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Donna Perry: Tax Credits, Loan Guarantees & RI’s Jobless

Thursday, May 24, 2012


What did the EDC know and when did they know it? It may seem a stretch to bring Nixonian era terminology to the EDC’s current troubles with the financially unraveling 38 Studios company but tough questions and timelines must now move to the center of this high stakes saga if the state is to correct course in the short term--- and restructure how it goes about economic development business for the long haul.

The removal/resignation of EDC Executive Director Keith Stokes seems appropriate but Stokes’ exit is emblematic of a wider EDC problem of leadership. The fact that the EDC has had a dozen different leadersover a roughly 20 year period would seem to represent one key piece of the larger puzzle that confronts the state, that being Rhode Island’s lack of a long term sustaining coherent vision for effective economic development. That’s why in the immediate term, RISC and others are calling for the Governor and responsible voices from with the Legislature to call for a freeze of the film tax credit program and put the brakes on the wider EDC loan guarantee program until there is a full and transparent accounting of these programs and a valid measurement of the cost versus the job creation results.

Governor Chafee is correct to be drawing the line at committing new film tax credits to Schilling’s enterprise and demanding a more comprehensive financial picture and most critically, projections going forward, on the viability of 38 Studios’ business plan before committing anything more from RI. A business entity like 38 that sought the wallets of state taxpayers to back up its new venture would not seem to be owed the right to hide behind proprietary financial information walls, in contrast to other businesses that operate on privately raised funding. Taxpayers should be angered that statements in recent days indicate the tax credit program lacks clear parameters and should demand, as RISC has, that a more transparent accounting of the program’s intended goals, costs, and eligibility policy be provided, in the wake of varying interpretations that surfaced in recent days on whether 38 Studios is even eligible or in good standing at this point to qualify for the credit program. It is now evident that the passing of the bad check and then the make-up check fiasco was centering around 38’s panic to clear that May 1st missed payment to get out of default status directly because they needed to “become eligible again” for the tax credits. If they receive them, then sell them for cash, then what? $8 to $12 million dollars for a company now reported to be burning through $4 million a month while its critical second game, “Project Copernicus” is not scheduled for release for another year, June 2013?

Further evidence that the state mishandles the tax credit program surfaced after state officials offered varying interpretations of the program’s guidelines. Chafee announced a proposed overhaul of the policy which would not only set caps on credits for any one company, but would prohibit any company on a state-backed loan guarantee from qualifying for a tax credit. But then Film Office Director Steven Feinberg contradicted him, claiming that a prohibition already exists blocking a company, like 38 Studios, from receiving a tax credit if they are on a state loan, and can only qualify if they are mixing private investment with a state backed loan. Feinberg further asserted that 38 Studios claimed to him anyway, that it is, in fact, receiving separate private financing.In the parlance of Curt Schilling’s world, can anyone keep score of this thing? There’s now also no question that the EDC managed “Job Guarantee Loan Program”, from which the Schilling loan originated, needs a top to bottom review and a candid assessment of just how many jobs are actually being created through this problematic government-private sector arrangement.

It is notable that over the very same days that the volatile 38 Studios situation has grabbed headlines, another in a long succession of quarterly reports on the state’s persistent high unemployment rate appeared in the news. Just over 11% or 62,200 Rhode Islanders who can and wish to work remained out of a job during the month of April. The state continues to remain not only out of step with the rest of the country, experiencing a slow but gaining recovery, but also out of step with surrounding neighbor states in mostly losing jobs, not gaining and remaining at jobless rates topping 10%. It isn’t fair or accurate to blame this wider jobless problem in RI on one agency. But it should be clear that an underlying reason for the rising public anger and taxpayer disgust with the EDC and the emerging details of the practices surrounding the disbursement of tax credits and loan programs is directly connected to that unemployment number.

It is now clear to say for a myriad of reasons stretching far beyond the EDC and any one Governor, all too often the state’s economic development strategies simply have not and do not translate into the creation of actual and substantial numbers of jobs. Regardless of the cozy confines that define this state’s business advocacy and economic development communities, there is no escaping that uncomfortable truth.

Donna Perry is Executive Director of RISC, RI Statewide Coalition - http://www.statewidecoalition.com


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Here some upcoming bond underwritings that EDC would normally float. They are all in the current State Capital Budget. Non-RIAC are "moral obligations." RIAC bonds rely on airline cost sharing agreements only discussed behind closed doors.

(11) FY 2012 includes $42.0 million for the purchase of I-195 land by EDC.
(12) FY2013 includes $40.0 million for Historic Tax Credit bonds.
(13) FY2014 includes $35.2 million for Historic Tax Credit bonds.
(14) FY2015 includes $75.0 million for Historic Tax Credit bonds.

RIAC Glycol Plant $23.2 million EDC Bond:

That the (EDC) Board, on behalf of RIAC, hereby declares its official intent, pursuant to Treasury Regulation §1.150-2, to reimburse certain
expenditures made for the Fiscal Year 2013 Airport Project prior to
the issuance of the Fiscal Year 2013 Airport Bond in amount not to
exceed $25,000,000.

Comment #1 by Richard Langseth on 2012 05 24

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