Deal or no deal in R.I.?

A group of state lawmakers and several defense contractors spent a day recently touring submarine-building operations at Electric Boat that employ hundreds of Rhode Islanders, and then climbed aboard a helicopter at R.I. Air National Guard’s headquarters in Quonset Business Park for an aerial view of the state’s defense industry.
The group – officially known as the Special Legislative Commission on Defense Economy Planning – is charged with developing policies to help preserve and grow the state’s healthy defense industry, in part by providing incentives for new investment.
Offering incentives to lure new business or help others expand can include everything from policies to reduce electricity costs or garbage-disposal expenses, as the commission is exploring. And it can include sweetheart tax breaks and controversial loan guarantees like the one the state gave to video game company 38 Studios LLC last year, in exchange for a promise to eventually bring 450 jobs to the state.
But at what point do such incentives become the kind of special-interest deal-making Gov. Lincoln D. Chafee has said he will not support? For now, even Chafee and the R.I. Economic Development Corporation, whose primary purpose long has been to grow jobs in the state, aren’t sure.
In a recent interview, Chafee pointed to the state’s 2003 deal with lottery giant GTECH Corp. as a move he would have opposed as governor, even though it persuaded the company to ditch plans to move to Massachusetts and instead build an $80 million headquarters in Providence, keeping hundreds of jobs in Rhode Island.
And the governor has said he wants to curtail the EDC’s “project status” program, which gives tax breaks to businesses in exchange for job creation. In February, the EDC granted TD Bank $420,586 in sales tax reductions through the program if the bank creates at least 160 full-time jobs over the next three years. Chafee said he would have rejected the deal if it hadn’t been so far into the approval process.
“You’re better off saying, ‘This is our tax structure, and we’re going to work every day to lower it, but that’s what it is right now,’ ” Chafee said last week.
Yet Chafee administration officials say his outlook is more nuanced. While he would turn down “one-off” special arrangements, the governor would likely support broad-based policies that stimulate economic activity with certain industries, they say. Just how far the state should go in offering incentives likely will be discussed at the EDC’s retreat on April 9, when the agency’s board of directors – including its four new members – set the agency’s course for the coming weeks and years.
Chafee, who serves as EDC chairman, is scheduled to attend, too.
Late last month, it didn’t sound as if Keith W. Stokes, EDC executive director, was ready to jettison the agency’s incentive programs just yet. “That’s the purpose of our retreat, to sit down and assess all our capital credit programs across the board, and what the return on investment is,” he told Providence Business News. “Then we’re going to look at what other competitive states have in place. No economy operates in a vacuum.”
“We need to look at policy that deals with a whole spectrum of the costs of operating a business in a competitive market,” added Stokes, who under former Gov. Donald L. Carcieri had overseen negotiations for 38 Studios’ $75 million loan guarantee. “In some cases, it might be direct inducements to an individual business, but in other cases it might be realignment of work force training programs. It might be [reducing] renewable energy or utility costs.”
Chafee has said he sees the EDC’s role as creating an economic climate that encourages broader job growth, one of the aims of his plan to revitalize Main Street districts in poorer urban areas.
“I’m not a deal guy,” he said, following an EDC board meeting last week. “That doesn’t mean I’m inflexible, but there’s always someone across the street who’s paying their property taxes, paying sales tax, paying inventory tax, corporate tax. That’s who I’m thinking about.”
Yet a deal stopped GTECH from leaving the state in 2003 and led to the construction of a 10-story, $80 million headquarters in Providence. In exchange, the state awarded, without a competitive bid, a 20-year contract to run Rhode Island’s lottery system. News reports at the time said higher fees in the new contract would cost the state more than $87 million over two decades. What does Chafee – who was a U.S. senator at the time — see as the problem with the state’s arrangement with GTECH?
“The bargaining could have been hardnosed,” said Chafee, who often recalls how he rebuffed Beacon Mutual Insurance Co.’s effort to get tax breaks to locate in Warwick when he was mayor of that city. Beacon moved in anyway.
The governor doesn’t deny that the state continues to benefit from its deal with Fidelity Investments that persuaded the Boston-based mutual company to construct an office complex in Smithfield and bring in thousands of jobs.
Since 1996, the EDC has issued $35 million worth of bonds on behalf of Fidelity, and the state pays a portion of the debt – about $2.5 million a year – as long as the company maintains targeted employment levels. Now Fidelity is considering transferring more jobs to Smithfield.
But while the Fidelity arrangement has worked, Chafee said, others haven’t. He cited Alpha-Beta Technologies Inc., which failed in 1999, six years after the state sold $30 million worth of bonds for the biotech company to uproot from Worcester, Mass., and build a plant in Smithfield.
These days, however, a good business climate and level playing field aren’t enough to attract new companies, many say.
Laurie White, president of the Greater Providence Chamber of Commerce, noted that Texas has a multimillion-dollar enterprise fund that state leaders can dip into when attempting to woo out-of-state firms, particularly in “tiebreaking” situations.
“Incentives are a part of economic-development prospecting,” she said last week. “It’s the way business is conducted throughout the country and throughout the world. They just need to be transparent and can’t be done in a backroom.”
Rep. Raymond E. Gallison, D-Bristol, agreed.
Gallison, a member of the Special Legislative Commission on Defense Economy Planning, said the group will examine infrastructure issues such as roads, among other things. But, he added, there should be more economic-development tools available to state officials.
“Sometimes you do need incentives, because if you’re going to be competitive, other states are going to do it,” he said. •