UTC Deal Questioned Over Lack of Hiring Demands

Mar 11, 2014

Pratt and Whitney's planned new headquarters building in East Hartford.
Credit Pratt and Whitney

The deal offered to United Technologies to redeem extra tax credits could be extended to other corporations in Connecticut. A legislative hearing Monday revealed more details about the huge economic development agreement.

As we learned at the end of last month, United Technologies agreed to invest $500 million in the state of Connecticut, building a new headquarters for jet engine maker Pratt and Whitney among other commitments. That's in return for being allowed to redeem tax credits that it holds, but under current law can't exercise.

Governor Malloy's budget chief, Ben Barnes, hailed the agreement as strategically very important for Connecticut. "Keeping the decision-makers located in Connecticut through a headquarters requirement is critical," he told a meeting of the legislature's Commerce and Finance Committees. "We think that having the company headquartered here gives them a stronger tie to the community and a stronger tie to the state."

Barnes also said the agreement may help to change the perception of Connecticut as unfriendly to business. It will cost the state in terms of lost revenue as UTC redeems more tax credits, but he says that won't matter ultimately. "Particularly in the short run," he said, "but even throughout the life of the agreement, it's actually a net positive in revenue. We're paying out an additional $20 to $33 million a year in tax credit redemptions, or we're losing that much tax revenue. But that will be more than offset by additional taxes that we receive from additional workers, from capital investments that they're making."

The package requires legislative approval to change the rules on tax credits for UTC. The bill before lawmakers restricts the concept to this one company, but both Barnes and DECD Commissioner Catherine Smith said that might not be the case in the future.

"We think this is an intriguing concept," said Smith, "that, in fact, might help others who have a lot of earned tax credits find a way to make more investments in the state."

Most lawmakers were thrilled with the deal, but House Minority Leader Larry Cafero is disappointed it doesn't have more stringent requirements for hiring. "You don't have to hire one other person," he told UTC executive Peter Gutermann. "You're still going to get to use 90 percent of these tax credits. In fact, you could lay off up to 1,750 people, and you still get to use 35 percent of these tax credits. Now, that's not your fault -- you negotiated a good deal. But what I'm asking us as a legislature is, especially when we're so focused on job creation, is that the best deal for us?"

Gutermann conceded the point. He said UTC would not have agreed to a deal that required specific hiring numbers, because of the unpredictable nature of the aerospace business. But, he said, "We hire, on average, about 600 people through our aerospace units every year. About 150 of those are engineers. So just to stay even, we'll do that type of hiring, and by making these investments in Connecticut, it's most likely that that hiring will occur in Connecticut."

Gutermann said the expected wave of retirements in the industry should intensify hiring in coming years.

In an unusually broad based show of support, unions and business groups also spoke in favor of the agreement during the hearing.

Meanwhile, Governor Dannel Malloy's office released a document that shows the projected impact of the deal in towns around the state.