Yet as integral as the life sciences are to our future, fiscal pressures on federal and state government could work to undercut the incentives we’ve created to attract and nurture bioscience research and entrepreneurialism so well showcased by Steitz’ and Rib-X’s work. At the state level, the stakes are high and this month I thought it worthwhile to reprint below an article penned by CURE Board member Harry Penner and Christopher Levesque, CEO of CURE member company Affinimark Technologies.


Paul R. Pescatello is President and CEO of CURE.

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To Increase Tax Revenues, Grow the Tax Base

At last we are seeing glimmers of hope that the storm waters of the steepest economic decline since the Great Depression may be receding. Fortunately, timely injections of federal funds and the indomitable American spirit have held fast against what might have amounted to an even greater downturn. 

Nevertheless, concerns about home foreclosures, job cuts, moribund lending activity and unprecedented government budget deficits persist, providing regular reminders of the continuing seriousness of our economic predicament.  To many, the record $8.5 billion Connecticut state budget deficit represents one of the most prominent testaments to the consequences of this near perfect economic storm.

Clearly, Governor Rell and the legislature must develop novel ways to make ends meet on a current basis. Yet it is even more important in this moment of crisis, that they be mindful of critical economic development principles and the clear economic opportunities at our disposal. Truly, the manner by which we confront our current deficit, on the one hand, and our growth opportunities on the other, will determine whether we are industrially successful or regress toward the median over the coming decades. 

Our collective goal (government, industry, and academia) must be to position Connecticut for a sustained rebound that will catapult our fair state into a position of relative economic advantage when the recession fully abates. However, the challenges that confront our state tax base today derive from major demographic shifts of a continuing nature that demand a multifaceted, coordinated, and sustained response.  We list some of these challenges below.

The shift to a service based economy has lowered our tax base. Though knowledge-based jobs require higher education and are generally highly compensated, service-based jobs often require less education and command lower rates of pay.  This demographic shift has direct implications for the state income tax base and may help to explain part of the recent dip in Connecticut’s GDP. 

The loss of management level positions has lowered the tax base. While upper management and financial services jobs are clearly highly paid and highly compensated, the pressure on businesses to conduct operations more efficiently has caused the disappearance of whole layers of such positions.  The loss of such jobs (and an under supply of highly educated, knowledge-based workers willing to stay in Connecticut) portend a further fall off in the state’s income tax revenues.

Not all service economies are created equal.  Call center and casino jobs are relatively low paying in contrast to the highly compensated knowledge-based positions in biotechnology, healthcare, financial services and green energy. An increase in the number of knowledge-based positions will increase the tax base.

Recent immigration has further strained the state’s economy. The influx of high numbers of relatively poor and under educated immigrants places growing pressure on social services. Compounding the cost to taxpayers are those who work off the books and are thus invisible to the tax system.

Of course, all states struggle to attract and integrate new businesses, technology and dynamic work forces while juggling social issues and maintaining sensible and equitable taxation and spending policies.  Even so, some states will emerge from this recessionary period in a comparatively advantageous position, largely by sowing the seeds of insightful development now.  Let us make sure that Connecticut is one of them, better poised to attract and develop new, technology-based businesses and the creative work forces they foster. 

So what must we do? Our recommendation:  

To Build State Tax Revenues, Build New Businesses.

While stating a strikingly simple and proven economic maxim, our recommendation depends on thoughtful and highly coordinated initiatives.

Maximize the Impact of State New Business Development Initiatives. Current efforts designed to spur new technology based business in Connecticut are too distributed, under-coordinated, and limited in their reach. Achieving better coordination and penetration of existing economic development programs in pursuit of the generation, recruitment and retention of such new businesses should be a critical goal of state government.

Improve the Care and Feeding of New Businesses. New technology based firms entail risk, but they also represent the greatest promise for value creation and a growing tax base.  New businesses require not only direct financial support from the state, but also greater access to early stage private capital, business connections and insights, and competitive business costs.

Provide More Effective Infrastructure. Simplify administrative burdens, establish additional business incubators, and integrate the output and facilities of our colleges and universities more fully with the job skill requirements of our emerging businesses.

Don’t Forget Social Infrastructure. Spurring entrepreneurship and the formation of new businesses is also highly dependent on the quality of our state’s neighborhoods, educational systems, public transportation, and overall quality of life.

Develop an Entrepreneurial Tax Policy, and Maintain it Over Time. Consistent, competitive tax rates, investment incentives for businesses, incentives to venture capital, and the avoidance of one-time levies (for which small businesses cannot effectively plan) are urgently needed.

Convene and Unite Government, Business, and Academia. Only through a coordinated and sustained effort by the people who can implement the necessary changes and conduct the required follow-through over time can the dream of a growing tax base become a reality.

The goal of building the state’s economy and tax base on the strength of new businesses requires enormous government discipline, an openness to creative solutions, fiscal restraint, and a long term view. But the result will be a rich mosaic of growing technology based companies and higher paying jobs representing an ever expanding tax base that can enrich our state’s cultural fabric and ensure economic stability for the decades to come.

The authors: Harry H. Penner, Jr. is Chairman/CEO of New Haven Pharmaceuticals, a founder of several CT based biotechnology companies, and former Biotechnology Advisor to the Governor. Christopher Levesque is founder and CEO of Affinimark Technologies and a former CT Assistant Attorney General.