Connecting state and local government leaders

A State Slow to Come Back from the Recession Pushes for Economic Wins

A missile hatch for a Virginia class nuclear powered submarine is worked on by Electric Boat employees in July 2014 at the company's Quonset Point facility, in North Kingstown, R.I.

A missile hatch for a Virginia class nuclear powered submarine is worked on by Electric Boat employees in July 2014 at the company's Quonset Point facility, in North Kingstown, R.I. AP Photo/Stephan Savoia

 

Connecting state and local government leaders

Rhode Island is recruiting companies and looking for long-term growth.

Rhode Island was one of the worst hit places during the Great Recession, taking much longer to recover than other states. Unemployment spiked and lingered, with the highest rate in the country for a full eight months in 2013 and 2014.  

Now, a decade after the recession began, the situation has improved for the tiny state of about one million people, with an unemployment rate down to 3.9 percent at the end of last year, the lowest level in nearly 30 years. Rhode Island recorded the largest percentage rate drop in the nation.

State leaders see the turnaround as the result, at least in part, of Rhode Island’s embrace of the economic development tools it previously lacked, such as an array of tax incentives to encourage business investment.

Governor Gina Raimondo, elected in November 2014, set about to create, and then use, a suite of business incentives that officials say has succeeded in attracting dozens of new projects across the state.

At the same time, some economists warn that Rhode Island’s economy still suffers from structural problems that retard its growth and render it more vulnerable to the next recession than others in the region and the nation. A hint of these vulnerabilities came last August, when a drop in the unemployment rate was accompanied by a loss of 2,400 jobs in the state.

New Agency

Stefan Pryor, Rhode Island's secretary of commerce, has been Raimondo’s key agent in developing and implementing the economic development effort. She recruited him from Connecticut, where he had been serving as education commissioner, to help her as she took office in 2015. In a recent interview, Pryor talked about the scope of his incentives portfolio and said with pride that the new jobs they have attracted are paying an average of $65,000 a year.

When Pryor assumed office as Rhode Island’s first secretary of commerce, he became the state’s principal ambassador to the business community within and beyond its borders.

Stefan Pryor (Source: Rhode Island Commerce Corporation)

He was an interesting choice. A Yale-educated lawyer, he has spent little of his career in the private sector. But he has a long history of working in Newark and New York City to enhance economic growth, before moving to the top education post in Connecticut.

From 2006 to 2011, Pryor worked for Newark Mayor Cory Booker as deputy mayor and director of economic and housing development. Before that, Pryor spent four years working for the Lower Manhattan Development Corporation, an agency created in the aftermath of September 11 by the state and city of New York to plan and help coordinate the physical rebuilding and economic revitalization of Lower Manhattan, including the World Trade Center site. He rose to become president of the organization.

In 2015, as Raimondo was assuming office, she pushed for the creation of the Rhode Island Commerce Corporation to oversee and coordinate state agencies and offices responsible for economic development, business regulation, housing, and workforce development. This was the portfolio Pryor was recruited to oversee and to expand with a variety of new and enhanced business incentive programs.

Incentive Programs

Today, the secretary is eager to talk about the result of these programs. “We have gained a lot of momentum over the past three years. We have helped 30 companies choose in favor of Rhode Island, landing and expanding here as a result of the efforts of our commerce team,” Pryor said.

All have received state job creation incentive packages, he said. The state has also provided tax incentives through its Rebuild Rhode Island program to 39 real estate projects, most of them providing hotel, apartment, student housing and mixed-use development in Providence, the capital city. And six projects are benefiting from tax increment financing deals.

“We are at an all-time high in the number of jobs in Rhode Island,” Pryor said. Employment in Rhode Island-based jobs has hovered close to 500,000 in recent months. 

The state has approved up to about $210 million in incentives, according to the commerce department.

The administration’s business agenda hasn’t been without critics. Former Gov. Lincoln Chafee endorsed Raimondo’s opponent in last year’s Democratic primary, former Secretary of State Matt Brown, specifically targeting the incentives as “corporate welfare” that leave insufficient money to spend on key programs and services.

But Raimondo and Pryor have defended their economic development strategy, saying it is necessary to keep Rhode Island competitive with other states also seeking to lure companies. Raimondo won the primary and then defeated Republican and independent challengers in November.  

