David Levesque says he’s ready to expand his coffee shop business, but he cringes at the thought of what he’ll have to go through to get it done.
It’s not so much the process of finding new locations, hiring new employees or buying larger amounts of supplies that’s got him distressed. He’s been through that before.
Levesque’s company, Brewed Awakenings Coffeehouse LLC, had five locations and 123 employees before the COVID-19 pandemic, but Levesque had to consolidate when business dried up during the public health crisis. He’s got three shops and 75 employees now, and he’s poised to grow again.
It’s the government that has him frustrated.
“The bureaucracy is difficult to deal with,” an exasperated Levesque said recently. “If you want to build something or open a new store, they make you jump through so many hoops. We have 39 cities and towns with all kinds of different regulations instead of a one-stop shop. It makes it very expensive. But when you have a system that is this big, the only thing it can [do] is feed itself.”
Welcome to Rhode Island, where a favorite pastime in the business community is to fret
about how difficult it is to do business here, about how it’s unfriendly for everything from startups to large corporations.
To listen to most Rhode Island businesspeople, there’s no shortage of gripes – taxes, red tape, fees, roads, school systems, energy costs, health insurance premiums, and a general lack of understanding among the powers that be about how difficult it can be to operate a business, even in the best of business climates.
But is Rhode Island’s business climate really so inhospitable? Maybe more importantly, is it improving? And, while we’re at it, what exactly makes up a state’s business climate anyway?
The answers depend on who you ask.
State leaders insist recent improvements are bringing about climate change, such as a newly enacted exemption from the tangible property tax, the bane of many businesses across Rhode Island. And the state has also scrapped the so-called litter tax, a relatively small but annoying charge that had been collected from businesses that sell food and beverages.
But there have also been incidents that have threatened to set back any progress in rehabilitating Rhode Island’s less-than-ideal reputation.
Over the summer, Cranston Mayor Kenneth J. Hopkins pressured the owner of a massive golfing complex that was under construction in that city after Hopkins learned it would be called Topgolf Providence.
His message: If you want to have “Providence” in your name, then pack your bags and move there. Ultimately, Topgolf acquiesced and named the facility Topgolf Rhode Island.
And before that, Gov. Daniel J. McKee didn’t exactly make fans in the business community when in 2021 he was able to add a tax on large Paycheck Protection Program forgivable loans that had been designed to provide relief to businesses struggling during the pandemic.
Meanwhile, Rhode Island continues to rank near the bottom of many national rankings. Most recently this year, the state ranked 45th on CNBC’s list of top states for business, and it was ranked No. 41 by the Tax Foundation on business-friendly tax climate.
Nevertheless, McKee accentuates the positive, noting that Rhode Island is no longer “at the bottom of the heap” in these studies in part because of moves by his administration.
“You start stacking the things that we’ve done, then this is certainly going to have an impact on these rankings,” he said recently.
‘LITTLE FRUSTRATIONS’
What does “business climate” mean? It’s tough to get a definitive answer.
What comes to mind for R.I. Commerce Secretary Elizabeth M. Tanner is taxation, the regulatory environment and access to capital. “I think about the conditions that affect the operations and profitability of businesses,” said Tanner, who previously served as director of the R.I. Department of Business Regulation.
Tanner has promised to reduce or eliminate what some have deemed unnecessary fees and permits, such as the duplicate liquor license fee, wholesale food license and the soft serve ice cream license. The small things can add up to create an inclement business climate.
She also says she wants to modernize state government by moving services online, relying on technology to drive business owners’ interaction with state agencies.
“Every year, we’ve been chipping away at that list,” Tanner said.
For Edward M. Mazze, distinguished professor of business administration at the University of Rhode Island, part of the makeup of Rhode Island’s business climate is its preexisting reputation. And that has proven to be difficult to shake off, even as the state’s attitude toward business regulation has shifted over the years, he says.
For too long, “the state used its economic development resources to try and attract large businesses with few results, rather than support existing small and medium-sized businesses,” Mazze said.
More recently, economic development agencies have prioritized cutting red tape, but this has not filtered down to the general consciousness, he says.
“This is one reason why Rhode Island is ranked low when it comes to business climate and friendliness,” he said. “Our poor reputation is based on past behavior when business and individual taxes were higher, and the state economic development agencies were unresponsive.”
Case in point: During a “business walk” conducted by the Greater Newport Chamber of Commerce in October, Kathy Staab, owner of the Jane Pickens Theater LLC, lamented compliance hurdles and fees that can sap precious time and resources from small businesses.
When Secretary of State Gregg M. Amore stopped by the theater during the walk, Staab was quick to cite the litter tax on businesses that serve food and beverages as one problematic example – a tax that ranged between $25 and $125 annually.
The assessment was rescinded in the fiscal 2024 state budget, with state officials acknowledging that roughly $1 million of the revenue collected from the tax went to initiatives other than litter prevention.
Still, the bad taste of that tax remains for Staab.
“It’s those little frustrations,” she said.
NAME GAME
Responsibility for Rhode Island’s business climate doesn’t just lie with state officials.
When Levesque found a potential location for a Brewed Awakenings shop in South Kingstown recently, he says he was told by town officials that he would need to conduct two traffic studies for the surrounding area. Cost: $20,000.
