Government incentives tied to job creation or real estate development are intended to keep businesses in Rhode Island, attract new employers and spur economic growth.
They have been used heavily in the past two years in Rhode Island, and some would argue successfully. They have attracted new companies and helped to create jobs.
Through March 27, the R.I. Commerce Corp. had authorized up to $53.5 million in Rebuild Rhode Island tax credits, for 18 development projects across the state. Another $22.6 million has been authorized by Commerce RI through the Qualified Jobs Tax Credit program, which provides a tax credit based on the salaries paid for new jobs created in Rhode Island. Those credits to 13 employers are premised on 1,105 jobs being created and retained over the next 10 years.
But like any other government program, the economic incentives have qualifying criteria. And they require businesses to open their books and document their structure, financing and business goals. The application process itself can be time-consuming, say businesses.
For these, and other reasons, many employers in Rhode Island have skipped the buffet of incentives made available in the past two years under Gov. Gina M. Raimondo, and in particular bypassed her administration’s two signature programs, the real estate-based Rebuild Rhode Island tax credit and the employment-based Qualified Jobs Incentive tax credit.
They are choosing to create jobs, expand facilities and build new structures without state incentives. In some cases, they have received breaks on taxes from local communities, or help with recruiting and training new employees.
But they have not received the high-profile, multimillion-dollar incentive packages that are, seemingly each month, being awarded to companies through Commerce RI.
What makes these companies less reliant on state incentives?
In many cases, they are small enterprises, with fewer than 100 employees. They are pursuing projects that have total values of a few million dollars, rather than tens of millions, and so in some cases fall below the threshold that would have allowed them to be considered for the state help.
Others likely would have qualified based on project size, but for reasons that include a desire to move ahead quickly, without as much oversight, opted to self-finance their expansions.
Parameters for the state’s new incentive programs are largely dictated by state law.
Under the Rebuild Rhode Island tax-credit guidelines, which are designed to provide gap financing for renovations or new construction, the project minimum value is $5 million, for example. The premise is to target development that has the potential to be catalytic, said Darin Early, president of Commerce RI.
Under Rebuild, qualifying commercial and mixed-commercial-residential projects have to create at least 25,000 square feet of new space, and accommodate at least one business that has at least 25 employees.
In multiunit-residential construction or renovation, the Rebuild program applies to projects that create at least 20 units, and 20,000 square feet of new space. In general, the Rebuild tax credits are designed to provide up to 30 percent of a project cost. They are obtained only on certificate of occupancy, and designed to serve a last-source financing role.
The Qualified Jobs incentive, which is a redeemable tax credit, is generally based on the number of jobs created in an expansion that exceed the state’s median salary. Up to $7,500 per year is available to the employer as a redeemable tax credit for each job created that meets the program requirements.
These criteria are set in the enabling legislation, explained Early. Once an applicant meets those criteria, the evaluation process conducted by the state can take anywhere from three to five months, he said, depending on the project and the type of incentive package being negotiated.
In the case of Qualified Jobs, the evaluation includes an assessment of the business entity and the impact of the project on the targeted economy, i.e., manufacturing. In the case of Rebuild, in which the tax credits become a form of project financing, the state does this, as well as evaluates whether the requested credit is truly “gap” financing needed to complete the project.
“The primary goal we have is to protect taxpayer funds. This is something we take very seriously,” Early said.
The fact that businesses are creating jobs and expanding operations without such state incentives is a sign, Early said, that the economy or their targeted markets are strengthening.
“It’s a healthy sign that companies are growing in the state of Rhode Island without subsidy,” he said. “They’re choosing to do so to meet either the demand of the market they’re operating in, or they’re doing it to meet the demand of the market they see evolving here.” n
‘We’re successful enough [to] do it on our own’
As a manufacturer of high-end, high-performance rowing machines, WaterRower has a high profile, thanks to the popularity of the Netflix drama “House of Cards,” in which a lead character uses one in each episode.
But beyond the unusual spotlight, the company has had steady growth in sales in recent years, which has prompted a series of expansions to its manufacturing base in Warren.
Over the past several years, it has invested almost $10 million in new facilities, initially with expansions of its manufacturing plant, and more recently, construction of a new showroom and headquarters building on an adjacent site. The 28,000-square-foot headquarters, with space for a showroom and administrative offices, is expected to be completed this spring, said President and CEO Peter King.
