Rhode Island is Still Not Complying With Its Own Law on Evaluating Tax Incentives

[NOTE: This story is part of an ongoing reporting project being developed for Rhode Island Public Radio.]

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Rhode Island appeared to be headed in the right direction in 2013 when it signed into law the Economic Development Tax Incentives Evaluation Act, officially requiring regular analysis of its many “business development” tax breaks to corporations.

But, more than four years on from its enactment, the Evaluation Act has yet to amount to much more than a symbolic victory for the advocates for government and corporate accountability who helped push it through.

State officials have yet to produce a single report on the effectiveness of Rhode Island’s tax incentive programs, as stipulated under the act, leaving them effectively noncompliant with a state law that required an initial analysis by June 30, 2017, and subsequent evaluations be made public at least every three years after that.

The failure was noted in a 2016 Tax Expenditures Report that stated, “To date, the Office of Revenue Analysis has been unable to fulfill its obligations under Rhode Island General Law Chapter 44-48.2 [the Economic Development Tax Incentives Evaluation Act of 2013]…The Office of Revenue Analysis expects to produce a separate addendum to the 2016 Tax Expenditures Report containing the analysis required…by the June 30, 2017 deadline.”

However, Paul Grimaldi, spokesman for the state Department of Revenue, confirmed recently that the Office of Revenue Analysis never met the June 30 deadline and state officials still have no expected date for submitting their report.

The office of Gov. Gina Raimondo, first contacted Dec. 8 about this story, said it would provide a statement soon on the state’s failure to comply with the Evaluation Act. Under the law, new tax credit programs pushed through by Raimondo, an aggressive promoter of tax incentives, need to be reviewed within the first five years of their enactment.

According to Grimaldi, the Office of Revenue Analysis has been stymied by a host of issues related to staffing, a lack of information sharing between government agencies, the state’s transition over to an updated tax system, and the more recent redirection of analysts to work on the phase-out of the state’s motor vehicle and trailer excise tax.

To conduct its review, Revenue Analysis needs data currently kept by the Department of Labor and Training, the Division of Taxation, and CommerceRI.

Much of the data includes confidential information, which required the agencies to enter into memorandums of understanding, Grimaldi said, but analysts say they still do not have access to the information they need to conduct their analysis.

Chronically understaffed in recent years, the Office of Revenue Analysis has not exceeded five total employees since the law was enacted and was once reduced to one full-time employee and one part-time staffer. It has lost two top analysts since 2014 and has been delayed by employee leaves of absence.

Several Unified Economic Development Reports released by the state also show 10 film companies that received tax breaks under the Motion Picture Production Tax Credit failed to comply with the state’s requests for information related to their impact on employment.

The Evaluation Act requires analysis of 23 separate tax incentive programs implemented over decades and multiple administrations, including the Jobs Development Act, Jobs Training Tax Credit, individual CommerceRI initiatives, credits related to research and development, and a program intended to benefit companies that demonstrate they helped entice an out-of-state firm to relocate to Rhode Island.

Of its many requirements, the act mandates a “cost-benefit comparison” of the revenue forgone by each tax incentive to the tax revenue generated by the company getting its liability reduced; estimates on the number of jobs created as a direct result of each incentive; a determination of the “economic impact” of each incentive; and an estimate on the extent to which the money a company kept stayed in Rhode Island “or flowed outside the state.”

The act requires a recommendation on whether individual incentives should be “continued, modified, or terminated” and that reasons be given for each recommendation. It also obligates the governor to provide similar guidance in her annual budget proposal.

Based on the data currently made public about the state’s tax incentive programs, it appears a handful of large companies remain the primary beneficiaries of Rhode Island’s corporate tax breaks, with CVS alone receiving at least $175-million in tax incentives since 2008, by the far the most of any Rhode Island company.

Currently, the annual Tax Credit and Incentive Report published by the Division of Taxation makes public incentives available under just seven programs.

Last fiscal year, the report noted $12.86-million in tax incentives and credits to CVS, Citizens Bank, and submarine maker Electric Boat alone. Citizens was the largest beneficiary at nearly $7.1-million. CVS received more than $3-million in tax breaks, and Electric Boat recorded $2.8-million in credits and other incentives.

In Rhode Island, the charge for greater transparency and reporting on corporate tax breaks has been led by the Economic Progress Institute, a non-profit based on the Rhode Island College campus which advocated strongly for the Tax Incentives Evaluation Act and has been disappointed with its progress so far.

Nationally, tax incentives to big businesses have come under increased scrutiny in recent years, with academics, advocates, and analysts arguing that highly publicized tax breaks appear to be driven at least in part by media-conscious politicians who trade in their state’s tax base for the appearance of job creation.

“When you get down to it, the rise of public officials cutting these big deals seems to be more about political posturing rather than hard nose economics,” analyst Thomas Cafcas, formerly of the policy resource center Good Jobs First, said in a phone interview last summer.

Cafcas added, “We’ve joked that there’s been a plethora of new photo opportunity funds.”

 


 

profileAlex Nunes is an independent journalist based in Rhode Island. He has contributed reporting to NPR, Rhode Island Public Radio, The Providence Journal, and The Day of New London, Conn., among other news organizations. He holds a master’s degree in journalism from Columbia University Graduate School of Journalism, and a bachelor’s in sociology from Rhode Island College.

 


 

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3 responses

  1. Congratulations! This new project is timely and needed. Thank you for showing us how hard it is to “follow the money” concerning these subsidies. Anybody who cares about where there money goes (and where it doesn’t) will benefit from reading this work. Looking forward to more! Thank you.

  2. Congrats, Alex. This is a wonderful, insightful piece. The phrase “Biting off more than they can chew” does pop into my head. Keep up the good work!

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