Making a run for the money
Incentives like the ones that lured Schilling’s company to Rhode Island don’t always pay off for the states offering them
A decade ago, Rhode Island’s Economic Development Corp. rented a billboard along Route 95. The copy read, “This is Your Exit,’’ and it directed drivers to a website called Mass-Exodus.com that extolled the virtues of doing business in the Ocean State.
The first company to cross the border as a result of the campaign was SailFirst.com, an e-commerce site that targeted the nautical set. “Rhode Island has a lot to offer SailFirst.com because of its close proximity to the sailing community here,’’ the company’s chief executive said at the time.
Turns out that wasn’t enough. Both SailFirst.com and the Mass Exodus website are now defunct.
Efforts by New England states to use incentives and marketing programs to attract high-growth companies were in the spotlight last week, as Rhode Island put together a $75 million loan guarantee that persuaded 38 Studios LLC, a video game company founded by former
Around New England, state economic development programs have a checkered record of generating good jobs that endure.
“No state can afford not to offer incentives from time to time, and the research indicates that it can have some positive effects,’’ says Charles Colgan, an economist at the University of Southern Maine. “But the overwhelming source of job growth tends to be companies already located in a state expanding there.’’
Mirror Image, a T-shirt printing business that left Massachusetts for Rhode Island around the same time as SailFirst.com, once had 23 employees in Somerville; today it is down to seven. Founder Rick Roth doesn’t blame Rhode Island, but rather fierce overseas competition.
Even before the Mass Exodus campaign, in 1993, Rhode Island made a big loan to a Worcester biotech called Alpha-Beta Technologies Inc. The state sold $30 million of bonds to help Alpha-Beta build a plant in Smithfield. (The company spent about $10 million of its own capital.)
But Alpha-Beta’s first product, a drug to fight infections in surgery patients, didn’t do well in clinical trials, and the company went belly up in 1999. (Rhode Island was able to sell the facility itself, and while it didn’t break even on the deal, today the plant is owned by another biotech company that employs 100 people there.)
Keith Stokes, director of the Rhode Island Economic Development Corp., says that the Alpha-Beta plant, now occupied by Alexion Pharmaceuticals Inc., helped form a life sciences “nexus’’ that made it easier for the state to attract other companies. His hope is that 38 Studios will be the seed that spawns a new technology cluster there.
Two years ago, New Hampshire launched a marketing campaign called “Open Invitation,’’ targeting Massachusetts businesses. It offered executives a free limo ride across the border, lunch with an economic development official, plus seats to a Manchester Monarchs hockey game, lift tickets at Cannon Mountain, and a night at a Nashua hotel. (All of the freebies were donated by New Hampshire companies, not paid for by the state.)
According to Michael Bergeron, a business development manager who works at New Hampshire’s Division of Economic Development, the Open Invitation led to meetings with eight companies, and one chose to relocate. (Bergeron says he still has a few “active prospects’’ from the campaign.)
The company that moved north? Window Imagination Inc., which sells curtain rods. The two founders, Jayne and Thad Kallas, had once employed three people in Melrose. But with the economic downturn, they decided to lay everyone off and move to Lancaster, N.H. (They already had a vacation house in the state.) The state and county helped the Kallases purchase a building with no down payment and navigate some zoning issues. The Kallases have hired one employee in New Hampshire and anticipate hiring a second soon. For those keeping score, that’s still one fewer employee than the three who were on the payroll in Massachusetts.
In Connecticut, the state offered at least $160 million in infrastructure improvements, tax abatements, and grants, according to public records, to encourage Pfizer Inc., the New York-based pharmaceutical company, to set up a $295 million research-and-development center in a run-down part of New London. The company decided to close the facility last fall just before a decade-long tax abatement deal would expire. (The company said that the center’s closure wouldn’t affect Pfizer’s employment numbers in the state.)
In Massachusetts, there is hope that the state’s successful effort to bring the drug maker Bristol-Myers Squibb Co. to the former Army base in Devens will work out better. The state put together a package of incentives valued at about $60 million to win an international competition for a factory that could eventually employ more than 500 people. The plant now has 250 employees, according to a Bristol-Myers spokesperson, and is awaiting the Food and Drug Administration’s approval to begin producing a drug for rheumatoid arthritis there.
Earlier this month, Maine announced that the former Naval Air Station Brunswick would be home to Kestrel Aircraft Co., a newly formed business. Kestrel intends to get certification from the Federal Aviation Administration to sell a sleek, single-engine turboprop plane.
The state offered Kestrel a $10 million loan, and the company will probably also get a 10-year package of discounts on corporate and employee income taxes. In the design and engineering phrase, Kestrel expects to employ 50 to 70 people. But the company needs about $100 million to get the plane into production, and according to a company spokesperson quoted in the trade publication Aviation Week, has not yet raised most of that money.
Putting state officials’ energy and taxpayers’ money into any single company is always a risk, says Saul Kaplan, a former head of the Rhode Island Economic Development Corp. But when the goal is creating “critical mass and momentum’’ in a particular sector like video games or other knowledge-based industries, he argues, it can be a risk worth taking.
When a state has a weak economy or high unemployment, “they’re going to be a little desperate to attract companies, and offer more than they really should,’’ says Ross Gittell, an economics professor at the University of New Hampshire. “This is not a good economic development strategy. It’s about bribing firms to come places, and it’s costing taxpayers money.’’
Gregory Bialecki, the secretary of housing and economic development in Massachusetts, suggests that rather than poaching companies from neighboring states, “being aggressive about economic development makes the most sense when you’re competing to bring in companies from other parts of the world,’’ or crafting incentive packages that persuade Massachusetts companies to keep jobs here rather than shifting work overseas.
While it might make more sense, in a brutally competitive global economy, for New England states to collaborate as a unified region, politicians must still run for reelection every few years. In doing so, they like to be able to crow about the number of jobs they’ve created no matter what the cost, or how long the jobs stick around.
So New Hampshire is planning to revive its Open Invitation offer this fall. Thankfully, instead of targeting Massachusetts businesses, this time the limos will be heading across the Canadian border to Quebec.
Scott Kirsner can be reached at kirsner@pobox.com. Follow him on Twitter @ScottKirsner. 
