By Kevin McNabola
Orange Board of Finance
Kevin McNabola
It is fair to say that over the past two decades the legislature in Hartford and our congressional delegation in Washington haven’t prioritized Connecticut’s economy with a pro-growth agenda to attract more business to Connecticut.
Connecticut ranked 48th in economic performance in 2024 and 40th for economic outlook for the next few years, according to the Rich States, Poor States ranking released by the conservative American Legislative Exchange Council. Over the past decade Connecticut has also lost some huge companies that created thousands of good paying jobs, including General Electric, Aetna, United Technologies and Alexion – all of which have moved operations and headquarters to tax friendly states or states that gave them huge tax incentives.
There is, however, some good news coming out of Hartford with the respect to the governor’s latest two-year budget proposal, which includes raising the research and development tax credit for biotech and pharmaceutical companies from 65 percent to 90 percent. The governor has forged ties with the private sector and has made it a priority to create more taxpayers instead of burdening Connecticut with more taxes. Gov. Ned Lamont’s proposed budget also reduces the tax burden on small businesses, which is definitely a great first step to having Connecticut become more competitive.
Although Connecticut’s economy has performed well in recent years, the economy for 2025-2027 is only projected to grow 1 percent and 1.1 percent respectively over the next two years. The governor’s budget of $27 billion for fiscal year 2025-26 contains a 3.8 percent increase. In the 2026-27 fiscal year it’s a 4.6 percent increase to $28.2 billion.
Lamont is also proposing to ease the state’s volatility cap, which limits the amount the General Assembly can spend from the state’s most volatile revenue sources. This would allow our lawmakers to spend an additional $300 million over and above the increases in the proposed budget.
The governor is one of the few within his party to take a pro-growth and pro-business approach. The research and development tax credit will certainly go a long way to attract new startup biotech and pharmaceutical companies that want to set up shop here. Currently there are only a few states that offer refundable R&D tax credits. Two of them are next door. Massachusetts and New York have refundable tax credits for life-science type companies. Massachusetts offers 90 percent and New York offers 100 percent.
Increasing the rate will only cost the state roughly $1.8 million in tax revenue in each of the next two fiscal years. However, I believe there is significant upside for Connecticut if the state wants to be a serious contender within the biotech sector. The investment in human capital and the investment within capital equipment will go a long way in creating high paying jobs and fostering future economic growth within Connecticut.
It is important for Connecticut to create growth by attracting companies, particularly since the state’s tax revenues are heavily reliant on millionaires who make up just only 0.7 percent of all state tax filers but accounted for 30 percent of all income tax receipts.
Connecticut has long been known as one of the least attractive states for high-income earners to reside in, which is why we have seen residents move to more tax-friendly states such as North Carolina, South Carolina and Florida. Connecticut did recently provide working and middle-class families with the largest income tax cut in state history, which provided roughly $500 million of relief to middle- and low-income households. However, we need to do more to grow big business and our economy.
I hope the governor and other fiscal moderates within the legislative majority will continue to look at other economic growth initiatives and approve the R&D tax credits so Connecticut can become more competitive and continue to build the road to fiscal sustainability.
Kevin McNabola is the chief financial officer for the city of Meriden and a member of the Orange Board of Finance.