PROVIDENCE – Rhode Island lawmakers have inserted a new business incentive program into the state budget that would create a fund for private capital investment in small businesses by federally licensed investment companies in exchange for state tax credits.
Introduced by state Sen. William J. Conley Jr., D-East Providence and Pawtucket, and state Rep. Joseph J. Solomon Jr., D-Warwick, the six-year plan would create the Rhode Island Small Business Development Fund.
The fund is designed to encourage private investment in businesses with fewer than 250 employees or those with net income less than $15 million a year. In return, the investors would receive tax credits. The plan would raise $65 million in private capital into investment funds supported by up to $42 million state tax credits.
“This gives smaller businesses the access to capital that they need to grow,” Conley, chairman of the Senate Finance Committee, said in a statement Friday. “It provides for the flow of capital investment into small business identified as critical to our state’s future and creates jobs.”
“We’ve seen small businesses leave the state just when they’re on the verge of growth; not because they don’t want to stay, but because they simply cannot acquire the capital they need to stay here,” Solomon said in the statement.
A Conley aide said language to create the fund is embedded within the nearly $10 billion state budget for fiscal 2020, which starts July 1. The Senate voted 30-8 to approve the budget late Thursday, following approval by the House. Gov. Gina M. Raimondo now can sign off on the budget or veto it. If she does not act, the budget will automatically take effect after seven days, said General Assembly spokeswoman Meredyth R. Whitty.
Raimondo’s office and the R.I. Commerce Corp., the state’s economic development agency, did not immediately respond to requests for comment on the Small Business Development Fund.
However, Commerce Corporation board member Karl Wadensten, president and CEO of VIBCO Inc., said he opposes the new program. He said similar programs in other states generally have not worked well.
“What makes us think this is going to be much different,” Wadensten said.
He expressed reservations about whether the program would be a good use for $42 million in state tax credits, adding that he hopes the governor “pushes back” against the proposal.
He said the creation of the Small Business Development Fund, combined with new limits placed on the state’s existing Real Jobs Rhode Island business incentive program – one of Raimondo’s signature initiatives administered by Commerce RI – was like a “double whammy” against the Raimondo administration’s economic development methods.
Conley said there are safeguards built into the Small Business Development Fund.
“After the first three years,” he said, “those companies providing the investments would receive tax credits applicable against the Rhode Island insurance premium tax as long as they meet certain criteria, such as meeting and maintaining investment requirements for the life of the program.”
Investments would be designated for targeted growth industries for the state, including clean energy, biomedical innovations, life sciences, information technology, cyber security, defense, and maritime.
No one small business would receive more than $4 million or 20% of a fund’s investment authority and the business must have a strategy for investing in minority-owned businesses.
Scott Blake is a PBN staff writer. Email him at Blake@PBN.com
