An R.I. Office of Revenue Analysis report critical of a 28-year-old tax incentive program intended to create jobs hasn’t exactly inspired legislators to move quickly to either overhaul the program or eliminate it.
The study of the Jobs Development Act, an employee-based incentive program established in 1994, concluded that in the tax years 2016 to 2018, the program resulted in limited job creation while largely benefiting just two Rhode Island companies, Citizens Bank and CVS Health Corp.
In addition, the Office of Revenue Analysis said in the report released Jan. 31 that the program also presents a barrier for companies looking to move into Rhode Island because the program has been closed to new participants since 2015, meaning Citizens and CVS enjoy an advantage unavailable to other businesses.
The ORA recommended that state legislators change the Jobs Development Act so that it sets an expiration date for Citizens and CVS, which have been receiving reduced tax rates since the 1990s. Such a move would effectively eliminate the incentive program.
What do legislative leaders have to say? Not much yet.
In a joint statement to PBN, House Speaker K. Joseph Shekarchi and Senate President Dominick J. Ruggerio acknowledged receiving the 49-page ORA report but said they hadn’t fully reviewed it.
“We will thoroughly evaluate the report and its recommendations – and other economic incentives as part of the budget review process for fiscal year 2023,” Shekarchi and Ruggerio said.
But the criticism of the program and the recommendations to fix it are nothing new. State lawmakers have been asked to change or repeal the Jobs Development Act in years past.
In fact, the Office of Revenue Analysis noted in the Jan. 31 report that previous evaluations of the program have reached the same negative conclusions, but the General Assembly has taken no action.
Indeed, there was a hint of exasperation on the part of the author of the most recent ORA report.
"Tax incentive evaluations cannot be documents that simply sit on a shelf," the report said in its conclusion.
Meanwhile, Citizens and CVS continue to receive a reduced tax rate that has amounted to an average annual savings of $5.7 million for Citizens and $8.6 million for CVS between 2011 and 2020, according to ORA data. The tax rate reductions are based on jobs created and then maintained by these companies. There is no expiration date for the reduced tax rates.
The report cites the Qualified Jobs Incentive Act as an example of a tax incentive program that overcomes many of the problems associated with the Jobs Development Act.
Under the Qualified Jobs Incentive Act, recipients receive tax benefits for a fixed time period, usually 10 years. The tax reduction benefits are proportional to the firm’s level of employment, with tax benefits usually ranging between $2,500 and $7,500 per employee.
Others agree with the ORA findings.
Brian Hodge, R.I. Commerce Corp. spokesman, said the agency advocated for the closure of the Jobs Development Act to additional businesses, as the Qualified Jobs Incentive Act is a more effective economic development tool.
And Gary Sasse, the state’s first director of the R.I. Department of Revenue, played a key role in establishing the Office of Revenue Analysis. He said the ORA was correct in seeking to end the Jobs Development Act program.
“This tax incentive has little impact on job creation,” he said. “It is an inefficient example of corporate welfare for a few large corporations that do not need it.”
Sasse said companies hire workers to meet market demands, and tax incentives do not drive their decisions.
“Rhode Island would be better off using more of its resources on investment in education and infrastructure and less on corporate welfare,” he said. “I would urge the Office of Revenue Analysis to conduct an independent cost and benefit review of all tax incentives.”
Michael DiBiase, CEO and president of the Rhode Island Public Expenditure Council, said policymakers should not look at the JDA program or its possible elimination in isolation.
“Instead, we should look at the practical impact of this incentive, and how Rhode Island can improve its business tax policies so incentive programs are needed less and less over time,” he said. “The [program] currently benefits primarily Citizens Bank, and to a much lesser extent CVS – both major employers within the state.”
DiBiase said corporate headquarters in the state pay higher salaries and are important wealth generators.
Despite that, he said, “Rhode Island’s business tax climate was recently ranked 40th by the Tax Foundation. We should not be considering policies that would make our tax climate less favorable.”
CVS Health did not respond to requests for comment.
Citizens Bank issued a statement: “We have a longtime commitment to Rhode Island as our headquarters state. Like any business, we take into consideration the current tax environment and the predictability of tax policy.”
Cassius Shuman is a PBN staff writer. Contact him at Shuman@PBN.com. You may also follow him on Twitter @CassiusShuman.
Hodge and Sasse are correct, the JDA should have been eliminated years ago, but wasn’t do to decades of incompetence in the Governor’s and Treasurer’s Offices as well as the General Assembly. The $140M in revenue lost to the the State of RI could have been spent on Schools and infrastructure.