Few would dispute that Rhode Island is in better shape economically than it was five years ago when Gov. Gina M. Raimondo began her first term.
But is that improvement a result of the state’s own approach to economic development, or the result of a national economy that has been on an upswing, a case of a rising tide lifting even a rickety boat?
Raimondo’s economic vision for the state’s future, largely carried out through the programs of a consolidated and powerful R.I. Commerce Corp., has been challenged regularly by political critics and some business owners who have argued the priorities are askew, focused too much on wooing big companies to Rhode Island.
The term-limited governor, now in the second year of her final term, of course has a different view.
She says her creation of an Executive Office of Commerce and a cabinet-level commerce secretary, as well as offering a better-funded menu of economic-development programs, has positioned the state well for the future.
“I think Rhode Island is in a good spot, much stronger economic footing than when I started, and really poised to take off,” Raimondo told Providence Business News recently.
“Is everything perfect? No. But we’re making progress,” she said. “Things have to happen. As I look around, I see progress. Not perfection. But progress in the economy.”
The real test, even Raimondo acknowledges, may come with the arrival of the next economic downturn.
Historically, Rhode Island has been first in and last out during nationwide recessions, and economists and public-policy specialists say there are troubling signs that Rhode Island is less insulated than it needs to be for the next time the economy starts to sputter.
One of those signs: A recent report prepared for Commerce RI noted that Rhode Island still has far fewer jobs in advanced industries, such as biomedical innovation, engineering, shipbuilding, information technology and design, than in less-advanced industries that generally could be more vulnerable in a downturn.
The report, titled “Rhode Island Innovates 2.0” and released in January, said of the 458,884 people employed in the state as of 2017, only 120,872 of them were in the advanced industry clusters that state leaders have been trying to accelerate.
As much as the administration has tried to use incentives as catalysts, the underlying structure of the economy remains poorly positioned in comparison with neighboring states, according to Saul Kaplan, who led the state’s economic-development efforts under two past governors.
“Too many people in Rhode Island cannot access anything other than an entry-level job, which puts enormous pressure on the social safety net,” said Kaplan, now president of the Business Innovation Factory, a Providence nonprofit that promotes innovation in business models. “We are about to head into the next downturn. If you wait until the next downturn to take leadership positions and take action, it’s too late. You have to do that from a position of strength, when you have more resources.”
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INCENTIVES INTRODUCED: R.I. Gov. Gina M. Raimondo says “there was really no economic-development programming, staff or initiatives” at the R.I. Commerce Corp. when she first took office, which is why she introduced a suite of incentives, including tax incentives, a small-business loan fund, innovation campus funding and a focus on exports. / PBN PHOTO/MICHAEL SALERNO[/caption]
AN OVERHAUL
There’s no doubt Raimondo has put her stamp on the state’s economic-development program.
Her predecessor, former Gov. Lincoln D. Chafee, had a different approach to economic incentives. His focus was on growing local businesses without heavy use of tax incentives to attract outside firms. An independent who later became a Democrat, Chafee often faced political opposition to his budgets and led the state during the years immediately following the Great Recession and after Rhode Island’s disastrous investment in the 38 Studios video game business.
When Raimondo took office, she said, “There was really no economic-development programming, staff or initiatives at Commerce RI. We started everything from whole cloth: tax incentives, small-business loan fund, innovation campus funding, focus on exports. I had to get that started.”
The state’s suite of economic incentives was created in Raimondo’s first year in office, when – with the General Assembly’s approval – she corralled the housing and economic-development functions of the state under a single Executive Office of Commerce, and appointed a new cabinet leader as its secretary, Stefan Pryor.
The new structure has been effective, more so in the last few years, says Scott Wolf, executive director of Grow Smart Rhode Island, who has been watching administrations and their economic policies for more than 40 years.
“It’s clear to me she and [Pryor] are strong collaborators,” Wolf said. “She has given her economic-development chief a lot of power and influence and she has been very engaged in the work as well. The economic-development function has a higher profile in this administration than it had in past administrations. In part because of the structural changes, and in part because of how the governor has approached the activity.”
