From Worst To First: Inside Rhode Island's Business Development Toolkit
Rhode Island’s leaders know their state ranks as one of the least business-friendly in the country, but they have been making an increased effort lately to shed the image.
“With great credit to Gov. [Gina] Raimondo, state leaders and to the leaders of the business community, there has been a real ramp-up of effort,” Rhode Island Secretary of Commerce Stefan Pryor said. “When we arrived, there were very few tools in our toolbox.”
The smallest state in America has been at the bottom of CNBC’s Top State For Business rankings four times and has never risen above 45th since the rating began in 2007. This does not mean influential people in the Ocean State are resting on their laurels. Raimondo has been in office since 2015, and her administration is tackling many of the issues that have turned businesses and developers away.
“There are good things going on at a small scale,” Providence College School of Business Dean Sylvia Maxfield said. “But in Rhode Island, small can have a big impact.”
The state has two workforce investment tools: the Rhode Island Qualified Jobs Incentive Act and the Rebuild Rhode Island Tax Credit. The jobs measure refunds a company the personal income taxes generated by the jobs it creates. The tax credit offers financial incentives over five years after a project’s certificate of occupancy is complete.
Providence has a history of political corruption and organized crime, inspiring the "Crimetown" podcast by the same producers behind HBO's "The Jinx." The benefits of the economic toolbox are already evident, which the new leadership hopes will make the city’s business climate its new legacy.
Rhode Island had the highest unemployment rate in the United State for a seven-month stretch in 2013 and 2014. It was 4.2% in June, below the national average and the lowest the state had seen in 16 years. The state has completed 17 business expansion or relocation deals in as many months, and 27 real estate deals have closed using the real estate tax credit, Pryor said.
A $610M project to realign the intersection of Interstates 95 and 195 in Providence freed up space and linked the city’s Jewelry District with downtown. Rhode Island created the I-195 Redevelopment Fund to lure the technology, medical and higher education industries to the newly created neighborhood. The state is working with Baltimore-based Wexford Science & Technology and has provided nearly $38M in incentives to the developer's $158M project, to be anchored by Brown University and Cambridge Innovation Center.
But getting the state to have a stomach for subsidies is no small feat.
Former Boston Red Sox pitcher Curt Schilling founded 38 Studios, a video game company named for his jersey number. The company received a $75M taxpayer loan in 2010 from the state of Rhode Island to lure it out of Massachusetts. It promised to bring 450 jobs to the state, but things quickly turned into a financial disaster.
The gaming company sunk much of its capital into a project that never saw the light of day, and it filed for bankruptcy in 2012. At first, reports showed Rhode Islanders could have lost $110M in the bad deal. A February report revised the number after a series of lawsuits lowered the figure to nearly $39M.
Leaders are looking to avoid the mistake again and pursue less risky endeavors.
“It was important that we create fiscally responsible investment programs and programs where accountability is built into the structure of what we do,” Pryor said.
Rhode Island’s new tax incentive programs are more advantageous to taxpayers than those offered by other states, Pryor said. In real estate transactions, leaders ensure the state has the potential to see a return on its investment. This means the team negotiates agreements beyond just new tax revenue. The state as an investor may see a direct return on its investment if the project succeeds at a high level.
“We think of it as an investment. With the right subsidies, competitive companies are attracted to come to our market,” Providence Economic Development Director Mark Huang said. “It is a payback on job creation and future tax revenue. In the end, how large was the subsidy Boston gave to get General Electric?”
Providence and its neighbor to the north were final contenders when GE was looking for a new headquarters city. In the end, Boston won, and a combined $150M incentive package from the city and state were a significant factor in the relocation.
Providence walked away with a GE Digital information technology center that is expected to employ 100 and potentially more. The state agreed to provide GE up to $5.65M in incentives.
One glaring item on the economic checklist is finding a tenant for Providence’s tallest tower. The 428-foot 111 Westminster St., called the Superman Building, has sat empty since 2012 when Bank of America decided not to renew its lease. Breathing new life into the tower is a top priority of both the city and state, but details remain scant.
“We are in active conversations with potential tenants,” Pryor said, declining further comment.