Economic Benefits of Commerce RI-Supported Growth Source of Debate

By NICHOLAS BOKE/ecoRI News contributor

PROVIDENCE — I sat down to speak with Rhode Island Commerce Corporation president Darin Early in mid-October. See, ecoRI News editor Frank Carini and I had been wondering just what this group was up to.

To be clear, that’s the Rhode Island Commerce Corporation (Commerce RI), not the Economic Development Corporation (EDC). EDC higher-ups were the buffoons who landed Rhode Island in the 38 Studios financial kerfuffle it’s still floundering around in. Commerce RI is the EDC’s successor.

And let me begin by saying that the two organizations seem to have nothing in common. While the EDC seemed pretty amateurish, Commerce RI seems to know what it’s doing.

I wondered — Frank and I wondered — just how well the organization was doing at moving Rhode Island beyond its self-inflicted 38 Studios damage and putting the state on the map in more positive ways.

Early was pretty modest. He told me things were looking up, sort of. “Rhode Island’s fiscal stability has existed for a while, and corporate and personal taxes have remained stable. I’d say Rhode Island has skewed from unknown to slightly negative, though we’re now seeing something of a change in sentiment.”

But it would have been hard to anticipate what unfolded between our first conversation and my getting around to writing this article.

If you have been paying any attention, you would have noted the Christmas-present-like December stream of Commerce RI success-story headlines in the Providence Journal. On the 7th, we read, “Ready to Dig In: First project to earn Rebuild RI tax credits breaks ground today in Providence.”

On the 16th, there was “Virgin Pulse bringing 300 jobs: Company picks city for its ‘great fit’ from both a business and cultural perspective.” On the 22nd, “A.T. Cross Writing its own ticket: Pen maker moves back to Providence with R.I. incentives,” and on the 24th, “Commerce Corporation Improving business climate,” a piece about Commerce RI-supported technology-based school programs and airport-use activities.

Then, top it all off with the Journal’s Dec. 13 editorial, “Injecting new life into Providence,” praising the use of Commerce RI’s Rebuild Rhode Island tax credits to support the development of 169 apartments just down the hill from the downtown railroad station.

Gov. Gina Raimondo has received plenty of credit for pushing the Legislature to provide the funding that Commerce RI is distributing. But it was the corporation that did the grunt work and signed the agreements.

Everybody, of course, isn’t happy with this. In August, concerns about some of the procedures followed by Commerce RI in the General Electric contract were articulated by Samuel Bell, state coordinator of the Rhode Island Progressive Democrats.

A few months later, his op-ed piece “Mass. has a better plan than R.I.” criticized Commerce RI’s business-outreach efforts on a number of fronts, including a lack of attention to environmental issues and a higher cost-per-job than Massachusetts.

But let’s save that for later. First, let’s see exactly what the Commerce RI is ... and does.

For starters, Commerce RI is a state-funded $40 million organization that in 2015 provided about $20 million for the actual work, served as a pass-through for another $10 million — i.e, affordable housing and Bryant University’s Center for International Business — and spent a bit more than $7 million on salaries, benefits and overhead.

Visiting the Commerce RI website will give you a more detailed overview of what it does. But the website can be a bit overwhelming. This isn’t, however, because Early got snookered by a shoddy web designer. It’s because the whole undertaking is simply a bit overwhelming. There’s plenty going on.

Click on Case Studies, for example, and you’ll find a hodgepodge of feel-good stories about Rhode Island businesses.

There’s North Kingston-based Sea Freeze, which Commerce RI and Food Export-Northeast helped to expand its markets. Scroll down to Greencore USA and you’ll learn that Commerce RI helped the Irish convenience-food firm set up shop at the Quonset Business Park. There are several more examples on this web page.

OK, you say, but exactly how does Commerce RI work? What does it do?

Now it gets a bit trickier.

Go to the top of the Case Studies page, click on Our Services and click on Incentives that will appear on the pull-down menu, and you’ll get a picture of some of what’s available: Qualified Jobs Incentive tax credit; Rebuild Rhode Island tax credit; tax increment financing; I-195 Redevelopment Fund; Anchor Institution tax credit; Small Business Assistance Program; Innovate Rhode Island Small Business Fund; innovation vouchers; industry cluster grants; and tax stabilization incentive.

Everybody’s seen some of this money in action. If you live in any of a number of Rhode Island cities, you will have noticed new sidewalks, street furniture and signage that the Main Street Streetscape Improvement Program funded.

Traveling through Providence, you will certainly notice the 191,000-square-foot Innovation Building soon to be built by Wexford Science and Technology on 195 land that will lease space to folks from Brown University’s School of Professional Studies and the Cambridge Innovation Center.

This certainly doesn’t cover it all, though. For example, there’s the $200,000 grant to Woonsocket public schools to collaborate with CVS Health to create a “P-Tech” program that will help students earn both their high-school diploma and their associate’s degree while preparing for specific jobs.

And then if you go to Wavemaker Fellowship you’ll get a lot of information about the efforts to bring high-tech jobs to the state, and to keep high-tech college graduates in the state. Last year, more than 200 college graduates in fields such as technology, engineering and design received fellowships, annual student-loan waivers averaging $4,000.

But behind all these facts and figures lie human realities. For whatever reason, the people who run a company start looking around for another place to set up shop. If they’re interested in Rhode Island, they’ll likely start by speaking with Commerce RI. If all goes well, the company gets a tax break, the community gets some jobs and the state gets, as Early put it back in October, the opportunity to say to the next company to inquire, “Others are here. Why don’t you think about Rhode Island?”