With the tailwind of a strengthening economy, the state has made substantial investments in economic development.
Myriad Commerce RI programs have awarded several hundred million dollars since 2015. According to the state, the public investment has resulted in 33 companies either expanding or moving into the state, 3,300 new jobs and a wave of construction and renovation.
Has it been worth it? Quarterly reports that summarize Commerce RI activities are submitted to the General Assembly, but a cost-benefit analysis of the investments has not been conducted. A financial breakdown of business-incentive programs is expected to be conducted this summer.
Nevertheless, economic-impact forecasts conducted by Commerce RI consultant Appleseed have suggested the incentives carry a solid economic benefit.
For example, its recent analysis of a request for $480,000 in tax credits for Change Healthcare Operations LLC, of Tennessee, found that the company’s addition of 27 new positions in Rhode Island would create $2.3 million in annual earnings and increase the state’s gross domestic product by $2.86 million.
On other fronts during Raimondo’s tenure, the state has established two innovation districts, one in Providence on the former Interstate 195 lands and another in Newport.
And through $20 million in voter-approved bond financing, five innovation campuses have been established in association with the University of Rhode Island. Each is focused on growing the advanced industry workforce, using university research and expertise to speed the invention of new products.
The state has attracted $2 billion in outside investment to Rhode Island through local projects, she said. The most significant example is Wexford Science & Technology, which is known nationally for partnering with research universities. Its site is in downtown Providence on former Interstate 195 lands.
Edward M. Mazze, a URI distinguished professor of business administration, approves of the way Raimondo has handled economic development, at least in terms of drawing new businesses into the Ocean State.
“We were in a position, for quite a period of time, where we would not be a first-, second- or third-choice state for businesses looking to relocate,” Mazze said. “We now have tools in the tool kit. What we’ve done is we’ve leveled the playing field.”
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TAKING ADVANTAGE: Lawrence Dressler is the CEO and president of AgCore Technologies in Cranston, which makes an algae-based product called spirulina. Dressler says the company has taken advantage of Commerce RI’s Innovation Voucher Program, which initially helped with testing of its product at a URI lab, and a later round of funding allowed the company to conduct experiments using a controlled algae bloom in its lab. / PBN PHOTO/MIKE SKORSKI[/caption]
DUELING IDEAS
Not everyone has been enamored with the governor’s vision, with some complaining that the administration’s economic-development policies are geared toward attracting large, out-of-state employers rather than growing existing small and midsized businesses.
In recent years, legislative leaders have trimmed or changed Raimondo’s budget priorities. And last year, in a break with the governor, lawmakers authorized $42 million for a new small-business investment program that Raimondo opposed.
She later likened it to a program that paved the way for a $75 million state-backed loan for the failed 38 Studios, and she used Commerce RI to assert control.
Legislators who backed the Small Business Development Fund said Commerce RI had not been supportive enough of small businesses, which provide most jobs in the state.
“We’ve seen small businesses leave the state just when they’re on the verge of growth; not because they don’t want to stay, but because they simply cannot acquire the capital they need to stay here,” Rep. Joseph J. Solomon Jr., D-Warwick, a chief sponsor, said after the fund’s creation.
The fund allows private investment in small businesses by federally licensed investment companies, in exchange for state tax credits. However, under Raimondo’s direction, Commerce RI set up rules that she said were designed to protect taxpayers. So far, they’ve been stringent enough that three applications made for the funds this year were not successful. Solomon did not immediately return a call seeking comment on how he thinks Commerce has handled the new loan fund.
At the request of the administration, the General Assembly last year shifted the focus on some Commerce RI incentive programs that critics charged were unfairly weighted toward large projects.
Lawmakers approved new rules for the Rebuild Rhode Island tax credit program, among the two largest incentive programs run by the state. For the first time, the change allowed small manufacturing and historic renovation projects to be eligible, with $15 million set aside in available tax credits. Projects under $1 million also get a streamlined application.
