Governor Gina Raimondo and the state Commerce Corp. recently announced a major deal with Electric Boat, located in Quonset Point. The private company is going to expand its factory and hire more than 1,300 new employees over a decade. In exchange, the state will exempt around $18 million of sales taxes on building supplies and give the company another $2 million in direct tax credits, while also pledging to spend $14 million upgrading the industrial park around Electric Boat.
Another provision is a little more difficult to understand as part of this quid pro quo negotiation. The agreement requires Electric Boat to use union construction workers for its building project.
Why would the government of the State of Rhode Island negotiate for the mandatory use of union labor? Exempting the project from sales tax has the obvious effect of lowering the cost of construction, why raise it back up with labor costs? The ability to save money on labor might have meant that the company would agree to its expansion with less taxpayer subsidy.
If state officials prefer that the money goes to construction workers rather than toward additional investment, they could have simply required the company to pay prevailing wage, which is another requirement of the agreement, according to news reports. Instead, they’ve basically negotiated on behalf of a third party: the union.
Taxpayers can be forgiven for wondering who is negotiating on their behalf. The company gets subsidies. The union gets jobs. The governor gets positive headlines. Was anybody at the table advocating exclusively on behalf of the people who have to cover the tax bill that Electric Boat won’t have to pay?
The same question arises from the other part of the deal. Did Electric Boat really press the state government for its $14 million infrastructure pledge, or did the governor and Commerce throw that in? If the state is negotiating on behalf of labor unions, the state may have requested this provision on their behalf. That is, Commerce was happy to tie taxpayers’ hands with a contract requiring new government spending for labor-union work.
The Electric Boat deal may be giving us some insight into Governor Raimondo’s philosophy. Her approach to economic development is to give government officials case-by-case flexibility to exempt companies from the things that give Rhode Island such a bad reputation when it comes to business climate. That way, politicians get to sit at the intersection of multiple special interests and make sure every insider gets a cut.
From Electric Boat back to 38 Studios, the State of Rhode Island has been picking and choosing companies to help. They say they’re trying to ensure the right kind of jobs in industries that (politicians think) hold long-term promise, but at the end of the day, they’re protecting their own ability to control the levers.
Another approach would be simply to improve the business climate. Brushing aside the sales tax for a bit greased the wheels for Electric Boat to invest $792 million in capital projects. Imagine how much other companies would invest in Rhode Island if the state would eliminate or dramatically reduce the sales tax as a blanket measure for everybody. Rhode Islanders would get to invest in the industries for which they, themselves, see the most potential.
Of course, if people were investing their own money in economic development on their own initiative, government officials wouldn’t so often have a seat at the negotiating table to direct funds toward their friends and political supporters.
Justin Katz is Research Director for the RI Center for Freedom & Prosperity and editor of OceanStateCurrent.com.