July 6, 2011

Rhode Island: The Business Underdog (of our own making)

Marc Comtois

Toray has been in Rhode Island for over twenty years. They are looking to expand. They also have a facility in Virginia. The Rhode Island facility is bigger, but the costs are higher. Virginia looks pretty good. #50 business friendly Rhode Island is now competing with #1 business friendly Virginia to woo a business it already has.

[Toray CEO Richard] Schloesser is looking to make his decision by the end of the year, said he’d prefer to expand here. But he’s concerned about the cost of doing business in Rhode Island. “It’s a very expensive state to do business in,” he said....One of Toray’s big concerns is energy. The company is the largest consumer of electricity in the state, and it went to court to appeal the power-purchase agreement between National Grid and Deepwater Wind, which plans to build wind farms in the waters off Rhode Island. Toray contended the agreement would drive the price of power too high.

In an interview last week, Schloesser said the court’s decision will have “some impact” on the company’s expansion plans.

On Friday, the Rhode Island Supreme Court upheld the power agreement, ruling against Toray and fellow plaintiff Polytop Corp. Schloesser could not be reached for comment Tuesday....[Earlier] Schloesser said he is worried about the long-term economic climate in the state. He said some of Chafee’s tax proposals, particularly a 1-percent tax on manufacturing equipment, could have been a deal-breaker for Toray. But that idea never made it through the General Assembly.

“We’d like to have the expansion here, but we have questions about what will happen to the state. Is this going to be a good place to do business in the next five years?”

Because the overall business environment in this state stinks, the Economic Development Corporation is forced to try to make up for the shortcomings by offering one-time, sweetheart deals.
[EDC Executive Director Keith] Stokes aid Toray might be able to qualify for tax credits under the state’s provisions for manufacturing research and development, and another for job creation. He said officials from the Quonset Development Corporation have also been involved in the discussions about land acquisition.

“Companies are making their decisions based on costs,” Stokes said. “It’s not lifestyle. It’s not loyalty. It’s costs.”

Stokes said certain costs –– utilities, health care, land and taxes –– are higher in Rhode Island than in other states. What the EDC is trying to do for Toray, he said, is come up with a package to make Rhode Island cost-competitive....Stokes said that in a perfect economic world...[r]ather than a whole set of incentives and inducements, Rhode Island would be better served by a lower corporate-tax rate, a stable budget and a predictable business climate.

But, said Stokes, we’re not living in that perfect world. Stokes said that when it comes to economic development, keeping existing companies, particularly an expanding company, is even more important than luring new ones.

Stokes said the incentives under consideration for Toray are not “deals,” but ways of compensating for the higher fixed costs of doing business in Rhode Island.

It's no way to do business.

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The amazing part is how all facets of Rhode Island government have pretty much acknowledged that we need to improve the 'business climate' but they have done nothing about it. Instead we prioritize social and public union agendas then complain about business doing what's best for business when they take advantage of LEGAL tax breaks and better business climates elsewhere. In the end we resolve it through tax and spend policies. It's analogous to standing there taking punches in the face all the while saying, "I really should put my hands up."

Posted by: Max Diesel at July 6, 2011 11:39 AM

Think about this for a second:

- Deal with wind generated power company driving electric prices up, upheld by a court ruling
- Proposed 1% tax on manufacturing equipment (thankfully shot down).
- ever rising property and inventory taxes
- fees, fees, fees.
- State ranked 50th for business climate.

Unless Toray gets some seriously sweet deals, they'd be crazy to expand here.

I think they see the writing on the wall, they've been here 20+ yrs, they know the drill.

What do YOU think? Like I said, they'll get some behind-the-scenes sweetheart deal to stay, otherwise they expand in VA, that's what I think.

Instead of making the overall business climate better, we end up making deals with individual companies to stay, it's stupid. That's why you don't see companies clamoring to come here, we may make deals to keep the ones we have, but we're not attracting any new business.

Posted by: stuckhereinri at July 6, 2011 12:37 PM

"but we're not attracting any new business."

Or if we do, our Governor wants to retract the deals they get and basically sue board members.

bit.ly/bmjpCP
"“[Chafee’s] position all along was that this was a bad deal (38Studios) for the Rhode Island taxpayer."

bit.ly/arcTS7
"I (Chafee) am asking you to convene a special meeting of the RIEDC Board at which time this matter can be reconsidered"

Posted by: Patrick at July 6, 2011 12:45 PM

And instead of praising Gordon Fox for his "leadership" why don't people like Joe Trillo work with Gordon Fox to come up with a whole statewide tax program overhaul. Something that makes sense for the entire state but can help to turn us around financially.

Unless they're ok with RI being a "bedroom community" and having people instead of business pay the tab.

Posted by: Patrick at July 6, 2011 1:42 PM

"Unless they're ok with RI being a "bedroom community" and having people instead of business pay the tab."

