CT made $2.13 million on Alexion despite headquarters leaving New Haven

April 07– Apr. 7—NEW HAVEN — Despite facing public criticism when Alexion Pharmaceuticals relocated its headquarters from New Haven to Boston last summer, Connecticut actually made money on the deal.

By the time the company paid back a $20 million loan, plus interest, as well as a $6 million grant and penalties, the state Department of Economic and Community Development came out $2.13 million ahead on the deal, according to Jim Watson, a spokesman for the state agency.

The loan and grant money came as part of the state's First Five agreement with Alexion, which called for up to $51 million in assistance.

The state included Alexion in the program in return for the company agreeing to relocate from Cheshire to New Haven.

First Five was an economic development program created by the administration of then-Gov. Dannel Malloy to provide large sums of money to corporations in return for a commitment from the companies to stay in Connecticut and create jobs.

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The First Five deal called for a 10-year term on the loan of $20 million and an interest rate of one percent, with principal and interest deferred for five years. The $6 million grant was for laboratory construction and equipment.

Watson said Alexion has paid back the state's loan and grant. The company also paid nearly $792,000 in interest on the loan and almost $1.34 million in penalties, or what DECD calls liquidating damages.

Alexion, however, which continues to have a research presence in New Haven, came away with $5 million in Urban and Industrial Sites Reinvestment tax credits. The credits can be used by Alexion to offset the company's state tax bills, Watson said.

“Those were earned and not recoverable per the terms of the contract,” Watson said, referring to the legal agreements state officials signed with the company when it became part of the First Five program in 2012.

The tax credits are structured in such a way that any company receiving them can't use them for three years, he said. There is a 10-year-window for the tax credits to be used, according to Watson.

“It requires the company receiving the credits to make the investment up front,” Watson said. “It's a very unique tool for us to have.”

Even with Alexion relocating its headquarters to Boston, the company employs 500 people at its Center of Excellence at 100 College St. in New Haven, according to spokeswoman Megan Goulart. She declined to say whether the company has already made use of its tax credits.

“Additional details on these terms remain confidential,” she said.

And what did Alexion do to earn the tax credits it received? Watson said that assessment was based on meeting certain goals over two time periods: Jan. 1, 2013, to Dec. 31, 2015, and Jan. 1, 2016, to Dec. 31, 2016.

“Given the total increase in employment and the construction costs for those periods resulted in positive net income to the state, they were awarded the credits,” Watson said.

During those two time periods, DECD issued $151.35 million in Urban and Industrial Sites Reinvestment tax credits to 27 companies, he said.

Fred Carstensen, a professor at the UConn School of Business and director of the state Center for Economic Analysis, said when it comes to using tax credits, “what matters is how you structure the deal.”

“What you want to do is not simply let (them) cut their taxes,” Carstensen said of tax credit deals with companies. “You want them to do something to prompt an investment in Connecticut, to build projects that will keep the company here.”

Connecticut political leaders here have a mixed history when it comes to using tax credits, he said.

Carstensen said one example of positive use of tax credits was the 2014 deal reached between United Technologies Corp., the Malloy administration and the General Assembly. The Farmington-based conglomerate agreed to spend $500 million to improve and expand its research and manufacturing facilities over a five-year period.

The deal committed UTC's Pratt & Whitney subsidiary to remain headquartered in the state for at least 15 years.

In return for those and other commitments, the state gave UTC tax credits of up to $400 million over 14 years. Carstensen said broad use of tax credits is a tough sell to state legislators.

“They view it as losing revenue rather than seeing the potential it has to grow the economy,” he said.

But Donald Klepper-Smith, chief economist and director of research for New Haven-based DataCore Partners, said state officials misplayed the way the tax credits were awarded to Alexion.

“There has to be accountability and the potential for long-term economic growth and the problem here was that relationship (with Alexion) was short-lived,” Klepper-Smith said.

Even though DECD was able to recover more money than it invested in Alexion, Klepper-Smith said the First Five program has done little to improve the overall economic health of Connecticut.

“You need to be able to increase incentives for all business, not just a few,” he said.

Carstensen said regardless of whether state officials structured Alexion's First Five incentive package correctly, Connecticut was at a competitive disadvantage in its dealings with the company.

“Because of the business they're in (developing drugs for treating debilitating diseases that afflict small numbers of patients), Alexion wanted to be someplace where there are a lot of health care facilities,” he said. “New Haven has the Yale-New Haven medical complex, but that doesn't really compare with the number of hospitals in the Boston area.”

Also, current business trends have companies looking to locate in large, urban centers and Connecticut comes up short in that regard, according to Carstensen.

Since Alexion moved its headquarters, Yale University announced early this year that it entered into a lease for space at the Alexion building at 100 College St., which the university termed “an ideal location that connects the university's medical and central campuses.”

Under state law, nonprofit educational institutions are exempt from paying property tax, but in Yale's lease at 100 College St., that portion of the property won't be tax-exempt, City Assessor Alexander Pullen has said.

Winstanley Enterprises, a Massachusetts-based company, is the landlord for the building.

luther.turmelle@hearstmediact.com

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