Two years have passed since lawmakers approved a controversial program giving investment firms tax credits in exchange for investing money in local companies, but only one firm has signed on so far and none of the investments have begun flowing yet.
So is the Small Business Development Fund a flop? Many state officials, including those who originally supported the program, say it’s too soon to tell.
Rep. Joseph J. Solomon, D-Warwick, who sponsored the 2019 House legislation, said he would have liked to see more than one investment firm participating by this point. But he was hopeful the program could still achieve its intended goal: helping small businesses secure private funding.
“With COVID, things have changed, so it’s not surprising to see some setbacks,” Solomon said.
Indeed, Enhanced Capital Group LLC, the Louisiana firm that state officials approved to give out $20 million in loans to local small businesses in exchange for credits on its insurance premium taxes, has adapted its program to specifically cater to businesses hurt by the pandemic, said Gingee Prince, the company’s chief impact officer and managing director.
Enhanced Capital was one of three firms that originally applied for a share of the $42 million in tax credits authorized in the General Assembly in 2019. But the rules set out by lawmakers in the budget were changed by R.I. Commerce Corp., intended to add protections against what some saw as an economic development tool that was too risky.
All three firms’ original applications were rejected, and they had to reapply under the new rules. The companies’ leaders at the time criticized the state for burdensome requirements that made it impossible to participate, various news outlets reported.
Of the original three, two reapplied, but only Enhanced Capital was approved to participate, according to R.I. Commerce spokesman Brian Hodge.
Prince acknowledged that the Rhode Island program was more restrictive than other states with similar programs. Ultimately, the Small Business Development Fund fit with the firm’s mission to invest in small and underserved businesses, so it chose to continue.
“I think Commerce may have went a little bit more strict with safeguards than originally intended,” Solomon said.
But he stopped short of criticizing these changes, saying he respected a separation of powers.
No other firms have applied to participate, Hodge said, citing “very defined eligibility requirements.”
Gov. Daniel J. McKee called for changes that would have let more types of lenders participate and expanded the taxes for which credits could be applied, McKee spokeswoman Alana O’Hare said in an email. But that section of his state budget proposal was removed by lawmakers before approval in June. Why?
In an emailed statement, House Speaker K. Joseph Shekarchi said, “There has not been enough information gathered to know whether the program is working as intended yet.”
Enhanced Capital began accepting loan applications from eligible Rhode Island businesses earlier this year. So far, none of the $20 million has been loaned, though Prince expected to have deals in the coming weeks once the firm’s own investors close their funding.
The tax credits aren’t issued until years four to six of the six-year program, according to the legislation, which also lets the state recapture credits if participating investment firms don’t spend the money as intended.
Nancy Lavin is a PBN staff writer. Contact her at Lavin@PBN.com.
