Op Ed - The Jackson Lab Deal: They're Gambling With Your Money

By State Sen. Len Suzio

Nearly $300 million in your money is on the table to attract Maine-based Jackson Laboratory to Connecticut. For that huge sum of taxpayer dollars, you would expect a well-thought-out and detailed proposal.

So here’s a one-question quiz for all the Connecticut taxpayers out there: 
Which of the following did the Malloy Administration present to Republicans at an October 12 briefing:

1. an ill-conceived outline of half-finished Jackson Lab ideas
2. little or no documentation substantiating the financial details of the Jackson Lab deal
3. a high-risk gamble with inadequate security
4. all of the above.

If you guessed correct answer “d,” take a bow.  Here’s what happened:
The Malloy Administration presented Republicans with a plan that short changes Connecticut no matter whether Jackson succeeds or fails in its proposed Connecticut operation.  Essentially the proposal is structured as a $99 million grant plus a $192 million mortgage that would be forgivable after 10 years if Jackson Lab achieves a target of 300 people employed in Connecticut at the end of year 10.  None of those people have to be from Connecticut and in fact, many of the best paid (the principal investigators) will not be from Connecticut. They merely must be employed in Connecticut (and presumably reside here too). By attaining this very low employment target, Jackson Lab would be forgiven all of the nearly $300 million.

Connecticut’s Department of Economic and Community Development Commissioner could not answer specifics about debt service during the first 10 years of the deal. She speculated it might be structured as an interest-only loan at 1% annual interest. In essence, legislators are being asked to approve a half finished proposal.

To substantiate the proposal, the Commissioner presented a slide show and - nothing else! When I questioned her about the detailed plan Jackson Lab had presented Florida, she responded that she did not have one for Connecticut. She had no financial forecasts detailing Jackson Lab cash flow and operating surpluses or deficits. Asking for approval of a $300 million transaction without detailed financial information pertaining to the recipient is stunning.

The proposal as presented to the Republican caucus would shortchange Connecticut under every scenario. Consider a range of possible outcomes:

Scenario 1, optimistic: Let’s say Jackson Lab beats the high-risk odds of developing leading-edge high-risk technology and wildly succeeds. Its technology becomes extraordinarily valuable. What does Connecticut get paid for wagering $300 million (including interest cost) of taxpayer money on the line over ten years?  Absolutely nothing!  Connecticut forgives all $300 million and gets nothing direct in return - even though the Company would have an extremely valuable technology. Even when Jackson Lab wins, Connecticut loses! Sure we may get thousands of "indirect" benefits.  Who knows, maybe a few thousand new jobs will be created. But Connecticut would have risked hundreds of millions of dollars and close to 100% of the venture capital and it would have no claim on a technology that could be worth more than a billion dollars.

Scenario 2, a middle of the road outcome: Jackson Lab develops the technology of personalized medicine with modest success. It achieves the goal of 300 employees as year 10 approaches. But the results are not spectacular. Jackson Lab may have a valuable asset (although not as valuable in the breakthrough scenario) in its technology.  Again, Connecticut has no vested interest in the technology even though it wagered hundreds of millions of taxpayer dollars. But there may be benefits in the form of a few hundred "multiplier" jobs spun off.  Let's assume that between Jackson Lab’s 300 employees and the indirect jobs a total of 1,000 jobs are created.  Are 1,000 jobs 10 years from now costing $300 million of taxpayer money worth the gamble? This is tantamount to $300,000 of taxpayer dollars per job, including the indirect jobs!

Scenario 3, failure: In spite of the promise, Jackson Lab fails to develop its leading edge technology and doesn't reach the goal of 300 employees at the end of year 10.  Jackson Lab would have an obligation to pay Connecticut $300 million but the technology it has been developing doesn't generate the revenues to pay back the deal. How will Connecticut get its money back? This is a non-profit entity. It certainly has a prestigious reputation, but it is heavily dependent on grants and donations to sustain itself.  It won't have the operational cash flow to pay back Connecticut (its own cash flow projections show negative cash flow for years out). Connecticut may have to foreclose on the real estate, which may or may not be valuable enough to pay off the obligation. Connecticut would have taken a high-risk venture with insufficient collateral and insufficient cash flow to pay off the loan.

The foregoing does not even take into consideration the inherent unfairness of giving away hundreds of millions of taxpayer dollars to a non-taxpaying entity while giving nothing to tax-paying Connecticut businesses with a demonstrated loyalty to Connecticut.  What about the other 90,000 Connecticut companies? Thousands of Connecticut businesses are struggling to survive and our governor is prepared to virtually give away more than a quarter of a billion dollars for only 300 jobs. Under the proposed deal, the state could give away $100,000 to 3,000 different Connecticut businesses conditioned on each of them creating only one job.  If 90% of them failed, the remaining 10% would still create the 300 jobs promised in this deal.

Having Jackson Lab facilities in Connecticut would be exciting. But let's do it the right way, the prudent way, and the fair way.

Connecticut taxpayers deserve no less.

- State Senator Len Suzio (R- Meriden) represents the communities of Cheshire, Meriden, Middlefield, Middletown and Rockfall.

Click the video above to see the request Suzio sent to his constituents Wednesday, asking them to come to a public hearing in Hartford Thursday on the Jackson Lab Deal.