Take for example, Ivory Ella, a rapidly growing clothing company that moved to Westerly in August as a resulting of earning a Qualified Jobs Incentive tax credit.

The facts and figures of that deal. Having expanded from a 1,000-square-foot space to a 3,000-square-foot space and then to a 9,000-square-foot space the company was working from in Connecticut, the owners wanted something bigger and more permanent. They approached Commerce RI. Securing a commitment from the organization for $362,000 for 30 new jobs if the company moved to a 38,300-square-foot space in Westerly and created the jobs over a three-year period, the deal was signed.

Let me pause here to say that I wish I could help out with the name Ivory Ella, but it’s complicated. It has, however, to do with the fact that 10 percent of the after-tax profits go to protecting elephants in the wild, along with a degree of serendipity.

As co-founder — one of five — Matt Fiano put it, “It took the longest time to figure the name out. We had the logo for two months before we could get the name. We wanted something that sounded awesome; sounded like a clothing brand for our female target audience. When somebody suggested the Ivory Ella, it just rolled off the tongue.”

The company had gone, he explained, from working in his basement — “where my six- and eight-year-old helped fold shirts” — in Groton, Conn., to various spaces that they kept out-growing. They began to look for something larger and more permanent last summer.

Fiano said they found the process quite complicated in Connecticut, but they were in a bit of a hurry, though, needing to have a facility up and running for the Christmas rush.

“In Connecticut, we had to go from municipality to municipality. We’d have to fill out forms before we could get any idea of the benefit we might get,” he said. “Here, it’s the Commerce Corporation that handles it. We learned what we needed and decided to go with the jobs initiative program.”

Now operating in Westerly, Fiano said they’re very pleased.

“Being in Rhode Island is phenomenal. At the local level, Westerly is very friendly,” he said. “This is the craziest time for us. After Christmas we’ll be able to breathe and sink our teeth into how we can leverage our partnership with Rhode Island and local government.”

Obviously, the negotiations with international companies like GE, after it had decided to make a major move to Boston and then decided to bring GE Digital to Providence, or Johnson & Johnson, which recently decided to open a health-technology center and bring 75 new jobs to Rhode Island, were of a different scale and nature than that with Ivory Ella’s people.

Everybody’s not so happy about all these deals, though.

As has been noted, Bell, Rhode Island Progressive Democrats state coordinator, has criticized both the specifics of the GE deal and the general approach of Commerce RI. He concluded his Providence Journal op-ed piece by suggesting, “When Rhode Island’s ruling conservative Democrats defend their corporate welfare strategy, often the arguments boil down to the idea that there is no alternative, that every other state is doing what we’re doing, and we can’t afford to get left behind. But there is another way. And it’s working in Massachusetts.”

Bell is not alone.

The Institute for Taxation and Economic Policy, for example, in an August 2013 essay titled “Tax Incentives: Costly for States, Drag on the Nation” argues that “best available estimates suggest that states and localities are devoting some $50 billion to tax incentives every year. Unfortunately, despite the enormous expenditures being made on these programs, the evidence suggests that tax incentives are of little benefit to the states and localities that offer them, and that they are actually a drag on national economic growth.”

Arguing that tax incentives are rarely the deciding factor in a decision where to relocate, that some benefits tend to migrate out of state, that “one company’s gain is often another company’s loss” and that tax incentives often draw funding from other public services, the essay concludes:

“While small tax incentives are unlikely to affect business behavior, large tax incentives can harm a state or locality’s reputation. Business owners sometimes interpret the presence of lucrative incentives as a signal that a location may have other serious weaknesses, or that the government is mismanaged or desperate.”

Gary Sasse of Bryant University’s Hassenfeld Institute for Public Leadership agrees, echoing many of the institute’s arguments in a Providence Journal article of July 16.

Harvard University scholar Soledad Artiz Prillaman argues that the problem is even larger. In her “Taxes, Incentives and Economic Growth: Assessing the Impact of Pro-business Taxes on U.S. State Economies” she argues that “very few studies have documented the long-term effects of these tax policies on different facets of state economic and overall business atmosphere. In short, we do not know how the level of business taxation actually affects the economies of the states.”

Finally, the European Union’s response to Ireland’s tax deal with Apple should be considered. The EU had ordered Apple to pay Ireland $14.5 billion in back taxes, arguing that the tax agreement between the two was in violation of EU rules.

Commenting on Apple’s and Ireland’s pushback on the ruling, Oxfam ranked Ireland as the sixth-worst corporate tax haven in the world. It warned that a race to the bottom is “starving countries out of billions of dollars needed to tackle poverty and inequality.”

Whatever the actual long-term impact and effectiveness of tax incentives, there is no doubt that Commerce RI’s efforts to attract businesses to the state, as well as to support technology education, collaboration between businesses and academia, and a variety of construction and improvement projects — is in full swing, and succeeding.

Asked in October about his hopes for the corporation’s efforts, Early responded, “Short-term, we want to see a sentiment change and a velocity change, with more businesses looking to Rhode Island and more real-estate interest in Rhode Island. Mid-term, we’d like to see more bricks and mortar at work, and more people coming without the subsidy. In the long-term, we’d like to see self-sustaining growth.”

Elaborating toward the end of December, he effused, “We’re extremely proud of the strides we’ve made as a state in employment and business growth in 2016. ... I’m certain that as we continue to focus on strengthening our pipeline of local talent and fostering a business-friendly climate, we will see more of the same in 2017.”

Providence resident Nicholas Boke is a freelance writer and international education consultant. He runs a blog called Waiting for the Barbarian.