PROVIDENCE – The R.I. Office of Revenue Analysis is recommending the elimination of a state job-development program that’s benefited some of the state’s largest employers but which it says also puts companies looking to come to Rhode Island at a disadvantage.
The Jobs Development Act program, enacted in 1994, was created as an economic tool under the R.I. Commerce Corp. – known then as the R.I. Economic Development Corp. – to incentivize businesses via a tax rate reduction to hire more workers.
Building a Strong Data Foundation in the Age of AI
Artificial intelligence (AI) has become a key priority in the boardroom and across management —…
Learn More
An Office of Revenue Analysis report for tax years 2016 to 2018 says the program is a barrier to entry into the Rhode Island economy since companies would have to compete for resources with current program recipients but can’t be part of the program because it has been closed to new participants since 2015.
The recently released report recommends that the program be repealed by legislators due to its lack of a significant enough tax rate reduction benefit to influence an intended increase in employment.
“While a tax rate reduction reduces the cost of doing business for a [company], there is no guarantee the [company] uses this cost savings to increase Rhode Island employment,” said Madiha Zaffou, interim chief of the ORA, who authored the report.
Zaffou said for some companies, the program provides only a token amount of tax-reduction benefit, which may be insufficient to change the hiring behavior of a company.
The report cites the Qualified Jobs Act as an example of a tax incentive program that overcomes many of the challenges associated with the Jobs Development Act.
Under the Qualified Jobs Act, recipients receive tax benefits for a fixed time period, usually 10 years. Zaffou said the tax reduction benefits are proportional to the firm’s level of employment, with tax benefits usually ranging between $2,500 and $7,500 per employee.
“The report recommends that policymakers repeal the JDA, but also ensures that the Rhode Island economic and tax policy landscape remains competitive and attractive to current beneficiaries and all Rhode Island businesses,” said Zaffou.
R.I. Commerce Corp. agrees. The agency believes that it is a tricky balancing act to maintain the integrity of the program while addressing inadequacies through policymaking.
“It’s a complicated decision around how to manage expectations of businesses that are receiving the old benefit, especially since we weren’t around when those decisions were made,” said Hannah Moore, assistant Commerce secretary, who noted that the legacy program was sunset in 2015 and the Commerce Corp. proposed its termination.
The agency, a consultant to the report, believes the state’s current suite of investment tools serves the purpose of sufficiently promoting economic development in the state without the JDA.
The agency, in agreement with the findings, is calling for further analysis of the program – even in its current, limited form, with only preexisting recipients eligible for benefits.
The program was designed to provide incremental tax rate reductions based on a company hiring a certain number of full-time employees to spur job growth in the state. However, not all companies could maintain the program’s employment requirement, leading companies to become ineligible.
Qualifying companies receive an incremental tax rate reduction based on the number of full-time employees maintained during participation.
Only two companies, CVS Health Corp. and Citizens Bank, remained qualified for the tax rate reduction incentive from 2011 to 2020.
The program provides incremental tax rate reduction for businesses on their gross earnings under Rhode Island general law.
The annual average in net revenue generated by the program for 2016 to 2018 was $16.49 million, offset by the $13 million cost for funding the tax incentive. That means the total net revenue generated for the period was $3.5 million, or for every dollar spent on the program, the state collected $1.27.
The report noted that companies that receive the tax rate reduction are among the state’s longest-standing, highest-paying and largest employers.
CVS and Citizens Bank reported the highest tax reduction savings with an average of $8.6 million and $5.7 million per year, respectively, between 2011 and 2020. Over that period, the companies had the highest levels of JDA-qualifying employment in the state.
From 2016 to 2018, CVS and Citizens Bank had average annual required employment of 3,430 and 2,337 employees respectively, while General Dynamics Electric Boat, third in the report’s rankings, had 1,501 employees.
The report points out that Rhode Island legislators have made no changes to the program, even though previous studies have been issued highlighting its shortcomings.
Many states offer tax incentives for job creation, but most are in the form of tax credits or cash grants, rather than tax rate reductions, according to the report.
UPDATE corrects the name of the jobs program to Jobs Development Act program. A previous version of the story had an incorrect name. Also, tax benefits were misattributed to the Jobs Development Act. Tax benefits under the Qualified Jobs Act usually range between $2,500 and $7,500 per employee.
Cassius Shuman is a PBN staff writer. Contact him at Shuman@PBN.com. You may also follow him on Twitter @CassiusShuman.