In past years, WaterRower received state Enterprise Zone tax credits, a now-discontinued program that provided a tax offset for jobs created in economically disadvantaged areas of Rhode Island.
But it didn’t seek state incentives for any of the recent expansions.
“I guess it’s an ideological reason,” King said. “We wanted it, so we built it, and we didn’t expect any subsidy. Yes, we could ask for more, ask for the government or the taxpayer to help us along. I guess it’s that we’re successful enough … that we could do it on our own, so we did.”
As for seeking state help to offset the cost of its job creation, King found that the process for requesting help wasn’t going to be a valuable use of time. “We’ve gone through it, with the business going down different grant routes. And it’s been incredibly time-consuming. That time and effort can be put into growing the business. And it’s a distraction.”
The company, which now employs about 230 people, has had inquiries from other states trying to lure it outside Rhode Island. Among the suitors were New York, Mississippi, Texas and Florida. The states inquired after reading press coverage, in local papers, of the company expansion.
Despite its tax burden, and regulatory headaches, Rhode Island is home to most of its workers. And the dislocation of a move wasn’t going to be worth it, King said.
“While there are difficulties with doing business in Rhode Island, we are established. We felt that investing in our current facility makes sense, rather than re-establishing somewhere else. And we’ve been growing very rapidly. To have that dislocation, as we set up in another operation parallel to this, as we transitioned over, was really quite difficult.” n
‘We don’t do things we cannot afford’
In North Smithfield, a vacant, former metal-manufacturing plant has been transformed this year. It now houses the three sister companies of The Beck Cos., a family-owned enterprise that manufactures custom counters, cabinets and closet-organization systems.
Over the past 10 years, the three companies have steadily grown, spurred largely by growth in Boston. The family now employs 55 people.
Like other companies that have relocated into new facilities in Rhode Island, The Beck Cos. have invested heavily in property, equipment upgrades and personnel.
But Tracey Beck, general manager, said they did not seek state tax credits for the $1 million-plus renovation of their industrial building, the purchase of specialized manufacturing equipment or to offset the expense of the property acquisition itself.
Altogether, The Beck Cos. paid $1.76 million for their new facility, and slightly less than $1 million on the renovations, including bringing obsolete utilities up to code. They saved significantly by doing much of the construction work themselves. Beck estimated as much as another $1 million went into new-equipment purchases.
Their accountant advised they were too small to qualify for state incentives to assist companies with job creation and real estate redevelopment, in part because of the separated structure of the various companies.
Ultimately, Beck said the decision to move ahead came down to a philosophical position. “We wouldn’t do something we couldn’t justify on our own.”
When it evaluated sites for expanding the manufacturing facility, the family considered moving over the line into Massachusetts. But ultimately the location of most of their workforce in Rhode Island compelled them to stay in the Ocean State.
Their new building is in an industrial area of North Smithfield, with ready highway access, and is centrally located within their geographic market of southern New England.
Beck investigated manufacturers’ rebates, equipment deals and any grants or rebates she could find to help finance the renovations, and the installation of new technology, including modern lighting. They financed the improvements with their own funds, and standard loans from lenders. They did receive a tax adjustment from North Smithfield that will delay the full taxation on the site improvements.
The market for their products justified the expansion. Among other clients, they provide the cabinets and countertops for Starbucks expansions, as well as several hotels. The company took deliberate steps to move ahead in North Smithfield, including a carefully planned phasing of the opening of its new facilities so as not to disrupt production.
“We’re always reinvesting in our companies,” said Tracey Beck. “We don’t do things we cannot afford.”
The Beck Cos. has participated in a R.I. Department of Labor and Training program that helped it to hire three new employees. The program is intended to have the state share in the cost of the first 400 hours of a new employee’s work tenure. But almost a year later, Beck said the state has yet to reimburse the company.
The experience has soured the company on applying for state credits. She isn’t sure whether the company would have qualified for the state’s Qualified Jobs program, which provides a tax credit for employees hired at salaries above the state median. For manufacturing employees, the salaries can be below that point.
And although not in place, the state has recently proposed an adjustment to the manufacturing-focused applications for state incentives, which would loosen some of the hiring and project-size requirements.
