CVS Threatens Job Loss Because Of Chafee Tax Credit Cuts
Tuesday, March 26, 2013
Governor Lincoln Chafee's proposed reduction in corporate taxes may have inspired cuts at one of the state's largest employers--CVS Caremark.
The Woonsocket-based pharmacy company began reducing its work force less than a week after Legislative Lobbyist, Robert Goldberg expressed concerns on March 6 before the RI House Finance Committee about the Governor's Fiscal Year 2014 budget proposal article relating to corporate tax reductions.
"Any reduction made to the tax credits ... will result in a serious examination of both our current concentration of jobs here as well as an evaluation of any future job growth in the state," Goldberg testified about a trade-off provision in Chafee's budget to offset loss of revenue from progressive reductions with overall corporate taxes with a parallel reduction in tax credits.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTGoldberg appears to have predicted the future. It is unclear how many workers have been cut from the company so far, however, sources indicate CVS has given a two-week layoff to the picker/packer employees in its warehouses and fired or laid off managers, directors, designers and other personnel throughout the company. While there is no direct evidence tying the elimination of employees to the Governor's proposal, the timing begs examination.
Swapping tax credits for tax cuts
Article 9 of the Governor's FY 14 budget entitled Relating to Taxation moves to reduce corporate taxes in a progressive manner over three years from the current 9% to 7%. The reduction aims to make Rhode Island more competitive, particularly in the Northeast, for state business. Rhode Island's corporate tax rate currently ranks high nationwide as far as corporate tax rates and its geographic location makes it hard to compete for business among its close, New England neighbors.
Chafee's proposed reduction would drop RI's rate to somewhere in the middle on a national level and be one of the lower corporate tax rates in the northeast. Testimony on the proposal was overwhelmingly positive as a long term measure, in spite of the short term loss in revenue the change would create.
The Governor's bargain to offset the upfront tax loss of approximately $90 million over five years was a reduction of the Jobs Development Tax Credit. According to the Fiscal Year 2012 Tax Incentive Report Disclosure, of the 8 entities that received total tax credits valued at $16.4 million, $15.4 million went to CVS. ($96,600 went to 2 financial institutions and the remainder went to 5 other corporations). The new plan proposes an elimination of 25% of the credit from January 1, 2014 to January 1, 2015. Then the plan eliminates 50% of the credit beginning 2015 and after.
CVS Caremark is at the top of the corporate list for receiving incentives from the state, according to a December 2012 study by the New York Times, second only to the bankrupt 38 Studios for dollar amount in incentives.
A fair reduction?
The Governor's Director of Communications, Christine Hunsinger said that the Governor believes in lowering the corporate tax rates fairly. She stressed the Governor's commitment to responsible government as paying for the reduction by finding the revenue elsewhere, and that the Governor stresses his conviction that businesses want “predictability and stability” within the state business climate.
What are the stakes in terms of CVS and its impact on the Rhode Island economy? “We are proud to be a major contributor to Rhode Island’s economy and one of the state’s largest employers," said Michael J. DeAngelis, Public Relations Director for CVS. DeAngelis pointed to an economic impact study that found that the company’s Rhode Island operations contribute more than $1.2 billion to the state’s GDP annually through 12,000 jobs (6,000 employed directly by CVS), $831 million in labor income, and $116 million in state and local taxes. "The study also found that over the next ten years, CVS Caremark's contribution to Rhode Island's GDP is projected to be between approximately $16.6 billion to $35 billion,” DeAngelis said.
In spite of the lingering effects of the recession, CVS managed record profits last year. Net profits for 2012 increased 15%, totaling $123.1 billion. In the fourth quarter of 2012, CVS earned net revenues of $31.4 billion. So why is the corporation so concerned with maintaining the Jobs Development Act tax credit of $15.4 million? And, to its benefit as much as any other corporation's, the corporate tax rate for the entire state is being reduced?
DeAngelis, on behalf of CVS Caremark chose not to comment on this directly. Rather, he reiterated the same statement Lobbyist Robert Goldberg had given before the House Finance Committee about any reduction made to the tax credits resulting in a serious examination of both their current concentration of jobs here as well as an evaluation of any future job growth in the state.
Hunsinger, when asked what the position of the Governor's office was to what could be considered a threat by CVS to leave the state if they lose any or all of their tax credit, answered, “The Governor does not want CVS to leave.” But, regardless of Governor Chafee's desire to keep the economic monolith within Rhode Island, the company has made itself heard with words and, now, with a series of job cuts.
It is uncertain whether the company will continue to reduce, streamline or otherwise modify its Rhode Island work force. But, following the recent statewide job losses with big corporations like Hasbro, and Met-Life coupled with sequestration work force reductions to federally contracted area companies such as Raytheon and Electric Boat, the loss of CVS jobs could send the state's ill economy back to intensive care.
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