee to examine the use of individual educational training accounts as a way to help unemployed people pay for training and services. In doing so, the committee must recommend eligibility requirements for establishing these accounts that include methods for verifying unemployment and demonstrating financial need. It must also consider establishing pilot programs based on available funding. The committee must report its recommendations to the CTC board by November 1, 2010.
The board must weigh the costs of modifying existing programs or developing new ones focused on high-need, high-growth fields. The costs it must consider include tuition, fees, books, materials, and academics.
The act requires the colleges to use the dollars it provides to sustain and expand individual educational training grants throughout the community-technical college system. It requires them to do so by using the dollars to leverage federal funds under the Student Aid and Fiscal Responsibility Act, the college access challenge grant program, and other educational and career training grants.
EFFECTIVE DATE: July 1, 2010
§ 21 — Bonds for the Mortgage Crisis Job Training Program
The act authorizes $1. 3 million in bonds for the Mortgage Crisis Job Training Program, which provides rapid, customized employment services, job training, repair training, and job placement assistance to borrowers who are unemployed, underemployed, or in need of a second job (CGS § 31-3nn).
EFFECTIVE DATE: July 1, 2010
The act authorizes several initiatives aimed at reducing the cost of running government and determining the resources needed to assess how bills affect businesses and jobs.
§ 16 — Waste Reduction Task Force
The act establishes an 12-member task force to determine how state agencies and departments can reduce or eliminate duplicative procedures and paper usage. The task force must determine how technology can help agencies and departments achieve these goals.
The task force consists of state officials and corporate executives, economists, and information technology experts. It includes the administrative services commissioner, the Office of Policy and Management secretary, and the Information Technology Department's chief information officer, or their designees. The other members are appointed by the governor and legislative leaders. The House speaker and Senate president pro tempore each appoint two, and the governor and the other four leaders each appoint one. (PA 10-1, JSS allows one of the House speaker's two appointees to be a legislator. ) They must make their appointments by July 30, 2010. Members must serve without compensation.
The speaker and president pro tempore select the task force's cochairpersons from among the members. The chairpersons must convene the task force's first meeting by August 29, 2010. The Government Administration and Elections Committee's administrative staff must provide administrative support. The task force must submit its findings and recommendations to the Commerce and Government Administration and Elections committees by February 1, 2011.
EFFECTIVE DATE: July 1, 2010
§ 32—Job Impact Analysis
The act requires the Office of Fiscal Analysis (OFA) to determine the resources it needs to determine how bills affect public and private sector jobs. Resources include equipment, software, expertise, and personnel. OFA must report its results to the Office of Legislative Management by December 1, 2010.
EFFECTIVE DATE: Upon passage
§§ 25-28 — SUNSET OF EXISTING TAX CREDIT PROGRAMS
The act eliminates granting corporation tax credits for the following purposes for the income years beginning on or after January 1, 2014:
1. 50% credit for donating new or used computers to public or private schools (CGS § 10-228b);
2. 10-year, 50% credit for financial institutions developing facilities and creating jobs and a 25% credit for an additional five years (CGS § 12-217u (b) and (f)); and
3. 100% credit for Small Business Administration guaranty fees (CGS § 12-217cc).
EFFECTIVE DATE: July 1, 2011
OLR Tracking: JR: KM: JL: ts