WOONSOCKET – The president of a prominent economic development organization says Gov. Lincoln Chafee’s proposal to reduce tax credits for companies that create new jobs has already prompted CVS/Caremark to put on hold a substantial expansion of operations it had been planning.
Scott Gibbs of the Economic Development Foundation of Rhode Island says he was in “pretty advanced” negotiations with CVS to bring the project to fruition, but the homegrown mega-chain pulled the plug when Chafee proposed reforms to the Jobs Development Act several months ago. The fate of Chafee’s proposal is now in the hands of General Assembly, which could close out the 2013 legislative session by the end of the month.
“We normally keep a very low profile,” said Gibbs. “In this case we felt we just had to break out of our cocoon because this is such an important issue to Rhode Island.”
Gibbs said he couldn’t be “site specific” about the project without breaking confidentiality agreements, but he said CVS “basically stopped talking to us” because of Chafee’s proposed reforms to the JDA.
The governor says he needs to reduce the tax break to replace revenues from his proposal to lower the overall corporate tax rate from 9 to 7 percent – a cornerstone of his $8.2 billion budget. Chafee argues that lowering the corporate tax rate for all businesses would have a more widespread and beneficial impact on job creation and commercial investment, even if CVS and a few smaller beneficiaries lose their JDA credits.
JDA has allowed CVS to cut its corporate income tax rate by more than half every year since 2001. CVS pays the equivalent of 4.25 percent under the JDA, which translated into $13.8 million in 2012 on its taxable income of roughly $325 million, the company says.
Critics portray the JDA as too much of a good thing for CVS, by far the single-biggest beneficiary of the JDA in the state, but Gibbs says it’s a deserved perk for companies that create jobs.
He says there is a good argument to be made for expanding the JDA – not shrinking it. The incentive is not currently available to companies that employ fewer than 100 workers.
“There’s a very good argument that it should be made to include all companies as long as they’re creating jobs,” he said. “If you create jobs a lot of the other economic issues are mitigated. People need jobs to pay for housing, send kids to school, pay for food. It’s a fundamental need that all people have.”
Gibbs said the potential damage that lawmakers could inflict on the state’s economy by fiddling with the JDA should already be apparent by CVS’s reaction to the mere possibility that the benefit will be cut.
The largest drugstore chain in the nation, CVS/Caremark is headquartered in the Highland Corporate Park, a facility of some 350 acres straddling the Woonsocket-Cumberland line, where the company’s campus is the dominant corporate presence. It’s the 13th largest company in the nation, according to Gibbs, and it employs about 6,000 people in Rhode Island alone, more than a third of them from the Greater Woonsocket area, making it the state’s top employer.
Independent studies peg the company’s annual contribution to the state’s gross domestic product at $1.2 billion.
But Gibbs said CVS is also a rapidly expanding company with regional centers in Texas, Arizona, Illinois, Pennsylvania and another planned for New Jersey. It recently acquired a drugstore chain in Brazil and is looking for new opportunities to grow.
With the implementation of federal health care legislation on the horizon and digital technologies in bloom, now is an opportune time for the state to engage CVS, but JDA reforms will do just the opposite, says Gibbs.
Because CVS occupies some 1.5 million square feet of corporate real estate, mostly in Woonsocket, Cumberland and Lincoln – none of which includes drugstores or warehouses – some say CVS will probably never abandon Rhode Island altogether. But Gibbs said it’s impossible to predict how far a company will go if the business climate changes significantly, and that is exactly how CVS will view cuts in JDA credits.
“It changes the optics of how they look at their location,” he says. “It really comes down to economics. What happens is companies as large as CVS start looking at where they move operations as investments. They start looking at it from a cost basis. They don’t have to be in Rhode Island.”
The Economic Development Foundation of Rhode Island is a private, non-profit organization founded more than 50 years ago to help cities and towns foster economic growth. The foundation was instrumental in developing the Highland Corporate Park and two similar facilities in Lincoln, the I-295 Air Industrial Park and North Central Industrial Park.
Gibbs is the latest to urge the state to put the kibosh on the proposed JDA reforms, citing the potential risk to the economy, particularly in the Greater Woonsocket area, which is already reeling. Woonsocket itself is close to bankrupt, and Landmark Medical Center, the city’s second-largest employer after CVS, has been in receivership since 2008. The unemployment rate in Woonsocket is 11.2 percent, or 2.4 percent higher than the statewide average, according to the state Department of Labor and Training.
In March, the Woonsocket City Council passed a resolution calling on state lawmakers to reconsider the JDA reforms, citing the “potential for loss of jobs or possible relocation of CVS/Caremark headquarters.”
The loss of CVS “would not only be detrimental to the State of Rhode Island,” the resolution says, “but would also be financially devastating to the City of Woonsocket.”
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