EDC eager to help state ‘earn a new reputation’

Valois
Valois

With critics calling for radical change to the R.I. Economic Development Corporation in the wake of the 38 Studios disaster, Gov. Lincoln D. Chafee turned to Marcel A. Valois, a trusted name who had run the quasi-state agency 16 years earlier. And within weeks, the choice seemed to have a calming effect on the organization, which had just been overhauled and seen the departure of a large portion of management.
In the past six months under Valois, the EDC has reached out to more than 600 Rhode Island companies in an effort to help existing business instead of trying to lure them from elsewhere with incentives. A more restrained EDC should help the state avoid disasters such as 38 Studios, but that still leaves Valois with the job of trying to improve an economy that trails behind its neighbors.

PBN: Why did you want to come back to this job after 16 years and all that’s happened?
VALOIS: In my conversations with the governor I just felt based on my background, that with my experience I could be helpful. When I go around the state and talk to people both in and outside of business, there are folks who have opinions and some have high levels of cynicism and I like to challenge them and say: What are we going to do about it? I was at a point in my life where I thought I could be helpful, where I could bring my experiences and knowledge of the economic-development field to Rhode Island at a time I thought they needed some direction and stability at the Economic Development Corporation.

PBN: Since you have come back, have you personally taken a look at what was going on internally at the EDC during the 38 Studios period, in order to learn from it and avoid similar pitfalls?
VALOIS: No. I have not been focused on 38 Studios, but I am familiar enough with the process and the conversations that led up to the 38 Studios decision to understand and learn around the due diligence that is required when we get involved in these very high-risk, early-stage decisions. I certainly have an appreciation for that. It certainly helps formulate my approaches to the restructuring of programs or activities here at EDC. But it is not limited to me. I think a lot of people have learnt over the last two years. There are a lot of new procedures in place as a result of everyone learning some very valuable lessons from that experience.

PBN: Since 38 Studios and the resulting policy changes, does the EDC now have the capacity and reach it needs to make an impact? Do you think it needs more?
VALOIS: The political leadership in the General Assembly has laid out that groundwork of what our mission, roles and responsibilities are and I am going to work within that context. They debated it and had a lot of input from people around the state and this is the decision they made. My job is to work within that context. We carry out the activities deemed important by state leaders and thought leaders in economic development, which will be a secretary of commerce in 2015. Looking at us as strictly being an operating entity, we are refining the tools that we have to operate. … A customer-management system … is the nuts and bolts of blocking and tackling we need to do well to be effective. We are charged with being a customer-centric organization, and I think we need to have information at our disposal about our customers. Everything we know about our customers we should have at our disposal and every interaction that we have with our customers needs to be documented, so we know the level of activity we have and level of success we have. You can’t do that if you don’t have a way of measuring and capturing that information.
PBN: The EDC has recently had trouble attracting interest in its Small Business Loan Fund financing and businesses have said the interest rates are too high. Are you considering lowering them?
VALOIS: There are a lot of opinions out there on how we should use our Small Business Loan Fund, but that is not state dollars. It is federal dollars that have very specific operating rules and we have to live within those operating rules. In the lending business, if you are going to take higher risk, then your interest rates reflect that risk. If you do riskier loans, there is a higher likelihood of default and you’ve got to make up that loss somehow. You’ve got to set up reserves by charging higher interest rates. Pricing is based on risk profile. In the past they allowed that interest rate to inch up and we saw a lack of demand for the product. Don’t forget that product is not meant to compete with banks.

PBN: Do you want to be a lender of last resort?
VALOIS: No, a lender of last resort means that there are substantial issues with collateral, cash flow, with business experience. I am not sure we want to be a lender of last resort. On the other hand, there are perfectly bankable deals where companies have great relationships with their banks and there are lines of credit and fixed-asset financing and all sorts of things available to them. They don’t need us because we don’t want to be in competition. But there are some cases where companies are near bankable, but there is a gap: the bank is willing to do two parts of their project but they need help with the third piece. That’s where we fit in. I would love to expand my relationships with banks more to tag-team an opportunity in the community instead of focusing on someone who has lost access to financing everywhere else. Because getting us in that arena, there has to be an acknowledgement of the political leadership that there will be an erosion of the capital base. There is a lot of discussion of urban funds and dealing with high-risk business populations. We don’t have a fund for that. If the General Assembly feels that is an important area to get involved in, they need to recognize upfront what the history is of those funds and the erosion of the capital base over time because of higher default rates.

PBN: Have you beefed up data collection and performance measurement of companies getting loans?
VALOIS: We are a lender, so our principal responsibility – obviously the ultimate goal is to create jobs in Rhode Island – but our first responsibility is documenting the loan and making sure we are documenting the public resources properly and making good underwriting decisions. When we enroll companies in the program do we know what their employment level is? Yes. Do we, after the loan is paid off or if they prepay the loan, do we follow them for the next 20 or 30 years to say, “we gave them a loan and that is why they are successful today?” No. We don’t make that leap but our focus is on managing the direct loan responsibilities, making sure we limit the amount of default. We put processes in place – this is before I got here but with the governor more than a year ago – we put in measures in place that are like a ticker system that allow us to see at a certain date companies responsible [for providing] a financial statement. That data goes into a data system and we can monitor the loan portfolio more aggressively because of those procedures.

PBN: There was a lot made about the damage done to the EDC’s reputation after 38 Studios. Is the reputation and the ongoing fallout of lawsuits still a barrier that makes companies not want to do business with the EDC?
VALOIS: No. I hear more about 38 Studios from the press than I do from companies I talk to. I don’t dwell on 38 Studios and they don’t dwell on it. Has Rhode Island been bruised? Yes, absolutely because it was a national story, but we move on. We need to get back up and take advantage of opportunities and clear out problems where they exist so we can continue to grow our economy. We are moving on and the reputation of the state and EDC is all dependent on the behavior we exhibit on a going-forward basis. If we are responsive to community and business needs and deal with long-term business-climate issues, and if we could herald all the good things and competitive advantages that we have as a state, if we can do all that we will earn a new reputation.

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PBN: How has the job changed since you were here last?
VALOIS: In many respects it is still the same business, in that economic development is about creating the conditions that attract wealth. We need to keep growing the pie. We need to grow companies here and others that come here that will export their products and services outside the state and as a result of that bring new wealth. That has not changed and issues of capital and regulatory environment haven’t changed. The whole issue of talent development and the workforce has changed significantly.
The structure of the workplace has changed. We used to have these places of employment where you had a targeted track, where you can start off at this level and have bumps up and after 30 years you could retire with a gold watch. A lot of that has changed in Rhode Island and nationally. Numbers I have seen say an individual changes workplaces seven to 10 times in a lifetime. Employers are looking for different skill sets, but you have a whole group of workers out there who haven’t made the transition yet. •

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