Gov. Daniel J. McKee was in his element as he strolled along Main Street in East Greenwich one afternoon in July.
It was another stop on his “RI Momentum Tour,” and with new R.I. Commerce Secretary Elizabeth M. Tanner in tow, McKee smiled and shook hands as he doled out certificates of special recognition to small businesses that line the popular commercial district.
The greetings were warm from shop owners who accepted the certificates “in commemoration for thriving as a small business during the COVID-19 pandemic.”
But nearly a month later, the tone in at least one Main Street business has grown a little cooler.
At fashion boutique Bags by Iris Inc., owner Iris Gesualdi says she was glad McKee visited and thinks he has done a sufficient job of supporting small businesses in Rhode Island during the pandemic. But, she adds, there is room for improvement.
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Gesualdi, who’s been on Main Street for 35 years and owns her building, has been troubled by increasing taxes. She says Bags by Iris has been able to absorb the costs, but she worries other small businesses can’t. Making matters worse, she believes that small businesses are shouldering the tax burden while the state appears to favor large, out-of-state corporations.
“A lot of times [corporations] don’t have to pay the taxes that we do, or any taxes at all,” Gesualdi said. “[The state] lowers their tax rate, and that’s not fair. … There should be some for us too, even though we’re little ones.”
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With the primary election for the gubernatorial race looming on Sept. 13 and a general election on Nov. 8, voters such as Gesualdi will get a say on Rhode Island’s post-pandemic economic development, or at least who will be setting that course.
McKee faces a Democrat primary challenge from R.I. Secretary of State Nellie M. Gorbea, former CVS Health Corp. executive Helena Buonanno Foulkes, community organizer Dr. Luis Daniel Muñoz and former Secretary of State Matthew A. Brown. The winner will face Republican frontrunner Ashley Kalus, a businesswoman, or Jonathan Riccitelli in November.
The incumbent has certainly put his imprint on the state’s economic development since he was elevated from lieutenant governor after then-Gov. Gina M. Raimondo left for Washington, D.C., in April 2021.
Under the McKee administration, R.I. Commerce Corp. has used federal relief money to create millions of dollars worth of grant and loan funds for local businesses needing help in the pandemic.
But more recently, McKee has aligned himself with much bigger projects, too, throwing his political weight behind the controversial $344 million Tidewater Landing project in Pawtucket and a plan to transform the “Superman” building in Providence that would require millions more in tax credits.
“There is space, and need, for both local small businesses and larger corporations that bring hundreds of jobs and tax revenue to the state like we are seeing with our developers in Quonset and the offshore wind industry,” McKee said in an emailed response to questions from Providence Business News. “These jobs are Rhode Island-based jobs and they boost our economy.”
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Helena Foulkes, a candidate for governor in the 2022 gubernatorial race.
PBN PHOTO/MICHAEL SALERNO[/caption]
OFF BALANCE?
But the tricky balancing act between supporting small businesses and larger corporations has been amplified recently by the developments surrounding the Tidewater Landing project in Pawtucket that will be anchored by a 10,000-seat soccer stadium along the Pawtucket River. The project hinges on $27 million in state subsidies and another $19 million in city funds.
McKee has advocated for the Tidewater development and last month cast the tiebreaking vote on the R.I. Commerce board that will allow the project to move ahead with a reworked public financing deal.
It’s a project that some of McKee’s opponents have been quick to criticize.
Muñoz, whose economic development platform emphasizes support for microbusinesses, says that while looking to support its smallest companies, the state must move away from providing financial incentives to projects proposed by out-of-state interests that will cost taxpayers.
The state also needs to prepare for a forecasted recession, he says, and brace for inflation trends that can further complicate the Tidewater renovation project.
“I don’t think Rhode Island’s trajectory for getting out of the recession is going to be as efficient or as quick as we would like to see it if we continue to look at economic development through the lens of big corporations,” Muñoz said.
Kalus also lambastes the project and R.I. Commerce for focusing on “corporate welfare,” calling for a philosophical change involving more workforce training opportunities and a focus on entrepreneurs.
Tidewater Landing and the “Superman” building’s redevelopment are “headline-grabbing projects” that don’t guarantee a return on investment, she says.
Kalus says that R.I. Commerce can foster a business environment supportive of both small businesses and out-of-state corporations. But currently, Kalus adds, the state struggles to support either.
“The mistake of Commerce right now [is] the idea that you can try to attract, or you can basically bribe businesses to come here,” Kalus said. “We need to address the fundamental fact that we’re not competitive.”
McKee has stood behind the stadium project.
“The Tidewater Landing project is a great investment for Pawtucket and for the state,” McKee said. “We can’t say we want to help Pawtucket but not actually make the investment that the city needs.”
He cited “significant taxpayer protections built into the framework,” including no state payments for the stadium prior to a certificate of occupancy, an agreement for profit sharing/repayment for any capital events, and protections for the state against cost escalations.
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Gubernatorial candidate Nellie Gorbea during a tour of Wayland Square businesses, speaking with the manager of Boooks on the Square, Jennifer Kardarian.
PBN PHOTO/MICHAEL SALERNO[/caption]
THE NEXUS
Other candidates are critical of McKee’s role in leading R.I. Commerce but directed less criticism at the Tidewater project.
“I think that currently, there are a lot of missed opportunities in the way that Commerce is being led by the governor,” Gorbea said. “I do look forward to reorienting its resources to invest in local businesses, to serve as a capacity-building institution for Rhode Island businesses.”
Gorbea says one of these missed opportunities lies in a lack of coordination between existing business resources. Commerce can amend this issue by serving as “a nexus of information and partnerships,” she said.