“It was on a state road that they had just repaved,” Levesque said. “They had all the traffic studies that [they] could possibly want.”
In Cranston, Topgolf declined to talk about its interaction with Mayor Hopkins in July when he went public with his indignation over the proposed Topgolf Providence name. At the time, Hopkins was quoted in one news report making a “Godfather” reference, saying, “We made them an offer they couldn’t refuse.”
After the dustup, the mayor issued a statement in July reassuring other companies such as Providence Lacquer & Supply Centre Inc., Olneyville New York Systems Inc. and Texas Roadhouse that he would not try to force them to change names.
Hopkins told PBN recently that he’s unconcerned about potential repercussions.
“I have not seen, nor do I foresee, any negative perception of Cranston’s business climate following the Topgolf naming discussion,” he said in a statement. “As I like to say, Cranston is open for business.”
Asked if he thought the matter was an illustration that the state and municipalities need to cooperate in making a united effort to improve the business climate, McKee said he doesn’t think the dustup was symbolic of damaging parochialism, real or perceived.
“I think it was just a good, healthy exchange,” he said. “I didn’t see it as something that created a negative [perception]. I think it’s helped [Topgolf] understand the climate better. Who knows the climate of the community better than its mayor?”
PULL RANK
It’s clear McKee pays attention to the national rankings.
In July, CNBC’s 2023 “America’s Top States for Business” report had Rhode Island ranked 45th in the country for the second year in a row. Three months later, the Tax Foundation ranked the state 41st in business tax climate, up from 42nd the year before.
When those studies were mentioned to the governor during a recent interview with PBN, he quickly cited other rankings in which Rhode Island performed better – U.S. News & World Report placed the state 32nd in its ranking of “best states,” and it was ranked 23rd-best state to start a business by Forbes.
“We have others we can supply to you that show we are not at the bottom of the heap,” McKee said.
For her part, Tanner acknowledges that these reports can serve as a catalyst for change, but she adds that policymakers should not put too much credence in an analysis of a limited number of data points. “It’s crucial to remember that these rankings are driven by certain metrics and criteria, and do not capture the whole story,” she said.
Casha Cappuccio has a unique view of Rhode Island’s business climate. She’s the co-owner of the boutique Wild Belle LLC, which has shops in Westerly and in Connecticut.
She believes the state is taking small steps in becoming more business-friendly, noting the changes to the tangible property tax, which she called a “nuisance.”
Starting in January, Rhode Island businesses will be exempted from paying the first $50,000 they would typically owe municipalities in tangible asset taxes, meaning three-quarters of businesses will owe nothing.
Other nuisances remain.
Cappuccio says the state’s business climate would be helped if the government worked on its customer service. “It’s difficult to get in touch with a human at the [R.I.] Division of Taxation,” she said.
Cappuccio also feels the state needs to create greater flexibility for micro and seasonal businesses that only have a few months to make a profit.
“They should tailor guidance to different types of small businesses based on their specific needs,” she said.
Mazze says Rhode Island has moved beyond its sticky reputation as a corrupt fiefdom ruled by incompetent politicos. And the regulatory environment has improved, he says, citing changes such as the corporate tax reform package enacted in 2015 that reduced that tax from 9% to 7%.
Still, Rhode Island has one of the lowest business survival rates in the country, with less than half still existing after five years, he notes.
“So, we still have work to do to become more competitive,” Mazze said.
SPECIAL INCENTIVE
But do rankings and reputation matter in attracting and retaining companies?
Bryan Mason, a Providence business consultant, isn’t so sure.
Mason founded his firm, Apollo Consulting Group LLC, in 2008 in New Jersey before moving to Rhode Island in 2014. He immediately noticed differences between the two states, such as having to pay a car tax that has since been phased out. “I found it personally insulting,” he said.
Mason says businesses looking to relocate to Rhode Island may check rankings and studies, but ultimately he believes those business-climate rankings are not a factor in decision-making.
“People are going to move businesses here if it makes sense for them, regardless of the ratings,” he said. “The rest of the discourse is kind of ridiculous.”
That was the case for Norpak LLC.
The New Jersey-based food packaging manufacturer is expected to open a factory in South Kingstown, where it is prepared to set up shop at the former Schneider Electric site. Norpak plans to create a minimum of 40 full-time jobs by 2026 and an additional 35 positions the following year.
In return, R.I. Commerce Corp. approved tax credits worth $768,000 over 10 years under the R.I. Qualified Jobs Incentive Act. The credits are only awarded after the workers hired under the program have paid income taxes.
In the end, the business climate had little to do with Norpak moving to Rhode Island.
The company says it had reached capacity at its New Jersey location and was looking to expand. The Schneider Electric site fit Norpak’s needs, including the potential to use a nearby rail line.
Norpak spokesperson Jonathan Fox concedes the company never would have considered moving to Rhode Island without the incentive package.
“It just would not have been feasible,” he said.
At Brewed Awakenings, Levesque still plans to move forward with expansion plans even though he feels the state is moving in the wrong direction. He says he hopes that Rhode Island’s low business ranking in the national reports will finally serve as a wake-up call for public officials.
“That’s one example of how there is no common message from our leaders,” he said. “If there was a common message, you would draw more people and talent into the state.”
