Monitoring upgrades at EDC shelved

Just as the collapse of 38 Studios LLC illustrated the importance of keeping close tabs on taxpayer-backed loans, the bankruptcy also marked the demise of a two-year effort to improve how all R.I. Economic Development Corporation investments are monitored and analyzed.
Soon after taking the helm of the EDC in January 2010 amid concerns over how little up-to-date information the agency had about companies it financed, former Executive Director Keith W. Stokes promised to create a new and more rigorous performance-tracking system.
The primary focus was jobs and whether companies that had received EDC job-creation investments through the years had hired and were still employing the number of people they were expected to when the investments were made.
So Stokes put together a group to work on a new system, led by EDC Senior Strategy and Research Manager Timothy Cole, that included academics, economists and representatives from the state department of revenue.
Progress was slow, but toward the end of 2011 there were signs that something was happening.
Last December, the distribution of a $9 million federal grant that the EDC had helped secure for the Slater Technology Fund was held up over disagreements about what data Slater and the companies it invests in would have to report to the state.
Neither side would discuss the specifics of the impasse, but Stokes said it was an example of the greater accountability the state was asking of firms that benefit from public programs.
“Everything we are trying to do at the EDC, any public dollars either as loans or guarantees, there has to be a level of performance and there has to be measurement and accountability,” Stokes said in December. “This is not private equity, this is public equity.”
On Dec. 16, the task force working on performance measurement met and discussed the next steps for improved analysis of tax-credit programs, according to participants.
But the group – which included Stokes, Chief of the R.I. Office of Revenue Analysis Paul Dion, Bryant University assistant professor of economics Edinaldo Tebaldi, Rhode Island Public Expenditure Council Executive Director John Simmons and University of Rhode Island business school Dean Mark Higgins – has not met since. Because the EDC’s manpower is limited and getting companies to self-report has proven challenging, the agency was hoping to use information collected by the Department of Revenue. But legal controls on the release of corporate tax records prevent the agency from getting much of the information it wanted directly and meant DOR would have to aggregate and summarize the data first and then pass it along, according to Dion.
He had agreed to analyze the performance of the state’s various tax-credit programs, including film tax credits, enterprise-zone credits, Project Status sales tax credits and Job Development Act income tax credits, in a document known as the Unified Economic Development Budget Report.
That report was going to serve as a starting point for improvements to the EDC performance-measurement system, but because of Massachusetts’ foray into casinos, Dion was diverted to a gambling-revenue report and then other tasks connected to the 2012 budget.
When Dion’s report was delayed, work on the new EDC system also stopped, according to members of the review panel. After word leaked out in May about trouble at 38 Studios, the project was shelved indefinitely.
“We had a couple of meetings, and it never went anywhere,” said University of Rhode Island economics professor Leonard Lardaro, another of the task-force participants, about work on a new performance-measurement system.
Lardaro said the group discussions had focused exclusively on tax-credit programs and hadn’t involved any of the EDC’s loan or guarantee programs, such as the Small Business Loan Fund, Industrial-Recreational Building Authority or Job Creation Guarantee Program.
“Our leaders are not in a hurry to make any structural changes and this would have been one of them,” Lardaro said.
The collapse of 38 Studios, which had received a $75 million state-backed loan guarantee, led Stokes to resign and Gov. Lincoln D. Chafee to force out the six members of the EDC board of directors who had voted for it.
There have also been extensive concerns about how state officials could wind up blindsided and powerless to prevent 38 Studios from burning through more than $130 million and going broke.
The EDC declined to make anyone available to talk about its performance measurements and a call to Cole was not returned. Stokes declined to comment.
After 38 Studios went belly up, Chafee commissioned a study of the entire EDC operating structure headed by, coincidentally, Simmons, which is scheduled to be issued in September.
Until then, the agency is operating on a kind of auto-pilot, maintaining existing core programs at a minimal level, but not beginning any new initiatives.
In the wake of 38 Studios, Chafee questioned the value of an independent EDC and raised the possibility of folding its functions inside his own office.
Even if that happens, chances are at least some of the current programs administered by the agency will continue and many involved say improving data collection, company reporting and analysis of both will be more important.
Vibco Vibrators President and EDC board member Karl Wadensten, a long-time advocate for more information on state investment performance, said he still hopes for improved tracking, but that it should not require tax records, just more collaboration between the agency and companies.
“The question is, does EDC take a participating role with the people they loan and give money to?” Wadensten said. “Are they partners or do they give them the money and then have no role after the deal is done?”
At the EDC’s July meeting, Wadensten received a briefing that he had requested on the status of the Renewable Energy Fund, but noted that it lacked any perspective on how the investments had performed versus expectations.
“You have the raw numbers, but not that underlying piece of what they were supposed to do,” Wadensten said.
Rhode Island AFL-CIO President and EDC board member George Nee (who Chafee replaced on the board and is serving until his replacement is confirmed) said he had forgotten about the performance-measurement effort amid the turmoil, but hopes it resumes.
Revenue-analysis chief Dion said he is still working on the Unified Economic Development Budget Report. He expects to have it finished in the fall, and thinks discussions over measuring the success of state job-creation investments will resume then.
“I don’t think it was over, just delayed and put on a side track,” Dion said. “This will go forward with the … report telling them what they need to do next.” •

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