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By Ryan Prete
Healthcare insurance tycoon Aetna Inc. announced plans to relocate its headquarters from Hartford, Conn., on the heels of receiving $24 million in performance-based tax credits from New York City.
The June 29 announcement comes as the Connecticut General Assembly struggles to pass a balanced budget.
“This is an important reminder that to be competitive, Connecticut state government must immediately take the necessary steps to produce a balanced biennial budget with recurring measures to reduce spending and structural solutions to our long-term problems,” Gov. Dan Malloy (D) said in a statement.
Aetna’s relocation plans alongside an ongoing budget crisis underscore Connecticut’s economic problems, according to practitioners. It also follows the exodus of General Electric Co. from Connecticut to Boston in 2016, a move that Gov. Malloy then said presented “a clear signal that Connecticut must adapt to a changing business climate.” Massachusetts also offered a tax incentive package.
“Connecticut is facing several large problems right now,” Morgan Scarboro, a policy analyst at the Tax Foundation, told Bloomberg BNA by email. Connecticut “has the highest per capita income in the country, yet it’s currently without a budget for the new biennium, its credit rating has been downgraded once again, it’s losing major employees, and it’s having a difficult time coming up with new revenue. This should serve as yet another sign that the state needs real reform to fix structural issues in the tax code and budget.”
Aetna has a market cap above $50 billion. The company’s $37 billion deal to buy rival insurer Humana Inc. was blocked by a federal judge earlier this year.
Malloy claims the company will keep the majority of its 6,000 employees in Connecticut. Aetna’s relocation includes a transfer of 250 senior positions to New York City, which is expected to begin in late 2018.
“The company remains hopeful that lawmakers will come to an agreement that puts Connecticut on sound financial footing, and that the state will support needed reforms to make Hartford a vibrant city once again,” Aetna said in a statement.
A press release from New York Gov. Andrew Cuomo (D) highlighted the $24 million in performance-based tax credits offered to Aetna, which will span a 10-year period. Cuomo said the relocation pushes New York closer toward its goal to be a life sciences industry leader. The move also follows a $620 million state initiative “to spur the growth of a world-class life science research cluster in New York.”
“This multi-faceted initiative includes $100 million to expand the Excelsior Jobs Program Tax Credit to the life sciences industry and $100 million for a life sciences research and development refundable tax program,” Cuomo said.
The looming question for New York is whether the millions of dollars in tax credits will equal positive returns for the state.
“In general, evaluating the effectiveness of tax incentives can be difficult, because they’re typically judged by anecdotal evidence like ribbon-cutting, not data outcomes,” Scarboro said. “It’s difficult to measure whether these things would have happened without the credits and difficult to take into account the opportunity costs. States should instead fix their tax code for everyone instead of arbitrarily picking winners and losers.”
However, other practitioners find a direct economic benefit from the tax credits is evident.
“Beyond the immediate short-term economic impact of the build-out of the corporate headquarters, there are long-term benefits that may explain why a tax credit and incentive package is being offered,” Jamie Yesnowitz, state and local tax practice and National Tax Office leader for Grant Thornton LLP, told Bloomberg BNA by email. “For example, employees located at the New York City headquarters are likely to shop locally while at work, resulting in transactions that generate sales taxes. Further, the presence of a prominent corporate headquarters in a New York City neighborhood may serve to increase property values of buildings surrounding the headquarters, eventually leading to additional property tax collections.”
Malloy said “businesses care about how states budget, and now is the time to continue our bipartisan efforts to reform our budget, find new ways to pay our pensions, and create a more sustainable and predictable state budget.”
“As evidenced by the need for several special legislative sessions in the last couple of years, and the inability to come to a budget agreement on June 30, Connecticut’s financial situation is precarious,” said Yesnowitz, a member of Bloomberg BNA’s State Tax Advisory Board. “Until the underlying issues that are impacting Connecticut’s finances are resolved, companies with significant presence in Connecticut are likely to continue to consider whether to move to other jurisdictions that are in comparatively better fiscal shape.”
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