The new approach smoothed the way for small residential development projects, such as one in the historical Armory District of Providence.
Mark Van Noppen, CEO of RCG Armory LLC, was recently approved for a $1 million tax credit for a project to convert an 1890s building that served as a nursing home into housing. If not for the credit, the structure would sit vacant and deteriorate, he said.
“It’s a beautiful building in a beautiful location and there’s a big need for the housing,” Van Noppen said.
Another small business, Cranston-based Agcore Technologies LLC, has taken advantage of Commerce RI’s Innovation Voucher Program, which provides small businesses with up to $50,000 for research and development costs.
Agcore, which opened in 2013, makes an algae-based product called spirulina.
Lawrence Dressler, the company’s CEO and president, said the state funding initially helped with testing of its product, using a URI lab. A later round of funding allowed the company to conduct experiments using a controlled algae bloom in its lab.
“I probably could have done it myself, but they probably saved me three or four years,” Dressler said of the state’s help. “A small company like us doesn’t really have the excess R&D money. We put in our own money. But they sped up the process.”
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PBN PHOTO/MICHAEL SALERNO[/caption]
‘IS IT ENOUGH?’
So, have Raimondo’s economic efforts properly prepared the state for the next downturn?
Wolf isn’t so sure.
He believes an investment in better housing, for example, is needed. And, in fact, Raimondo in her 2021 fiscal budget proposal has called for dedicated funds for the first time to support housing creation.
“This is where the administration is doing better now than they were in their first few years,” Wolf said. “We need to make sure our economic-development strategy is not just focused on targeted industries that have promise. We need to make sure we are building a stronger housing, transit and education foundation for economic development.”
Kaplan says the administration has tried to address a cynical psychology that is prevalent in the state, which he said can make a difference when things take a turn for the worse.
“Psychology matters a lot when you think about the economy,” Kaplan said. “If you think about what an economy really is, it’s the choices that get made every single day. Do I hire one more person? Do I believe that we should be investing in the future? Or hunker down and not make those choices?”
Still, Kaplan says, Raimondo’s initiatives may not have enough time to reach their full effect before the next downward cycle.
“You don’t materially change an economy in one or two terms. It takes a minimum 10-year horizon to start to see the effect of consistency in policy and investment,” he said.
Mazze also sees Rhode Island’s economic standing as difficult to turn around so rapidly.
“You have to be realistic,” Mazze said. “When the country is moving in the right direction, Rhode Island benefits. When the country isn’t moving in the right direction, Rhode Island suffers more than others.
“You drive around Rhode Island and you still see … lots of ‘for lease’ and ‘for rent’ [signs] and empty storefronts,” he said. “And even in the good times, we’re seeing it.”
Raimondo, addressing reporters at a recent press conference, acknowledged concerns about the economic impact of the coronavirus that emerged in China in 2019, which by mid-March had been diagnosed in five Rhode Islanders.
The economy was slowing, she said on March 9.
Her spokeswoman later elaborated, explaining that while data is not available about economic activity in Rhode Island, there is anecdotal information that businesses have reduced their activities. “It’s fair to say she’s concerned,” said Jennifer Bogdan, Raimondo’s director of communications. “People are starting to wonder if we should be engaging in these group activities.”
Raimondo herself acknowledges that a recession could be the first real test of her programs.
“A lot of what I’ve tried to do, especially investing in infrastructure and skills, has been designed so we won’t get hit so hard in the next recession,” she said.
For instance, Raimondo noted, the 10-year, $4.9 billion RhodeWorks infrastructure program will keep the construction trades – an industry that had been hit hard in the Great Recession – working even in a downturn.
“Nothing is foolproof,” she said. “But I think education and infrastructure, I specifically built it in to help us during the next recession. I know the state is better positioned. The question is, is it enough?”
Mary MacDonald is a PBN staff writer. Contact her at Macdonald@PBN.com.
