Would Chafee Policies Kill Future Fidelities?
Thursday, March 17, 2011
Fidelity Investments has been one of the biggest beneficiaries of corporate tax breaks in Rhode Island, but will the incentives that lured them to the Ocean State be eliminated by the Chafee administration?
The March 15 announcement that Fidelity will be moving some of the 1,100 employees from its Marlborough, MA offices to its Smithfield operations as the former is phased out is good news for Rhode Island. As Jim Lowell, publisher of the Independent Fidelity Watch newsletter told an interviewer on WBUR radio’s March 15 “Morning Edition,” Fidelity had decided to “sell Massachusetts and buy Rhode Island...” Heartening words in the current economy.
The Fidelity Investment in Rhode Island
But it begs the question of will those tax breaks remain in place for the Boston-based investment firm, and what would taking away those incentives under a new Chafee fiscal agenda mean to future Fidelity plans in the state?
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTFidelity has three buildings on its Smithfield campus, including the latest, a 550,000 square foot state of the art facility that is one of the largest office buildings in the state. The firm was supported in Rhode Island to the tune of $35 million by the state Economic Development Corporation for its Smithfield expansion.
Fidelity's Smithfield project accumulated more than 390,000 man-hours of construction labor, which was estimated to contribute more than $1 million in construction wages.
Published reports indicate that in the years of 2008 and 2009, the Rhode Island Department of Revenue’s Division of Taxation annual reports showed Fidelity’s affiliates in the state, FMR Corporation, FMR LLC and FMR Rhode Island, receiving $10 million and $5 million, respectively, in job creation and sales tax breaks. The 2010 “Tax Credit and Incentive Report” savings for the affiliates totaled $3.474 million.
According to the EDC, Fidelity exceeded 2,500 jobs in 2008, and a report submitted by Fidelity oat the end of February says the company now employs 2,950 people.
Corporate Tax Reduction
Governor Chafee’s economic strategy calls for a reduction in the state’s corporate tax rate from 9% percent to 7.5% over the next three years. As the governor said in his budget speech, “This lower corporate tax rate will benefit existing businesses with plans to expand their operations, as well as make our state more attractive to companies looking to relocate.”
Chafee spokesman Mike Trainor explained the governor’s basic approach by saying, “In the future, we should not be offering one-off deals,” such as the tax incentives offered to Fidelity, and what are now 13 other companies that enjoy tax breaks. The administration’s disfavor with that approach was most noticeably displayed with then-candidate Chafee’s vocal criticism of the EDC’s targeted $75 million state loan to Curt Schilling’s 38 Studios.
Governor Chafee may see the corporate tax rate reduction in and of itself as a sufficient lure to Rhode Island. Judy Chong, managing director of communications for the EDC, explained that the initial intent of the tax breaks was “to mitigate the high corporate tax rate.”
“By lowering the corporate tax rate we can become more regionally competitive in a compact New England environment,” Chong added. “The EDC would prefer a more equitable policy (represented by the corporate tax reduction) as compared to one-offs.” To date, the initial tax incentives remain in place, but perhaps in limbo strategically.
Planning a Strategy
Governor Chafee’s office announced Wednesday that the governor planned to meet soon with Fidelity executives to discuss the company’s plans in Rhode Island and how the state can be of assistance in seeing them realized. With Trainor declaring that there is “no indication that the administration plans to end (the current incentives) at this point in time,” those should be encouraging words. As to the future, that will doubtless be a prime topic of conversation.
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