Over the last three months, International Game Technology (IGT) and its affiliate have spent approximately $1.8 million lobbying Rhode Islanders to support a no-bid deal which will give IGT a billion dollars over the next 20 years.
Keeping over 1,000 IGT jobs located in Rhode Island is the only major argument used by IGT to justify its no-bid deal. However, the subsidy Rhode Island taxpayers pay for these 1,000 IGT jobs exceeds the amount of direct tax revenues these jobs produce for the state of Rhode Island. Paying a subsidy to a business to stay in Rhode Island that exceeds the amount tax revenues that business directly generates is a bad economic development policy.
According to IGT and a study conducted by Appleseed on behalf of the Rhode Island Commerce Corp., IGT’s 1,000 jobs directly produce $5.2 million in state income tax revenue, $2.2 million in state sales taxes about $658,000 in business taxes. In total, IGT’s 1,000 jobs only directly generate about $8.1 million annually in state tax revenues.
To manage the lottery and the central computer system, Rhode Island pays IGT about 5 percent of all traditional lottery revenues and about 2.5 percent of all its video slot machines revenues for an annual amount of about $26 million. By comparison, Delaware – a state the Raimondo administration considers comparable to Rhode Island – pays Scientific Games about 2.35 percent of all its traditional lottery revenues and about 1.02 percent of all its video slot machine revenues for an annual amount of approximately $8.38 million, according to public documents.
If Rhode Island paid the same percentages of its lottery and video-slot machines revenues to IGT as Delaware does to Scientific Games, then Rhode Island would only be paying IGT a total of about $12 million to run the lottery and central computer system instead of $26 million. Rhode Island is paying about $14 million more to IGT than Delaware pays to Scientific Games for the same services. This $14 million subsidy does not include the cost to taxpayers of giving IGT 85 percent control of video slot machines when others states like Massachusetts give IGT less than 40 percent control of video slot machines.
Even the Office of Revenue Analysis, which is part of the Raimondo administration, has calculated the annual taxpayer subsidy to IGT to be $14 million, even though aspects of its methodology are favorable to IGT and included a conservative estimate of the cost of giving IGT 85 percent control of video slot machines. Therefore, IGT is receiving a large annual taxpayer subsidy of at least $14 million, which exceeds by about $6 million the amount of direct tax revenues IGT’s jobs gives to Rhode Island annually.
An economic development policy that gives a business a taxpayer subsidy exceeding the amount it generates in direct tax revenues is unsound, even by the standards followed by the Raimondo administration. For example, under the Rhode Island New Qualified Job Incentive Act, which was enacted in 2015, a new company moving to Rhode Island would receive a tax credit that is deigned to equal the amount of personal income taxes produced by the jobs the company itself creates. This tax credit is limited to $7,500 per full-time job annually. Therefore, if IGT’s promised 1,100 jobs could qualify for this program, the tax credit IGT would receive would be limited to $8.25 million annually rather than $14 million annually.
Furthermore, in 2018, the Office of Revenue Analysis criticized the Motion Picture Production Tax Credit program because it failed to “break even” and “pay for itself.” The amount of state tax revenues generated by the motion picture production industry in Rhode Island was only $691,458 annually, but Rhode Island paid out about $2.5 million annually in tax credits.
Although the Office of Revenue Analysis believed that the program was positive in terms of employment and GDP for Rhode Island, it suggested a moratorium on extending the program until it became cost effective. Likewise, regardless of any claims that IGT benefits the Rhode Island economy, the fact remains that the IGT no-bid contract cannot be justified on the basis of economic development because it is not cost effective for taxpayers.
In addition to an excessive taxpayer subsidy, IGT’s promise of over 1,000 good-paying jobs may prove somewhat illusory. IGT is only promising to pay its employees at least 150 percent of minimum wage. In contrast, other businesses seeking economic development tax breaks under the Rhode Island Jobs Development Act must pay their employees 250 percent of minimum wage. Also, IGT may find ways to evade the requirement to maintain a certain level of jobs in Rhode Island. For example, from 2012 through 2017, IGT failed to maintain 1,000 jobs in Rhode Island as required by its existing contract.
An economic development policy that requires taxpayers to give a company a subsidy exceeding the amount tax revenues directly generated by that company is fiscally unwise. A special economic development deal for a single company with close ties to a powerful politician is unfair.
IGT’s no-bid, billion-dollar deal can be called many things, but it cannot be called cost effective economic development or fair to taxpayers.
Because Rhode Island’s business climate has been so bad for so long, politicians have routinely resorted to giving taxpayer subsidies to select businesses to come and stay here. However, the best economic development policy for Rhode Island is one that lowers the burden of taxation and regulation for all.
Steven Frias is Rhode Island’s Republican National Committeeman, a historian, and recipient of The Coolidge Prize for Journalism.