Amid the upheaval of the COVID-19 pandemic last June, Daniel J. McKee appeared frustrated.
McKee, then Rhode Island’s lieutenant governor, took the unusual step of openly criticizing the decision-making of then-Gov. Gina M. Raimondo, a fellow Democrat.
He believed he had been ignored by the administration from the start of the coronavirus crisis and publicly made it clear he felt Raimondo should offer more help to small businesses, funneling more federal COVID-19 relief funds to struggling employers that were closing their doors. McKee proposed creating grant and loan programs to keep small businesses afloat through the economic slowdown.
His plan largely fell on deaf ears.
But McKee’s complaint aligned with what political critics and some business owners had long said about Raimondo’s overhaul of the R.I. Commerce Corp. after she first took office in 2015. Yes, Rhode Island’s economy had improved in the years since, but critics argued that R.I. Commerce’s priorities were askew, focused too much on wooing big companies to the Ocean State at the expense of smaller businesses already here.
Now Raimondo has gone to Washington, D.C., and McKee is in charge, free to set a new course at a crucial time, as the state is looking to rev up its recovery from the beating it has taken during the pandemic.
As Gov. McKee continues to settle in, questions remain about where his economic development plans are headed.
How much of his own imprint will the new governor put on R.I. Commerce as Rhode Island begins yet another uphill economic climb out of a recession? And how much does R.I. Commerce have to change to adjust to the “new normal” of a post-pandemic world?
McKee, who helped run his family’s oil-delivery business and owned a Woonsocket fitness club before being elected Cumberland mayor in the early 2000s, has signaled some of what he has in mind early on.
He is using a $20 million allocation from leftover federal coronavirus relief funds to create a program that would provide struggling small businesses grants of up to $5,000.
The R.I. Commerce board approved the program in late March, and it recently started accepting applications.
In his state budget proposal submitted to the General Assembly last month, McKee also proposed changes to the $42 million Small Business Development Fund, which had been created by the legislature in 2019 as an alternative to Raimondo’s job-creation programs and incentives.
The fund had been a sore spot between legislative leaders and the Raimondo administration, which at one point had labeled the program too risky. McKee is seeking changes that he says will allow more small businesses to get access to capital.
In a recent interview with PBN, McKee praised R.I. Commerce’s track record in recent years of attracting high-profile companies or persuading existing ones to expand. But in the next breath, he talked about the need to “balance blue-chip companies with small businesses.”
“It’s not a zero-sum game,” said McKee. “I think you can do both.”
INCENTIVE PLAN
Raimondo had no qualms about overhauling the state’s economic development program when she took office in 2015.
Her predecessor, former Gov. Lincoln D. Chafee, had a different approach to economic incentives. His focus was on growing the local economy without the heavy use of tax incentives to attract outside firms.
Raimondo claimed there were no economic development initiatives, programming and staffing when she stepped into the governor’s office.
Because of the state’s disastrous investment in the video game company 38 Studios a few years earlier, the General Assembly had reshaped what was then known as the Economic Development Corp. into R.I. Commerce, created an Executive Office of Commerce and added a cabinet-level chief.
Raimondo appointed Stefan Pryor, a fellow Yale University alum, as the first R.I. commerce secretary, overseeing her administration’s creation of a new menu of programs and incentives designed to draw in businesses and create well-paying jobs.
R.I. Commerce’s incentives have worked in many cases.
A recent success: biopharmaceutical company Amgen Inc. decided to build a $200 million next-generation biologic plant, the first in the nation, at its Amgen Rhode Island campus in West Greenwich after the state dangled $3.5 million in Rebuild Rhode Island tax credits and $6 million in Qualified Job tax credits spread over 10 years.
The 120,000-square-foot plant was recently completed and Amgen has added 170 people to its Rhode Island operations, 20 more than originally projected, according to David Bain, Amgen Rhode Island’s business performance director.
In another case, Pryor recently touted his agency’s decision in October to award a $50,000 grant to Providence-based Graphene Composites USA Inc., to assist the company’s production of a product that is believed to kill COVID-19 and other viruses when applied to surfaces. The grant, issued through R.I. Commerce’s Innovation Voucher Program, will allow for the product to be tested by Brown University scientists.
Sandy Chen, company CEO and co-founder, credited the voucher program with allowing product development to go forward. “It’s going to be a made-in-Rhode-Island product,” Chen said.
