This is how the Small Business Development Fund, as approved by the General Assembly, would work: The state would issue up to $42 million in tax credits to qualified investors that finance Rhode Island-based small businesses. Investors must use the tax credits they receive and are not permitted to sell them on the open market. The state can “recapture” tax credits given to investors if they do not follow through with their investments, as promised, within three years.
To be eligible for investments under the program, businesses must have their principal operations here. That means they must have at least 60% of their employees in Rhode Island or have employees paid at least 60% of their company’s payroll in state. Businesses also must have fewer than 250 employees and have net income of less than $15 million a year.
The legislation calls for
R.I. Commerce Corp. to certify up to $65 million in private investments into Rhode Island businesses that qualify for the program.
The legislation requires an investment company seeking Rhode Island tax credits to have previously invested at least $100 million in nonpublic companies prior to filing an application.
That would exclude smaller, local venture-capital funds from participating in the program – unintentionally supporting a contention of critics that the program is geared to a small number of large investment companies.
Furthermore, the legislation doesn’t require capital being invested to come entirely from within those firms. It places no restrictions on the sources of up to 55% of the capital invested through the program. Instead, it requires at least 45% of investments to come from within firms making those investments, including its directors, officers and employees.
But it also allows that 45% minimum to come from affiliates of the firms making the investments, opening the door for insurance companies and other large fund managers backing those investors.
Meanwhile, Commerce RI plans to file additional “emergency” regulations for the program in coming weeks. The agency said, in general, key provisions will include:
- Authorizing Commerce RI’s board to approve applications to the program, just as it approves applications to other tax-credit programs.
- Demanding strict financial disclosure and performance requirements around the application and reporting process.
- Ensuring protections for taxpayers in the event an approved applicant fails to deliver promised outcomes.
Scott Blake is a PBN staff writer. Contact him at Blake@PBN.com