EDC weighs firms for guarantees

The R.I. Economic Development Corporation recently overhauled the controversial $125 million state loan-guarantee program that critics complained was too risky, but EDC board members remain at odds about what types of companies should be allowed to take advantage.
Gov. Lincoln D. Chafee, who acts as the EDC chairman, has said he would prefer to use the Job Creation Guaranty Program to back companies that have a long track record, rather than untested firms that have a higher risk of flameout.
The governor was one of the most vocal critics of the program during the gubernatorial campaign last year when the EDC approved a $75 million loan guarantee for Curt Schilling’s video game company, 38 Studios LLC, in exchange for relocating to Providence and vowing to create 450 jobs.
Other EDC board members say the Job Creation Guaranty program should be used to assist “emerging, knowledge-driven companies.”
Board member Jack Templin, a local information technology expert, said high-tech startups that are six months to a year old should not be turned away from the program, in part because they can move easily to other states if the incentives are better there.
And those types of companies could be a “sweet spot,” Templin said, because typically a little financial assistance could go a long way.
“With a $100,000 to $250,000 guarantee, you can do incredible things,” he said.
The differing opinions on how to handle the Job Creation Guaranty Program were on display at an EDC meeting last month when Executive Director Keith W. Stokes unveiled a list of 12 companies – half of them from out of state – that had lined up to take advantage of the program.
So far, the 12 companies – none of which are older than 11 years – are requesting loan guarantees totaling $66 million and, combined, would create 636 jobs.
But because the EDC approved a $75 million loan guarantee for 38 Studios last year, only $50 million is left for guarantees.
And now the size of future loan guarantees has been capped at $10 million. The program also sets aside $5 million for smaller loans that would be combined with a loan program backed by the U.S. Small Business Administration, although the EDC has said that the SBA had yet to approve that arrangement. (Normand Deragon, spokesman for the SBA’s Rhode Island district, said last week that the agency is still waiting for approvals from the SBA’s top officials in Washington, D.C. “What [the EDC] is proposing is unique,” he said.)
While EDC officials have declined to identify the dozen businesses in the pipeline right now, the agency released brief descriptions of each. A mix of IT, advanced manufacturing, bio-medical and life-sciences firms, they appeared to be the type state economic-development officials want to attract to Rhode Island, particularly to Providence’s Knowledge District.
But some members of the EDC board were not impressed.
Stanley Weiss, a downtown Providence property owner who has opposed several incentive proposals since joining the board earlier this year, questioned whether the program was worth it.
Figuring the $66 million of guarantees in the pipeline would potentially create 636 jobs – that would work out to 10 jobs for every $1 million of taxpayer-backed guarantees, he said.
When Weiss complained that 12 companies would not be enough to choose from, Stokes said officials are expecting more companies to express interest once the EDC launches its marketing of the program and several other credit-assistance programs.
“We couldn’t market the job-creation guarantee program because the rules and regulations weren’t approved by the board,” Stokes told Providence Business News last week. “These 12 companies have been hanging in there for a while, but now we can start to take applications. Our goal is not to market the Job Creation Guaranty Program, but the suite of credit programs.”
Both Chafee and EDC Vice Chairwoman Helena B. Foulkes, a CVS Caremark Corp. executive, said they were inclined to award loan guarantees to more established companies.
Chafee said he’d like to see a Hasbro-type company – the Pawtucket toy maker was established in 1923 – on the list, too. Stokes told board members that the program has been focused on assisting companies in early-growth stages which might one day become dominant players in their industries. “This might be the right program to find the future Hasbros out there,” Stokes said.
According to the EDC, 38 Studios has created 232 jobs in Providence so far – well ahead of the 125 jobs the company had promised to create by this time. The company has received $41.74 million from the taxpayer-backed $75 million loan the agency approved last year, the most recent payment coming in April, according to EDC spokeswoman Melissa Chambers.
Board members were divided on the weight other factors should be given in determining which companies receive guarantees.
Foulkes said the number of jobs created by each project should be a top priority, but others weren’t so sure.
David M. Dooley, president of the University of Rhode Island, argued that board members should use a “rich mix” of factors, such as what connections relocating businesses might have with existing institutions.
“Some companies may be catalytic in a way that goes beyond [the jobs they create within their company],” Dooley said.
Templin agreed, saying companies should not necessarily be selected for the jobs they can create initially, but for the potential to build clusters of a certain sector.
Board member Karl Wadensten didn’t attend the July meeting, but told Providence Business News last week that the board should get more information on the track record of similar loan-guarantee programs in order to develop a “mission statement” on the aims of the program that will unify board members.
Stokes characterized the differing opinions as a “robust open discussion,” including Chafee’s less-than-enthusiastic reaction.
“I heard the governor loud and clear. His statement was, ‘Look, Keith and board, these companies seem to be early phase, they seem to be startup. There’s not a lot of job creation. What are we doing to help existing companies like Toray [Industries (America) Inc. in North Kingstown] to expand?’ ”
“That’s exactly what we’re doing,” Stokes continued. “We’re going to be announcing a few other expanding and strengthened capital-credit programs that will meet the spectrum of early-stage startup to existing and large-scale companies.” •