[caption id="attachment_366771" align="aligncenter" width="1024"]
ON THE MOVE: Gov. Daniel J. McKee, center, tours the Thames Street commercial district in Newport on April 6, meeting with business owners along the way. He was joined by Sabina Matos, left, now lieutenant governor, and Erin Donovan-Boyle, executive director of the Greater Newport Chamber of Commerce. / COURTESY R.I. GOVERNOR’S OFFICE[/caption]
R.I. Commerce says the Graphene Composites grant was one of seven awarded in 2020 for products related to the COVID-19 response. Since it was created by Raimondo in 2016, the Innovation Voucher Program – aimed at companies with fewer than 500 employees – has issued $4.2 million for more than 90 projects, according to the agency.
At the same time, R.I. Commerce says the Qualified Jobs Incentive Tax Credit program has been approved for more than 27 companies and helped create more than 3,000 jobs, including 300 in 2020.
And the Rebuild Rhode Island program, one of the state’s largest economic development initiatives, has funneled incentives to 41 construction and renovation projects since 2016, spurring more than $2 billion in private investment, according to the agency.
Despite those successes, others have been critical, grumbling that Raimondo’s economic development policies were geared toward attracting large, out-of-state employers rather than growing existing small and midsized businesses.
Tracey Beck is among the critics.
Beck is co-owner of The Beck Cos., a North Smithfield-based manufacturer of stone countertops and wood cabinetry. She said the agency provided guidance with receiving three federal Paycheck Protection Program loans ranging from $100,000 to $150,000.
However, Beck said her company benefited more from We Make RI, a nonprofit group that matches workers with manufacturers. The organization receives funding from the R.I. Department of Labor and Training.
Beck said We Make RI provided funding, grants, job training and personnel. “They have been an unbelievable resource,” she said.
R.I. Commerce – at least under Raimondo — was not beneficial to Beck’s business, she said.
“We received no assistance from [Raimondo],” she said. “She was not a small-business advocate at all. We got audited constantly. She was not a business-friendly governor, in my opinion.”
[caption id="attachment_366758" align="aligncenter" width="1024"]
VALUABLE RESOURCE: Tracey Beck, right, co-owner of countertop and cabinetry manufacturer The Beck Cos., talks with manager William Marson. Beck says her company benefited greatly from We Make RI, a nonprofit that matches workers with manufacturers and provided funding, grants, job training and personnel.
PBN PHOTO/ELIZABETH GRAHAM[/caption]
‘URGENCY IS NEEDED’
Rhode Island’s unemployment rates steadily sank from 6.7% in January 2015, when Raimondo became governor, to 3.8% in January 2020.
Just three months later, when the COVID-19 pandemic shut down the economy, the unemployment rate rocketed to 17.4%.
While that rate has dropped down to almost 7.3% as of February, Gary Sasse believes R.I. Commerce has no choice but to revamp in order to power a strong recovery.
Sasse, founding director of the Hassenfeld Institute for Public Leadership at Bryant University, has concerns that the agency’s tools are outdated and ill-equipped to deal with the aftermath of the coronavirus crisis.
“Urgency is needed,” said Sasse, who once served as director of administration and director of the R.I. Department of Revenue under Republican Gov. Donald L. Carierci.
“The first order of business for the new governor is to recognize that what existed before the pandemic may no longer meet the state’s needs,” he said. “The second thing that we have to do is to retool Commerce to be an agency that’s responsive to the post-pandemic world.”
The agency under Raimondo tried to retool during the pandemic “but it was slow in developing relationships with small businesses,” Sasse said. “Small business has been hit the hardest.”
Now, according to nonpartisan economic tracker Opportunity Insights, Rhode Island small-business “revenue has declined about 50%,” he said. “We lost about 4 out of 10 small businesses [in Rhode Island]. Those are dramatic numbers.”
Sasse said R.I. Commerce should provide more grants and loans to small businesses and focus on building areas of innovation, such as in digital technology.
The pandemic has “driven structural shifts” in consumer behavior and how business is conducted, he said. “The state needs economic development and policy that is responsive,” he said.
CHANGE AT THE TOP?
R.I. Commerce’s most visible holdover from the Raimondo administration is the man at the top: Pryor.
Some observers wondered if he would join Raimondo in Washington after President Joe Biden selected her as U.S. commerce secretary. More than a month into McKee’s tenure, Pryor remains at his post.
McKee is complimentary of Pryor’s performance and often includes him in economic-related public appearances and news conferences. However, the governor was cryptic recently when asked about Pryor’s future at R.I. Commerce.
