In Recent Years, Tax Incentive Program Has Mostly Worked, Report Finds

Jun 7, 2018

Rhode Island has given away more than $160 million dollars in a tax incentive program meant to increase hiring. A new state study finds the tax breaks may have been worth it.

The study is one of about a dozen reports expected this summer analyzing the state’s tax credit and incentive programs. The findings follow a Rhode Island Public Radio report which raised questions about the effectiveness of these programs.

The report from the state Office of Revenue Analysis focuses on the Jobs Development Act of 1994. This program provides tax breaks to companies that promise to expand their workforce. The vast majority of the incentives go to just a handful of businesses including some of the state’s largest.

From 2013 to 2015, the report finds, the state nearly doubled its investment.  For every dollar handed out in tax breaks, the report says the state earned $1.96 back from income taxes and other revenue.

But Paul Dion, head of the Office of Revenue Analysis, says it’s hard to pinpoint for certain whether the credit spurred new jobs reported by the companies that received the tax credit.

Instead, the study assumes 25 percent of new jobs created were directly related to the incentive. The office says that number comes from studies of similar programs in other states. The report also found that the state would lose money if less than 13 percent of new jobs were directly related.

“I think it’s fair to say, it could be looked at, or examined to determine whether we should continue it,” said Dion.

In a sign that the state is moving away from this particular incentive, Rhode Island has stopped allowing new companies apply for the program. Currently CVS Health, Electric Boat, and Citizens Bank still receive the tax break.

“They’re grandfathered in; now remember you have to sustain the employment level going forward permanently,” said Dion. “If you drop by two employees under the sustained level, you lose the benefit entirely.”

And, Dion adds they are likely to stay.

“I think you can make a fair argument that the companies are rooted here,” said Dion. “I mean it’s not costless to pick up and move everything.”