More like they're OK with us being a bathroom community swirling down the bowl.
The entire progressive political action plan is the more people they can keep in poverty, the more votes they'll get.

Posted by: Max Diesel at July 6, 2011 1:50 PM

Let's consider our position. In terms of states, Rhode Island is a neighborhood. The Blackstone River is probably the chief reason that early industry came here.

We cannot compete on a "broad base". What we need to do is what was done in the past, find a niche. In the past this was textiles, silver, machine tools. Most, if not all, of this has moved to the Far East.

What to do next? Well, I'm not sure. I am fairly certain that casinos and tourism are not the answers. These do not create "good jobs".

I think we have to select an industry where we can offer an advantage, and then aim for it. A "tax break" is an implicit admission that taxes are too high. I don't think low taxes are the answer, but they are at least helpful.

I suggest that Quonset should be a "port". Combine that with Route 95 and the rail service, then we might get somewhere.

Posted by: Warrington Faust at July 6, 2011 2:14 PM

"And instead of praising Gordon Fox for his "leadership" why don't people like Joe Trillo work with Gordon Fox to come up with a whole statewide tax program overhaul."

While the result of the arbitration bill was favorable, Fox should not be praised for the autocratic manner in which he killed the bill. That's not leadership and Trillo should just be thankful and move.

I agree with the tax overhaul but I wouldn't hold my breath.

Posted by: Max Diesel at July 6, 2011 2:41 PM

I agree with Warrington. Find a niche and promote it. Shipbuilding? Do the Steinbrenners still have a company in Cleveland doing that? That's a long way to go to get boats. How about building cruise ships and many of the related/needed parts? Think of everything that's needed in a cruise ship. Also build other types of boats.

Then again, that's a business that really gets wacked in a recession. Plus that's a business that the unions would sink their teeth into pretty deep and devour the host.

How about a new silicon valley?

Hmm...

Posted by: Patrick at July 6, 2011 3:07 PM

"I suggest that Quonset should be a "port". Combine that with Route 95 and the rail service, then we might get somewhere."

Bingo! Cost-reductions for manufacturing and importing, and first-pick of retail goods. We could be the what T.F. Green is to Logan, but for Port Elizabeth in Jersey: Smaller, cheaper, faster, and less hassle.

This idea of turning it into a business park is boneheaded. I think Ken Block noted that their 'job density' is currently 8 jobs per acre in the park... Dismal and a waste of prime special-purpose real-estate.

Posted by: mangeek at July 6, 2011 4:25 PM

"- Deal with wind generated power company driving electric prices up, upheld by a court ruling
- Proposed 1% tax on manufacturing equipment (thankfully shot down).
- ever rising property and inventory taxes
- fees, fees, fees.
- State ranked 50th for business climate."

Yeah, but we make a MEAN vegan brunch!

Really, I think there's a little bit of truth to this thing with the artists and the techies in the city... For every 100 hipsters who came here looking for the 'bluest' state to work in coffee shops and have lots of tattoos, we attract a handful of talented designers and digital plumbers. If the fire inspections and regulatory nit-picking weren't so tough, they'd probably be spawning-off lots more small businesses. Getting started here is much harder than elsewhere.

Posted by: mangeek at July 6, 2011 4:38 PM

Hi mangeek, the bastards beat me, I paid the inspectors for my four gallon water heater. Beat the alternative, a five-hundred dollar fine!

Posted by: michael at July 6, 2011 5:48 PM

Look on the bright side, Michael. According to Moody's Investors Service and Fitch Ratings, 50% of your bogus water heater fee will be used to pay the pensions and benefits of your public union brothers. Let's see some solidarity.

Posted by: Dan at July 6, 2011 6:40 PM

Virginia is #1 for business, has #1 ranked public university- Univ. of Va. and has no collective bargaining for gov't workers.
Paradise!!

Posted by: bob at July 6, 2011 7:02 PM

Bob - You left out that the weather's much nicer here too. Come on down, there's plenty of room and jobs for everyone in Virginia. Low taxes AND much better public services - let the progressives try to explain that one away.

Posted by: Dan at July 6, 2011 7:11 PM

One-off, special deals to "offset the higher fixed costs of doing business in Rhode Island" - what could be a better description of the problem?

It is much like the Obamacare waivers. Let's set up an impossible system and allow our allies and contributors (and possible bribe-payers, at least in RI) to get special exceptions. Everyone else is screwed.

Posted by: BobN at July 6, 2011 7:19 PM

From Texas................Great posts by all. Illegitimi non carborundum.

Posted by: ANTHONY at July 6, 2011 11:54 PM

"A "tax break" is an implicit admission that taxes are too high."

Warrington, you are so right here.

Posted by: stuckhereinri at July 7, 2011 12:42 PM

I can remember when Virginia was among the reddest of the red states. Shortly after all those progressives invaded it and turned it for Obama, it became the Number 1 business state. Interesting.

Posted by: bella at July 10, 2011 8:13 AM
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