“First Five” agreements between Governor Dannel Malloy and preferred companies such as Alexion Pharmaceuticals Inc., thought to be a “major player in Connecticut's fledgling bioscience industry,” are non-enforced whenever Mr. Malloy chooses not to enforce paper tiger contracts.
About a year ago, Alexion moved from Cheshire into its new headquarters in New Haven, the 23 mile move having been facilitated by the usual “First Five” contractual agreement. The package delivered to Alexion’s doorstep by a grateful governor included a $6 million grant, a subsidized $20 million loan transformed into a gift provided Alexion had 650 workers in Connecticut by 2017, and tax credits worth in the neighborhood of $25 million.
Handouts of this kind to multi-million dollar companies, little more than polite bribes, are politically useful. The message behind the tax buck is this: “In heavily taxed, heavily regulated Connecticut, we cannot reduce taxes across the board for all companies, but for you, my pet, we will work out a tax dispensation, in return for which we expect nothing – wink, wink -- in the way of campaign donations. We do, however, expect you to join us in a necessary piece of political kabuki. Our mutually beneficial win-win arrangement will give us boasting rights, while you will get some tax money for producing jobs you might have produced anyway, even without our generous interventions. Please remember us in your will.”
It seems pretty clear at this point that the tax money Mr. Malloy showered upon Alexion did not purchase jobs – because Alexion recently announced that it was cutting 200 jobs, about 7 percent of its global workforce. Alexion has not disclosed the number of jobs in Connecticut that will be lost because, according to CEO David Brennan, “In preparing our 2017 operating plan, the submitted expenses, including headcount requests, across functions were outpacing our anticipated revenue growth."
The announcement presents Mr. Malloy with a knotty political problem: What do you do with a favored company that regards contractual arrangements as little more than whispered promises? The answer to this question is: You don’t do anything. You CAN’T do anything. You simply write off the loss the way greedy billionaires pilloried by stalwart progressive such as Elizabeth Warren of Massachusetts write off losses against their tax obligations. You can’t do anything – because if you were to set loose Attorney General George Jepsen on Alexion, the ensuing publicity regarding a failed “First Five” client would remove a powerful knight from your campaign chessboard; the politically profitable illusion that a highly taxed, over-regulated state is capable of creating more jobs than a low tax, low regulatory state would simply explode like a pricked balloon. Life will go on. Politics, it turns out, is not the art of the possible; it is the art of survival. Perhaps no one will notice.
A legislator with spine did notice. House Republican Leader Themis Klarides pointed to Alexion as “just another example of how the administration is doing deals to benefit companies without any real guarantees of long-term job creation and commitment from the beneficiaries of such lucrative contracts.” While the executive branch “has to have the authority to engage in such transactions, and the goal is obviously to keep and attract employers to Connecticut,'' Klarides pointed out, “… the legislative branch should be heard on these matters.” The legislative branch is constitutionally charged with collecting and allocating tax revenue, in addition to balancing budgets.
Replying through spokesperson Meg Green, Malloy retorted, “This is precisely what's wrong with Republican leadership – it's easier to play politics and root for failure than to understand the facts. To date, the First Five initiative has created over 3,500 jobs in Connecticut. As a First Five company, Alexion Pharmaceuticals has made a commitment to stay and grow right here in Connecticut – that is not changing. While some may call for pulling the rug out from under our major employers in an attempt to score political points, we will continue to focus on strengthening our economy by providing greater stability and predictability for businesses throughout the state."
Imagine – a legislator concerned with recouping a modicum of control over the distribution of tax monies to companies that care little for governmental “investments” as against stockholder investments. In fact, Malloy is not – and never could be – as capable an investor as the stock market mavens that regularly bet other people’s money on promising companies. But what our state government, led by progressives, will not do to improve business prospects in Connecticut – i.e. create a stable business climate through tax cuts, deregulation and sound fiscal policies – other states will do, precisely to insure “stability and predictability for businesses." The First Five interventions preferred by Malloy distort markets, create uncertainty and contribute to an unhealthy accretion of power in the executive at the expense of a sometimes spineless legislature.