“I think Stefan has been a strong person in our administration,” McKee told PBN in March. “We’re [both] going to keep our options open. Hopefully, Stefan is going to be able to stay involved in his current position or in some other capacity.”
Pryor appears to have an ally in Karl Wadensten, the no-nonsense CEO of Richmond-based manufacturer VIBCO Inc. and longtime R.I. Commerce Corp. board member.
If Pryor were to leave R.I. Commerce, it would be a loss for the state, Wadensten said, especially with Raimondo now leading the U.S. Commerce Department.
What other state has an economic development chief with such connections and potential insight into federal policies and access to federal programs, Wadensten said. Those connections might be particularly useful to mend ties after McKee and Raimondo clashed over her handling of the pandemic aid before she left for Washington.
“[McKee] has the perfect person – Stefan Pryor,” Wadensten said. “He was just in war with her for six years. I would keep him on. I think she will be more transparent with Stefan.”
For his part, Pryor deflected questions about his future in a recent interview, instead choosing to talk about the work he’s doing with McKee and the state’s ties to the White House.
“We are pleased to enjoy a strong relationship with the Biden administration,” Pryor said. “And we are encouraged by the emphasis of President Biden and his entire economic team upon economic recovery as a major priority.”
[caption id="attachment_366757" align="aligncenter" width="1024"]
REVAMP NEEDED: Gary Sasse, founding director of the Hassenfeld Institute for Public Leadership at Bryant University, is concerned that R.I. Commerce Corp.’s tools are outdated and ill-equipped to deal with the aftermath of the coronavirus crisis. / PBN PHOTO/MICHAEL SALERNO[/caption]
INITIAL AIMS
Pryor said the agency’s focus remains on its complement of incentive programs and appealing to both large and small businesses with a “continued commitment to larger projects to drive” the economy.
Indeed, McKee’s $11.2 billion state budget proposal – submitted to the General Assembly just days after he was sworn in – doesn’t appear to eliminate any of Raimondo’s economic development initiatives.
The spending plan for the Executive Office of Commerce includes:
• Boosting the cap on the Rebuild RI program from $210 million to $240 million, providing a $22.5 million allocation for the program and extending the sunset on the program from June 30, 2021, to Dec. 31, 2022.
• Adding $3 million to the budget for the Real Jobs RI training program, boosting the spending to $8.45 million.
• Extending the sunset on the Wavemaker Fellowship grant program from June 30, 2021, to Dec. 31, 2022. The program, created under Raimondo, provides grants to science, technology, engineering and mathematics students to pay down student loans. McKee is seeking an additional $400,000 for the program.
• Allocating $1 million for the Small Business Assistance Program, which was created by the Raimondo administration in 2016 to provide loans for businesses and entrepreneurs who would otherwise have difficulty obtaining credit. In five years, more than $4 million has been disbursed, helping to create or retain more than 1,100 jobs, according to R.I. Commerce calculations.
• Allocating $140,000 to finance a program that provides assistance and grants to minority entrepreneurs.
Rep. Carol H. McEntee, D-South Kingstown, chairwoman of the House Small Business Committee, has taken issue with McKee’s proposal to tax small businesses for forgiven federal PPP loans greater than $150,000, introducing legislation that would block such attacks.
But she likes what she sees so far in his budget plan for R.I. Commerce.
“I think it is a good first step toward helping our small businesses and state economy recover from the devastation of the COVID-19 pandemic,” she said. “There has been a lot of focus on larger businesses, which we needed at the time, but right now it’s small business that needs help.”
Still, Wadensten said, there should be a greater emphasis on creating jobs programs that better facilitate training and job placement. “Throwing money at small businesses is great,” he said, “but at the end of the day, we have people who are not getting connected with jobs that are available.”
Saul Kaplan, who led the state’s economic development efforts under two past governors, says McKee’s ascendancy could complement what Raimondo accomplished in putting Rhode Island on the radar screen of businesses nationwide.
“It’s an important transition,” said Kaplan, now president of the Business Innovation Factory, a Providence nonprofit that promotes innovation in business models. “They’re different. They come at it differently.”
Kaplan said that while Raimondo’s approach was “transactional,” R.I. Commerce under McKee needs to focus on effecting change through policy. “We need a really good policy capability to move the economy forward,” he said.
McKee “has a really good background working at the local level,” Kaplan said. “That’s going to be a really great superpower to get folks aligned around the state.”
Cassius Shuman is a PBN staff writer. Email him at Shuman@PBN.com.
