Rhode Island

This page was updated May 1, 2018, to reflect Rhode Island’s improved rating after the publication of new tax incentive evaluations.

Rating: Leading

The following information was current as of May 3, 2017.

Rhode Island enacted a law requiring regular evaluation of tax incentives in 2013 but has struggled to implement the process so far. Under the law, the state Office of Revenue Analysis (ORA), a unit in the executive branch that studies the state’s budget and economy, is tasked with evaluating each economic development tax incentive on a three-year cycle.^b The ORA has faced challenges recruiting and retaining staff, making it difficult for the office to meet all of its statutory requirements.^c

To help address this issue, the state budget that Governor Gina Raimondo (D) signed in June 2016 provides funding for two additional ORA staffers.^d This funding boost appears to be helping. While the ORA has not published any evaluations under the 2013 law, the office produced analysis of some incentives in October 2016 to fulfill a separate statutory requirement.^e This report included high-quality information on the economic impact of the incentives. It analyzed different scenarios for the extent to which the incentives changed business behavior and compared the programs’ economic outcomes to potential alternative uses of state funds.^f

There are options to modify Rhode Island’s process in order to ensure the ORA can produce similarly high-quality information regularly for all major tax incentives. First, under the 2013 law, each evaluation is required to include 12 components, some of which may be unnecessary, overly specific, or duplicative of information that is reported elsewhere.^g Streamlining the requirements could make it easier for the ORA to begin producing evaluations, while also keeping the studies focused on the most important information: the results of incentives for the state’s budget and economy and how their effectiveness can be improved.

Another option would be to modify the review schedule. Most states with evaluation processes that focus specifically on tax incentives, such as Rhode Island’s, study each incentive every three to five years.^h Switching to a four- or five-year cycle could lessen the ORA’s burden while still providing lawmakers with regular information on the results of each incentive.

Rhode Island’s 2013 evaluation law was part of a multifaceted response to an economic development disaster. In 2010, the state made a $75 million loan guarantee to a startup video game company known as 38 Studios that was founded by former Major League Baseball player Curt Schilling. By 2012, 38 Studios had collapsed—leaving the state to pay the bill to bondholders.ⁱ After the 38 Studios debacle, the state briefly scaled back its use of incentives but has recently expanded them again.^j Only with high-quality evaluations will state officials know for sure whether this strategy is working.

Endnotes

1. Rhode Island Gen. Laws § 44-48.2-1 to 6, http://webserver.rilin.state.ri.us/Statutes/TITLE44/44-48.2/INDEX.HTM.
2. Rhode Island Gen. Laws § 44-48.2-4.
3. Paul Dion (chief, Office of Revenue Analysis, Rhode Island Department of Revenue), interview with The Pew Charitable Trusts, July 7, 2016.
4. For the governor’s budget proposal of two additional full-time-equivalent positions,  see Rhode Island Office of Management and Budget, “Budget: Fiscal Year 2017, Volume I—General Government and Quasi-Public Agencies,” 177, http://www.omb.ri.gov/documents/Prior%20Year%20Budgets/Operating Budget%202017/BudgetVolumeI/5_Department%20of%20Revenue.pdf; for enacted appropriations, see Rhode Island H.B. 7454 (2016), 7, http://webserver.rilin.state.ri.us/BillText16/HouseText16/H7454A.pdf.
5. Office of Revenue Analysis, Rhode Island Department of Revenue, “Unified Economic Development Report” (Oct. 12, 2016), http://www.dor.ri.gov/documents/Reports/ FY2013UnifiedEconomicDevelopmentReport%20with%20CBA.pdf.
6. Ibid., 45–58.
7. Rhode Island Gen. Laws § 44-48.2-5.
8. The Pew Charitable Trusts, “Tax Incentive Programs: Evaluate Today, Improve Tomorrow” (January 2015), 2, http://www.pewtrusts.org/~/media/assets/2015/01/ statetaxincentivesbriefjanuary2015.pdf.
9. John Kostrzewa, “Let’s Move Past 38 Studios and Rebuild the Economy,” Providence Journal, Aug. 28, 2016, http://www.providencejournal.com/news/20160828/john-kostrzewa-lets-move-past-38-studios-and-rebuild-economy.
10. Kate Bramson, “R.I. Back in the Game of Courting Businesses—and Posting Some Wins,” Providence Journal, July 16, 2016, http://www.providencejournal.com/news/20160716/ri-back-in-game-of-courting-businesses---and-posting-some-wins.