Fleet Financial Corp. had big plans for the property at 670 George Washington Hwy. in Lincoln when the bank bought the site, a former A.T. Cross warehouse, in 1998.
Fleet executives told state economic-development officials they wanted to open a call center and brokerage on the 17-acre parcel that would house 1,250 employees in the first year with the potential to expand to 2,000 jobs within five years.
To assist with the project, the R.I. Economic Development Corporation worked out a deal:
The EDC issued an $11 million revenue bond on behalf of the bank to construct the new facility, and the state also agreed essentially to chip in and pay some of the debt if Fleet maintained at least 1,000 full-time workers at the site and 3,000 employees in the entire state.
That bond agreement has remained intact, and the call center has remained in use even though Fleet purchased BankBoston in 1999, and then Bank of America acquired FleetBoston five years later and took over the operation.
But now that Bank of America announced recently it is instituting job cuts at the Lincoln facility, state officials say the deal hasn’t cost the state anything. That’s because the bank never met its employment targets and officials say the state has never paid anything toward the debt.
Bank of America continues to pay back the bond and still owes $9.18 million, according to state budget documents.
Nonetheless, this case illustrates how an economic-development deal can play out just as the EDC extends a controversial $75 million loan guarantee to Curt Schilling’s video game company, 38 Studios. The guarantee, expected to be finalized by the end of month, is contingent on the company moving to Rhode Island and creating hundreds of jobs.
The 38 Studios agreement has drawn criticism from gubernatorial candidates Frank Caprio, Lincoln Chafee and Ken Block, who have said it is too risky, putting taxpayers on the hook if the software company fails. Frontrunners Caprio, a Democrat, and Chafee, an independent, have asked that the transaction be postponed until a new administration takes over.
There are similarities between the Fleet and 38 Studios deals. Both involve moral-obligation bonds on which the state doesn’t make a legal promise to pay off bondholders, but the governor can ask the General Assembly to do so if the borrower can’t.
But there are also big differences: 38 Studios is a relatively new company that only two months ago unveiled its first product, a video game titled “Kingdoms of Amalur: Reckoning.” It is scheduled for release in 2011.
The $11 million bond issue for the Lincoln call center involves the nation’s largest bank, which received a $45 billion government bailout in 2008 and early 2009 after it was deemed too big to fail. And even if it were to fail to pay back the bond, the state could take the property, state officials say.
For years, the call center had held enough promise for job creation that EDC officials were willing to lend Fleet and then Bank of America assistance.
In addition to the bond issue, the agency had also granted Bank of America “project status” in 2006 to expand the Lincoln call center and sites in Providence and East Providence, a designation that allowed the bank to receive a sales tax exemption when purchasing building materials and other items.
In return, the bank promised to spend at least $59 million over three years on construction, and hire 900 new employees at the sites.
Rosemary Booth Gallogly, director of the state departments of administration and revenue, said last week that she found no evidence that Bank of America took advantage of the sales tax break.
Bank of America said in recent weeks that it is following through with plans to lay off 89 employees at the facility by next month as part of a long-term plan to cut as many as 35,000 jobs following its purchase of Merrill Lynch & Co. The bank already cut 121 jobs at the facility in January 2009. A bank spokesman said recently that fewer than 1,000 people work at the Lincoln site.
At the time, the $11 million bond issue made sense, state officials said.
In fact, a similar arrangement with Fidelity Investments had persuaded the mutual fund giant to construct an office complex in Smithfield and bring in thousands of jobs, Gallogly said. The EDC issued $25 million worth of bonds in 1996 and another $10 million bond in 2002.
Because Fidelity has maintained targeted employment levels in Rhode Island, the state is paying a portion of the remaining $28.22 million debt, including a $2.5 million payment in fiscal 2010 and another $2.5 million in fiscal 2011, according to state documents.
“It was a way to get assistance on capital infrastructure with certain promises for job creation,” said Gallogly.
If Fleet or Bank of America had met the targets in the bond agreement, she said, the state would have benefited from additional income tax and sales tax. And the state would only have been responsible for paying off 31 percent of the debt, according to Gallogly.
“But if those jobs go away, [the bank was] still responsible for paying the rest of the building off and they’re not going to get help from the state,” she explained.
And that is what has happened at the Bank of America call center.
“The state has not made any payments on those bonds because [the bank] has not met the requirements in the bond documents,” Gallogly said. •
