CVS top incentive recipient

POISON PILL? CVS Caremark Corp., parent of CVS/pharmacy, says a tax-credit reduction would force it to reconsider plans for job growth in Rhode Island. / BLOOMBERG NEWS PHOTO
POISON PILL? CVS Caremark Corp., parent of CVS/pharmacy, says a tax-credit reduction would force it to reconsider plans for job growth in Rhode Island. / BLOOMBERG NEWS PHOTO

CVS Caremark Corp. is an outsized presence in its home state in nearly every way.
With 6,200 Rhode Island workers, it’s the largest for-profit employer in the state, employing more than twice as many people as the second-largest business. Its $55.5 million charitable arm is the largest company-sponsored nonprofit in the state. And its physical presence is noticeable from the headquarters campus at the Highland Corporate Park in Woonsocket to the 59 stores spread through nearly every city and town.
Since government financial incentives for large employers were popularized in the 1990s, CVS has become the Rhode Island leader in those as well. In the fiscal year that ended last June, CVS received $24.8 million in tax credits and incentives, according to the annual list published by the R.I. Division of Taxation.
The state meted out $34.5 million in fiscal 2012, meaning CVS collected 72 percent of all state credits and incentives issued for the year.
But with corporate tax breaks across the country under increasing scrutiny, Gov. Lincoln D. Chafee has renewed his campaign to scale back the Jobs Development Act, the state’s largest incentive program and greatest contributor to CVS’ Rhode Island benefit package.
“My impression is people are increasingly aware that a lot of these tax write-offs are going to large, prosperous corporations while the backbone of the economy is smaller businesses,” said University of Rhode Island political science professor Maureen Moakley.
Even in economic-development circles and among supporters of Rhode Island’s biggest businesses, the rapid expansion of corporate tax breaks by states looking to lure or retain large employers is being questioned.
“The incentive war between states is really out of control,” said former R.I. Economic Development Corporation Executive Director Marcel Valois. “In some cases, states are offering hundreds of millions to companies. Rhode Island, because of its size, really should not get in that game.”
Vice president of the private Rhode Island Economic Development Foundation, which runs the business park where CVS headquarters are located, Valois would not discuss the pharmacy giant specifically, but echoed others pushing for the state to improve its overall business climate instead of offering deals to individual companies.
Valois pointed to Connecticut, where Gov. Dannel P. Malloy has proposed adding $500 million to the state budget for a variety of job-creation programs, as an example of states escalating the incentive war. In the case of CVS, there is little doubt the company has generated a significant number of new Rhode Island jobs since the late 1990s, when it first started tapping into the large state tax incentive programs available now.
CVS first applied for corporate tax relief under the Jobs Development Act, the state’s largest incentive program, in 1997, and since then the company says it has added 2,100 jobs in Rhode Island.
For those new jobs, CVS saved $70.9 million in corporate tax under the Jobs Development Act just between fiscal 2008 and fiscal 2012.
Including all incentive programs, CVS has received $95.2 million during those five years, according to Division of Taxation figures.
The Jobs Development Act offers companies with more than 100 workers a quarter percentage point corporate tax rate cut for every 50 new jobs created and retained for three years. (For companies starting with fewer than 100 employees, the same reduction applies to every 10 new employees.)
As long as the company maintains the new employment level, the tax-rate cut is permanent, which for CVS, means a 4.25 percent rate instead of 9 percent.
CVS spokesman Michael DeAngelis declined to say whether any state tax incentives caused the company to hire more workers or pay them more than they would have otherwise.
But he reiterated the company’s position that reducing or eliminating the program could jeopardize future Rhode Island jobs.
“Any reduction made to the tax credits available to companies creating and maintaining jobs in Rhode Island will result in our serious examination of both our current concentration of jobs here as well as an evaluation of any future job growth in the state,” DeAngelis said in an email.
Chafee’s budget would cut the Jobs Development Act in half over two years to help pay for a proposed 2 percentage point cut in the corporate tax rate for the whole state.
CVS would end up paying more in the end than it does now because of the size of the job-development credits it receives.
Under the proposal, CVS’ corporate tax rate would climb from 4.25 percent in tax year 2013 to 5.43 percent in 2015 and 6.62 percent in 2016, according to a description of how the phase in would work from the R.I. Office of Management and Budget.
Michael McMahon, co-founder of private-equity firm Pine Brook Road Partners and a former EDC executive director, said in the last five years more than one state has tried to poach CVS from Rhode Island with a “very aggressive” financial-incentive package, although he declined to name them. McMahon also noted how close Massachusetts came to snaring GTECH Corp.’s headquarters with an incentive package that was ultimately trumped by one from Providence.
Financial-services firm Fidelity is another major corporate employer that received state tax breaks, including Jobs Development Act credits and $35 million in subsidized bonds, to expand in Rhode Island.
Critical of corporate tax breaks while working for the state, McMahon said attempts to get rid of them in the current climate can be treacherous.
“Do I like having to use tax dollars to shore up competiveness? No. But do I think it is a necessary response to what goes on in real world? Yes,” McMahon said.
While CVS first started taking advantage of tax incentives on a large scale more than a decade ago, its share of total state tax benefits rose dramatically after the recession.
In fiscal 2008, CVS received $17.4 million in total Rhode Island tax breaks, 35 percent of the $49.2 million awarded by the state to all companies that year.
But after the state budget entered recession-induced crisis, lawmakers ended the Project Status sales-tax exemptions, made pass-though corporations ineligible for Enterprise Zone credits and increased the wages needed for new jobs to be eligible for the Jobs Development Act.
Those changes, along with falling earnings at many corporations, caused CVS’ share of all incentives issued to rise to 78 percent in fiscal 2011, when CVS saved $17.8 million and the state’s overall incentive expenditure had fallen to $22.7 million.
Chafee spokeswoman Christine Hunsinger said the governor is a “large supporter of CVS” and his plan to reduce the Jobs Development Act by 2 percentage points is not related to the company’s savings.
R.I. Sen. Leonidas Raptakis, D-Coventry, said he would look to trim the company’s incentives if they weren’t being supported by current job creation.
“If [CVS job creation] is stagnant, then maybe it needs to be trimmed or tweaked,” Raptakis said.
Moakley at URI said CVS still has tremendous clout, but from a political and public relations perspective, using it to protect tax breaks may turn out not to be the best use of it.
“They are here because it is in their interest to stay here; they are so large in such a small state,” Moakley said. •

No posts to display