To J. Alan Crisman, the state’s enterprise zone program has been crucial to drawing businesses into Bristol and Warren and keeping them there.
Crisman, administrator of the Mount Hope Enterprise Zone that covers some neighborhoods in both towns, said last week that dozens of small companies located in the special economic district have taken advantage of tax credits over the years and created dozens of jobs.
So Crisman can’t understand why Gov. Donald L. Carcieri has proposed eliminating the Mount Hope zone and nine similar sectors around the state as part of his fiscal 2011 $7.51 billion state budget proposal – a move that would save an estimated $1 million next year.
“It doesn’t make any sense,” Crisman complained last week after weighing what he sees as benefits against the savings. “I don’t know what the governor’s problem is.”
Some people involved in administering the enterprise zones fumed as word spread last week about Carcieri’s desire to shut down the program, which was launched in 1992 by then-Gov. Bruce Sundlun as a way of making economically downtrodden sections of the state – particularly the urban areas – more attractive places for companies to relocate.
Others had a more muted response.
“I don’t think anybody has invested [in Rhode Island] only because of the enterprise zone,” said Scott A. Gibbs, president of the Cumberland-based New England Economic Development Services Inc., which manages zones for several municipalities. “Businesses don’t relocate because of one thing.”
But Gibbs added that Rhode Island’s business incentives are “paltry” compared with those used to woo businesses in Massachusetts. “We’d hate to lose anything from our economic-development tool chest,” he said.
For its part, the Carcieri administration has questioned the effectiveness of the enterprise program in recent years and noted that some of the 10 zones have spread far beyond urban areas such as Providence, Pawtucket and Woonsocket that the program was intended to assist.
Aside from those three cities – the Woonsocket zone includes a section of northern Cumberland – enterprise zones have been established in Central Falls and nearby sections of Lincoln and Cumberland, as well as Cranston, East Providence, West Warwick, Warren and Bristol, and Portsmouth and Tiverton.
But he said the program was created after a credit union crisis and at a time when companies continued to leave the urban industrial centers, leaving blight in their wake.
“It was embraced as an immediate investment, economic-development strategy,” he said. “Times have changed.”
Carcieri and the EDC are shifting tactics, Stokes continued, backing away from targeting incentives at geographic areas and sectors, making them “as broad as they can be.” It matches a trend in several states across the country, Stokes said.
Instead Carcieri, a Republican, has proposed a Small Business Jobs Growth Tax Credit, which gives a $2,000 tax credit for businesses that hire people who recently received unemployment benefits.
Those involved in enterprise zones in other states say it’s difficult to assess the full impact of the program.
A report last year from the Public Policy Institute of California caused a stir when it concluded that enterprise zones in the Golden State don’t have an overall effect on job growth, despite some isolated successes.
For companies either located in a Rhode Island enterprise zone, or relocating there, the incentives can be significant.
A business that boosts its employee count by 5 percent in a calendar year by hiring Rhode Island residents can receive a tax credit of up to $2,500 per new employee. If a new worker lives in an enterprise zone, the maximum credit rises to $5,000. And unused credits can be carried forward for up to three years.
This is not the first time Carcieri has targeted the enterprise zone program. Several years ago, the administration floated the idea of scuttling it, but legislators instead reduced the incentives
The maximum tax credit for each job created in an enterprise zone was cut from $10,000 to $2,500, and bonus credit for hiring someone living in an enterprise zone was also reduced from $15,000 to $5,000, according to Michelle Godin, vice president of New England Economic Development Services.
“The state has eviscerated the program,” Michael Cassidy, director of the Pawtucket Planning Department, said last week. “So it’s had less and less value.”
This time, Carcieri’s recommendation comes as state leaders grapple with a projected $427 million shortfall for fiscal 2011. The General Assembly must decide what changes to make to the governor’s proposal.
Roughly 300 businesses have registered for the program annually, with about 110 of them receiving credits in 2008 after forming 597 new jobs, according to figures provided by the EDC.
In 2009, 71 companies received credits, creating 454 new jobs, the EDC said.
A recent R.I. Division of Taxation study showed that the enterprise zone tax credits totaled $1.07 million in fiscal 2009. The tax credits ranged from $2,500 for Grasso’s Service Center in Providence to a $216,374 credit for Richline Group Inc., a Mount Vernon, N.Y.-based jewelry manufacturer with operations in Providence.
Steel-fabrication company Capco Steel LLC in Providence also benefited, picking up $159,396 in tax credits in fiscal 2009, the most recent year for which figures were available.
Mereco Technologies Group Inc. qualified for $12,500 in tax credits in fiscal 2009, but managing director Philip M. Papoojian told Providence Business News last week that the elimination of the program wouldn’t concern him, if the state offers a reduction in corporate taxes or another type of jobs tax credit.
Carcieri’s proposed small-business tax credit has potential, but the wage requirement of 250 percent of minimum wage – or $18.50 an hour – is too high, he said.
“The enterprise zone tax credit has helped us to hire new people from within the local enterprise zone,” said Papoojian, who is also vice chairman of the Smaller Business Association of New England’s Rhode Island chapter. “So I’d hate to see it go away without something to offset it.” •
