A new state report on Rhode Island's tax incentive program Jobs Development Act shows that the program, which offers tax breaks to companies creating jobs, did not break even between 2019 and 2021 on a "general revenue basis."
But don't expect drastic measures to be taken.
The Sept. 28 evaluation assembled by the R.I. Office of Revenue Analysis did not recommend ending the program, even though the agency estimated an annual net revenue loss of between $11.5 million and $27.3 million in tax years 2019, 2020 and 2021.
Instead, the office made a series of recommendations to improve the Jobs Development Act, including adding a sunset clause that limits the amount of time individual companies can claim the tax rate reduction.
Whether legislators will take another look at the incentive remains an open question. House Speaker K. Joseph Shekarchi said in a statement that he remains "open-minded about the best way to attract and retain good jobs.”
“These reports are one tool for that discussion,” he said.
It's not the first time the Office of Revenue Analysis has found the Jobs Development Act lacking. In 2022, the office recommended the elimination of the program that’s benefited some of the state’s largest employers but which it said also puts companies looking to come to Rhode Island at a disadvantage. At the time, the analysis covered tax years 2016 to 2018.
Apparently, little has changed since then.
The Jobs Development Act has been closed to new applicants since July 2015. Enacted in 1994, the incentive allows companies to reduce their corporate income tax liability by hiring and retaining a certain threshold of employees, cutting rates between 0.25% and 6%.
Consequently, the state has forgone $171.7 million in tax revenue since 2013, a majority that would have otherwise been paid by two firms, the report said. Citizens Financial Group Inc. has claimed an average of $10.9 million per year, including $38.3 million in fiscal 2022 alone. Meanwhile, CVS Health Corp. has claimed an average of $5.9 million annually, although in recent years the yearly tax break has ranged between $1.1 million and $1.5 million.
Since 2013, the tax savings for Citizens has totaled $108.7 million and for CVS $59.2 million.
Both Citizens and CVS did not immediately have a response when PBN sought comment.
Part of the problem with the Jobs Development Act is that companies looking to move to Rhode Island are likely to be at a substantive financial disadvantage since they can't benefit from it, the Office of Revenue Analysis said.
The program can “serve as a barrier to entry to the Rhode Island economy for firms that must compete for resources with current JDA tax rate reduction recipient firms,” the report said. And "revenue currently forgone ... could become available for other state government expenditure priorities including investments in education, workforce development and broad-based tax reductions.”
At the same time, there could be a downside to repeal, the report noted.
The loss of any major firm headquartered in Rhode Island could cripple the Rhode Island. The 15,159 employees reported by firms who received the Jobs Development Act incentives comprise 2.6% of the state’s labor force and provide 5.9% of Rhode Island’s total personal income.
Indeed, Michael DiBiase, CEO and president of the Rhode Island Public Expenditure Council, cautions that any consideration of ending or reducing the incentive “would be seen as unfriendly to business.”
“You can’t just look at the revenue impact,” he said. “You really should look at the whole economy. Rhode Island is not likely to get any more of these [companies deciding to relocate to the state]. They tend to go to larger metropolitan areas. We should do everything we can to try and keep them. They have higher paying jobs and are generally more important to our economy than other businesses.”
DiBiase notes that Citizens still pays a 9% corporate tax, unlike other companies whose rate was reduced to 7% in 2015.
A report from the R.I. Division of Taxation showed that Citizens received $20.2 million in Jobs Development Act reductions in fiscal 2023, while CVS garnered $2.1 million.
Additionally, Jobs Development Act recipients claimed $6.6 million in additional tax credits and incentives from tax years 2019 through 2021.
The report points out that because these firms received additional tax benefits, it is “inappropriate to attribute all the economic benefits associated with their presence in the state solely to the JDA because this would imply that these additional credits had zero economic impact.”
“Despite the broad footprint of recipient firms, it is not likely that the entirety of this economic activity would immediately disappear if the program were to be modified or even ended.”
In addition to adding a sunset clause to the tax incentives, the Office of Revenue Analysis recommends that policymakers set clear goals and objectives for the Jobs Development Act so its performance can be better measured, determine whether the tax rate reduction remains justified now that there's been a significant change to the state's business corporation tax, and revise reporting forms so that key data are collected for economic analysis.
The Office of Revenue Analysis said policymakers should also examine the Jobs Development Act program to ensure that the Rhode Island "economic and tax policy landscape remains competitive and attractive" for tax break recipients and other companies in the state.