Among the key incentive programs her administration has used is one that offers companies tax credits of up to $7,500 for creating jobs that meet wage level and other criteria. The credits can extend over 10 years, and can be granted to companies creating as few as 10 new positions. Industries targeted for these incentives include biomedical innovation, IT/software cyber systems, data analytics, defense shipbuilding and and advanced business services.

The companies tapping the jobs credit include some familiar names: pharmaceutical company Amgen, the big Indian-owned software company Infosys, Johnson & Johnson, GE Digital, and A.T. Cross, maker of high-end pens, including those used by the president in the White House.

For example, the Amgen project is for one of its subsidiaries, Immunex Rhode Island Corp., which plans new facilities to manufacture biologic therapy products at an existing complex in West Greenwich. It is slated to create more than 125 jobs with a median annual salary of $77,000. Another company, Infinity Meat Solutions, pledges to create 700 jobs at a fresh packaged meat production facility.

One of the smallest commitments is from A.T. Cross, but the project illustrates the array of incentives the state will bring to bear. The Rhode Island-based company is moving to a new 42,000 square foot facility in Providence. It  has committed to expanding its workforce by at least 35 new employees at a median salary of $88,000 over the next three years. Pryor’s team could offer the jobs tax credits, up to $400,000 in Rebuild Rhode Island tax credits, and a grant of up to $200,000 through the state’s First Wave Closing Fund.

Rhode Island Gov. Gina Raimondo, left, signs a formal business citation at A.T. Cross Co.'s new flagship retail store on Dec. 21, 2016, in Providence. The 170-year-old maker of high-end pens recently moved its headquarters to Providence from suburban Lincoln. (AP Photo/Matt O'Brien)

The Rebuild Rhode Island Tax Credit program offers real estate projects redeemable tax credits covering 20%, in some cases 30% of costs. Commercial office, industrial, residential, mixed-use development, ground-up construction, and historic rehabilitation projects can qualify, so long as they are worth at least $5 million.

The largest overall deal involves submarine-builder Electric Boat, a division of General Dynamics. The company is proposing to invest nearly $800 million to support construction of the next-generation Columbia Class ballistic submarine and continued production of the Virginia Class attack submarine at Quonset Point.

Competition has come from Virginia, site of the huge Navy installation at Newport News, which offered its own incentives to try to get the project. Electric Boat is proposing a four phase project in Rhode Island, adding 1.35 million square feet and creating up to 1,300 new full-time jobs over the next two decades. In this case, $2 million in Rebuild Rhode Island tax credits constitute a small portion of a $20 million package that also includes an exemption from sales and use taxes worth an estimated $18 million.

Another large commitment, worth $18.8 million, is to Wexford Science & Technology, which is planning a $105 million commercial development in Providence. It will include an “Innovation Center” office building focusing on the life sciences.

Submarine manufacturing jobs and scientific research jobs pay well. But others in the Rebuild Rhode Island portfolio would offer workers considerably less.

Ocean State Jobbers, which operates a retail chain in the Northeast, will use both jobs and real estate tax credits to help finance expansion of its distribution and corporate operations in Quonset. The company promises 125 new jobs with a median salary of $47,036. The credits were apparently vital to the company’s decision to expand in Rhode Island instead of building a new facility in Pennsylvania, which would have saved up to $4.4 million in operating costs, according to the CommerceRI website.

And jobs in the hotels, apartment buildings and mixed-use projects using state incentive programs would tend to be at the lower end of the wage scale. Twenty of the projects listed on the Rebuild Rhode Island website are in this category. Pryor has approved tax breaks for at least seven hotels, with several of them benefiting from tax increment financing.

Another arrow in Pryor’s quiver is the state’s Innovation Voucher program. It offers businesses with fewer than 500 employees grants of up to $50,000 to fund R&D assistance from a Rhode Island university, research center, or medical center, or to fund an internal R&D project. Three recently approved projects helped fund research to improve technologies associated with smart billboards, drapery and shower hardware, and composting.

Rhode Island also has deployed three “talent development” programs to aid both workers and companies that employ them. The “Wavemaker Fellowship” program gives college graduates student debt relief through a refundable tax credit if they agree to stay in the state to pursue careers in STEM (science, technology, engineering and math) or design fields.