As governor, Gorbea sees herself in a role “to leverage Commerce’s resources with those that are being provided by the federal government and those that already exist in our community,” she said, including professional and business associations, chambers of commerce and nonprofit organizations such as the Rhode Island Black Business Association.
“It’s that interconnectedness [that] helps you leverage your resources in a much stronger way,” Gorbea said.
Gorbea says that while the state should welcome out-of-state businesses looking to move or expand to Rhode Island, the governor should dedicate more resources to supporting and scaling up small businesses already here.
“We have got to get out of this inferiority complex that somehow, the businesses here in our state can’t compete or aren’t as good as those outside of our state,” she said.
Foulkes also wants to put special emphasis on growth opportunities for small and midsize businesses, which she says can be accomplished in part through demystifying the process behind running a business and working with state agencies.
Foulkes says she has spoken to business owners who have struggled to navigate state agencies and find answers to simple questions. In response, she proposes a business navigator concierge program that helps entrepreneurs understand what it takes to start a business and the major issues they might face, with emphasis on support for women and minority-owned businesses.
The state can also increase support for women and minority-owned businesses through a requirement “that the state have some sort of penalty if we don’t meet our requirement on the books that 10% of our contracts should go to women and minority businesses,” Foulkes said.
She also sees fault in current state policies such as McKee’s decision to tax forgivable Paycheck Protection Program loans over $250,000, which Foulkes says discourages business owners and drives away companies looking to expand in the Ocean State, Foulkes says.
Brown and Riccitelli did not respond to messages seeking comment.
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Matthew A. Brown[/caption]
GOING BEYOND
Observers say the next governor’s plans for R.I. Commerce and economic development must go beyond direct support for large or small companies and address key areas that go hand in hand with supporting business.
Scott Wolf, executive director of Grow Smart Rhode Island, sees several areas of critical focus for the next governor, including affordable workforce housing, improvements to public transit and alternative transportation, and downtown Providence revitalization.
Wolf, who has been watching administrations and their economic policies for more than 40 years, says McKee has established a strong financial commitment to improve housing, with a $250 million allocation toward housing in the fiscal 2023 budget, including $80 million for affordable housing.
But Wolf would like to see more emphasis on multifamily development.
“Cash is critical, but there also needs to be land use reform, zoning reform in which communities decide that they’re willing to allow more small units of housing in compact neighborhoods,” Wolf said.
Karl Wadensten, CEO and president of VIBCO Inc. and a longtime R.I. Commerce board member, says there’s a need for a simple change: creating a regulatory system that small-business owners can easily navigate.
“It feels like we still have a lot of fences continuing to be put up, as far as navigating regulatory silos,” Wadensten said, “and that’s been a problem in Rhode Island for a long time.”
Compared with the “one-stop shopping” experience business owners navigate in many other states, Wadensten says, Rhode Island’s system is “very clunky, very incohesive.”
The rest of the world has become accustomed to getting what they need quickly and efficiently, Wadensten says, and if Rhode Island doesn’t adjust, it will soon fall further behind.
R.I. Commerce also needs a better understanding of the state’s various communities and their unique needs, Wadensten says, noting that a recent board visit to the Tidewater Landing site was the first time “80% of the board members” had been there.
Wolf doesn’t see McKee’s support for the Tidewater project as a shift away from small businesses, unlike some of the governor’s challengers.
McKee “needs to, and can, walk and chew gum,” Wolf said. “I don’t think supporting large projects is inherently a bad thing, and can in fact be a good thing, especially if they are projects that serve a public purpose.”
But Leonard Lardaro, an economist at the University of Rhode Island, says the next governor and economic development officials should move cautiously before negotiating incentives in the near future.
While he says he sees indications that the state has moved into the early stages of complete recovery from the pandemic, there are also signs Rhode Island’s economy is starting to slow as monetary tightening begins to take a toll.
Rhode Island’s economic weaknesses predate the pandemic, Lardaro says, with the state traditionally following a “first in, last out” pattern during downturns. And that only gives R.I. Commerce so much to work with, he adds.
“Rhode Island is universally panned as having one of the worst business climates in the U.S., and that’s been going on for years,” Lardaro said.
“When you have a business climate like that, what that really means is that when companies come to Commerce Corp., you have to make some fairly attractive offers, and I think those companies know that Rhode Island is in a weak position.”
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Rhode Island gubernatorial candidate Dr. Luis Daniel Munoz in Pawtucket. /ELIZABETH GRAHAM[/caption]
GETTING DOLLARS OUT
Tanner, the former director of the R.I. Department of Business Regulation, was appointed commerce secretary in June after Stefan Pryor stepped down to run for general treasurer. One of her early tasks: stepping into negotiations with Tidewater Landing developer Fortuitous Partners and helping to come up with the reworked public financing deal.
But for all the attention on the controversial Tidewater deal in recent weeks, Tanner says she and McKee are interested in putting the spotlight back on those type of programs helping small businesses.
McKee touts that his administration has distributed $18 million in grant funding for more than 3,700 small businesses during his 1½ years as governor.
Regardless of the election results, Tanner says her top priority right now is dispersing federal aid to help more businesses.
“The goal is to get those dollars out by the end of the year,” Tanner said.
Seriously?!?
What Econ Dev Plan? The one where A) we blow millions of taxpayer dollars to bail out the out of state owners of the Superman building 10 years too late and B) we blow millions more of taxpayer dollars financing a out of state dubious developer of a soccer stadium on waterfront property in Pawtucket?
That’s some Econ Dev Plan, Dan and Stefan, NOT!
May neither of you ever be elected or appointed to office again.