For Beck, the application and work-time diverted to that was going to present a problem by itself.
“It’s too difficult to use,” she said. “There was so much paperwork. We’re busy running a day-to-day business. I don’t have an HR department. I don’t have administrative assistance. You see it in here today, it’s like Grand Central [Station]. I have to deal with the day-to-day business of making sure my employees stay employed.” n
‘We wanted to get the thing built’
Peter Fahlman, president of Ferguson Perforating Co., is an adherent to lean manufacturing. So much so, that when the company expanded its physical footprint in 2015 and 2016, he went about it as efficiently as possible.
By purchasing a neighbor’s industrial property, and eventually deciding to raze that building and construct a new addition, Ferguson added nearly 19,000 square feet to its structure, and eventually hired five new manufacturing positions.
The project, including site purchase, totaled about $2 million.
In all likelihood, the size of the project would have fallen below the state’s threshold for both Rebuild and Qualified Jobs incentives, as they are now structured, but Fahlman said he really didn’t give the state programs any consideration.
By the time the company had gained various city approvals, from entities ranging from the zoning office and board to the city forester, more than a year had passed from the April 2015 closing.
“It just gets to a point where you have to go for another approval. We wanted to get the thing built. We had customers waiting. You’re sitting there thinking, I don’t need another approval.”
Even Providence tax incentives, he decided, were going to be more trouble than worthwhile. City incentives would have compelled his choice of a design-build firm to subcontract with minority-owned firms to comply with city-hiring requirements. Fahlman said his opposition to that didn’t involve minority participation, but rather not wanting to dictate to the builder who the subcontractors should be. “How do I tell the person I’m relying on, who uses a reliable team that they’re comfortable with, that they have to go with someone who they don’t even know? Now, what happens if something goes wrong? Who do I blame?
“This is part of lean,” he continued. “Eliminate every piece of waste you can … so you are constantly creating value. We had the wherewithal to finance it ourselves. We’ve eliminated the waste so we actually make money.” n
Knowing town, market keeps 620 Main connected
When Lenny Iannuccilli saw a reconstructed mill building in Saco, Maine, he was struck by the site’s similarities to one his real estate company had listed in Rhode Island. Months later, his development team had purchased the property near the center of East Greenwich, with the idea of redeveloping the 1940s-era industrial building into apartments.
That initial plan didn’t materialize. This year the partners received approval from the state and town to raze the building and build a new structure. The Terrace on Main, now under development, will be the third project in recent years for 620 Main Street Associates LLC.
Rebuild Rhode Island, the state’s program that helps provide gap financing for real estate development deals, was never in the cards. The cost of their project, at perhaps $4.5 million, was too small in all likelihood, Iannuccilli said.
That’s OK with Iannuccilli. He and his team have been together for several years. He and his brother, both Realtors, provide the marketing and site analysis, and a third partner, Contemporary Builders Inc., oversees construction. They knew what they were getting into. They know the East Greenwich market. The officials at City Hall know them well, and know their reputation, Iannuccilli said.
“We pretty much knew what was in front of us,” he said. “We had to price out the project, hard costs and soft costs. We could see it was just north of $4 million. We were going to need $1 million to go to a lender.” The company used private-equity partners to secure the financing. He feels confident it will sell and they will all make a return.
The project, now a 21-unit condominium deal, is expected to be completed in spring 2018. The Ocean State has a documented demand for new apartments, and new condos, with walkable amenities, Iannuccilli said. And he knows what the town offers.
Already, three units have been reserved, and the marketing began weeks ago.
“We do in excess of 1,000 transactions a year,” he said, of his real estate brokerage. “Not all in East Greenwich, but we have a dominant market share here. It allows us to keep our fingers on the pulse.”
The new condos will be sold in a range of $225,000 to $295,000. All are one-bedroom units.
Previously, the company developed the Cottages on Main Street, the Village on Vine and Steeple View Office Park. Most were conversions of existing properties into office condos or housing.
Iannuccilli’s team is moving ahead, but he said because they are financing it with their own funds, they have to be cautious. “You have to be very careful. There’s not much of a buffer. If you don’t have the right product, at the right price, you’re probably going to have a problem.” n
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