“Real Jobs RI” offers grants to companies and other institutions that team up to create training tailored to their particular needs. And there’s a program labeled “P-Tech” that builds industry-specific training into high school curricula.

The Continuing Challenge

Hundreds of jobs have already been created by companies using the Rhode Island incentives, and many more will be added as the companies ramp up their operations.

For all this, the Rhode Island economic future does not seem particularly secure. Pryor and Raimondo have repeatedly pointed to Rhode Island’s dramatic unemployment decrease, noting the state has seen a larger percentage drop than any other state. But economists note that it was starting from a higher base, and that the state’s unemployment rate is still higher than those of 28 other states.

Pryor also points to a months-long run of total employment in the state exceeding 500,000. And while this is certainly good news, the longer-term employment picture is troubled. The size of the labor force has been stagnant, as documented in the state’s most recent Comprehensive Annual Financial Report. In fact it peaked at 570,000 in 2008 and gradually declined, coming in at 556,000 in January, according to recent employment figures.  

Raimondo and Pryor have emphasized their work to create a more business-friendly environment. They have cut some taxes, notably the annual car tax that was a major irritant to residents. Pryor has been working also to reduce the regulatory burden employers face in Rhode Island.

They have struck up an allegiance with the Greater Providence Chamber of Commerce, have sent delegations to industry conferences such as last June’s BIO International Convention in Boston, and have undertaken public relations and advertising campaigns on behalf of the state.

Pryor says that Rhode Island’s small size—just 45 miles across, with a population just over 1 million—acts as an advantage in the economic development business. With just a moment’s notice, he says, the state can pull together all the key actors needed to make decisions on business proposals.

Perhaps that can help in the ongoing competition with neighboring Massachusetts, which has long led Rhode Island and the rest of New England in most economic indicators.

But Gary Sasse, a longtime Rhode Islander who has served at high levels of the state’s government and now runs a leadership development program at Bryant University in Smithfield has his doubts. In a recent interview, he praised the state’s new talent development efforts, but was critical of the business investment incentive programs for having no clear set of priorities. “Why should I as a taxpayer be subsidizing hotels?” he asked.

He noted, too, the state’s struggling education system. Though Raimondo has gotten behind free community college and other efforts to develop workforce skills, the state still suffers from a troubling shortage of good education at the elementary and secondary levels. In a standardized test last year, Rhode Island students in grades 3  through 8 scored 17 percentage points lower in English and 21 points lower in math than students in Massachusetts.

Sasse said state officials don’t appear to have a longer-term game plan to produce sustainable growth. The governor’s Jan. 17 budget submission to the legislature projects that non-farm employment will increase at a very slow pace and actually turn negative in 2023. Over the five-year period, the state would add only 12,000 jobs. Meantime, unemployment is projected to increase by about one percentage point, to 4.8 percent by 2023. And even this may be optimistic, observed Sasse, since the projections, developed by the state's November 18 Revenue Estimating Conference, don’t forecast a recession over that period.

Asked about those projections, commerce department spokesman Matt Sheaff said the state has invested in health care and education, along with job growth, in order to “build a resilient economic foundation.”

“This administration will continue to advocate for a holistic approach to advancing the state’s economy,” he said.

But many economists foresee a recession in 2020, observed Leonard Ladaro, who teaches economics at the University of Rhode Island, in an interview. That could “easily push our unemployment rate to 6 or 7 percent,” he said. Rhode Island has a history of being "first in, last out” of national recessions, Ladaro added.

Ladaro, who teaches at the University of Rhode Island, credits Raimondo and Pryor with breathing life into the state’s economic development efforts, saying that the previous administrations had done very little. But the state has taken much longer to recover from the 2008 recession than others, and is still struggling, he said, pointing to stagnant population growth as one major problem.

Ladaro and Sasse are skeptics of claims that the business environment is much more hospitable. About a year ago, Sasse studied 12 business ranking systems and found that Rhode Island on average ranked in 33d place among the states. Ladaro thinks the situation is worse than that.

“The most critical unanswered question,” said Sasse, “is what impact all these programs will have on future economic growth in Rhode Island.”

Timothy B. Clark is Editor at Large at Route Fifty and is based in Washington, D.C.

NEXT STORY: Trump's Budget Calls for Lower Medicaid Spending, New Infrastructure Money