Money can’t buy me love

Like most states, Rhode Island offers companies lots of money to do business here. Tax breaks. Loan guarantees. Grants, coffee syrup, NY System wieners “all the way.” Whatever it takes to get companies to leave where they are and come here. If only for a little while.

Our state does it because, they say, every other state does it. And that’s true. It’s also incredibly stupid. When we bribe a company to move its facilities and jobs to Rhode Island, we only have their allegiance until they get a better offer. And maybe not even that long. 

Fidelity Investments is a virtuoso at playing states off against each other. And they have a large enough workforce that they can move their workers around like chess pieces, just to squeeze more concessions out of each state where they maintain facilities. It’s almost reached the stage where Fidelity hardly pays any state taxes, but might even find some sucker state ready to not only forego taxes, but pay them to come.

Last year, on his way out the door, Governor Don Carcieri took $75 million out of a $125 million loan guarantee package and pledged it to Curt Schilling’s fledgling company 38 Studios. The loan guarantee package was sold to the General Assembly by the Governor as a way to help small RI businesses grow their way out of the recession.  

Schilling's bloody sock - worth $75 million???

Schilling had a small operation – the total number of employees seemed to be less than 100 based on Schilling’s Form 5500 filings with IRS – outside of Boston. Schilling’s company develops video games. Except it has not yet brought a game to market. They have been working on a game, “Reckoning: Kingdom of Somesuch Thing,” since Schilling was given his first Commodore 64 in high school. With nothing to sell, the company survives on airline snacks Schilling collected and saved during his career as a Red Sox pitching ace. That, and corporate welfare from the state.

Well, the “Kingdom of Whatever” will be “coming soon” sometime in 2012, so it’s now being offered to die-hard gamers to “pre-purchase” at $59.99 a pop. 

Let’s say Schilling’s game actually does come out, doesn’t flop in the first week, and holds at that $60 a piece price for the two or so weeks before gamers get bored. And let’s say Schilling’s profit on each $60 sale is generous 50%. Then all Schilling has to do to pay off the $75 million loan is sell two and a half million units. Not counting the interest.

But even if Schilling is an incredible success, I guarantee you that if another state makes him a better offer, he’s outta here! And he will do to RI what he did to Massachusetts: he will take all the jobs with him. But the good news is that he’s much more likely to flop.

Rhode Island just gave Hasbro, a company worth $6.2 billion, a $1.6 million tax break to create new jobs in Rhode Island. Well, OK, Hasbro is a Rhode Island company, albeit not a small business by any stretch, and job creation is a good thing. But Hasbro’s first action to fulfill its obligation was to take 70 jobs away from its manufacturing plant in central Massachusetts and move them to RI. New jobs?

In April, Rhode Island rolled out the red carpet for the Yardney Technical Products, a high-tech battery maker. In return for a 25-year tax exempt bond deal, Yardney moved from its long-time location in Pawcatuck to East Greenwich. Most of Yardney’s 165 workers live right around our area. To keep their jobs, those workers will now have to schlep North of the Tower (OMG!). Again, where are the new jobs?

Before you can call these deals successes for our state’s economic development strategy, stop and think.

1. None of these companies have any real loyalty to Rhode Island (except maybe Hasbro). They're gone as quickly as they came if they get a better offer.
2. Meanwhile, they profit from your tax dollars.
3. Their job creation promises are on the honor system – the state doesn’t really know whether corporate welfare recipients actually create the jobs they promised. That’s one reason why our Rep. Donna Walsh has been pushing legislation to require honest job creation reporting.   
4. And while we are courting corporate giants like Fidelity and Hasbro, or a right-wing jerk like Curt Schilling, home-grown Rhode Island businesses are struggling to survive.

Small businesses, especially home-grown ones, are heralded as our most important economic engine and the likely source for new jobs and prosperity. Yet, we dished out 60% of last year’s new loan guarantee program not to small Rhode Island businesses but to Mr. Curt “Bloody Sock” Schilling on pure speculation.

I worry that this recent string of “successes” will make us forget both history and common sense. I believe the state needs an aggressive economic development plan and support public investment to grow our economy. But let’s keep our priorities focused where they belong: on Rhode Island small businesses.

Author: Will Collette