Rhode Island had a bit of good news to offer a moment’s respite from the steady flow of bad, this week, with the announcement that Irish “convenience food manufacturer” Greencore USA had signed a long-term lease agreement at Quonset Business Point. Once its facility is constructed, the company is expected to employ “more than” 390 people on the site.
Most local reports mentioned that the deal comes with two discount opportunities: a 25% reduction in lease payments for making such a long-term agreement, and an additional reduction based on employment. For Rhode Islanders to have an accurate sense of the arrangement, however, more details are necessary.
According to Quonset Development Corp. (QDC) spokesman Ted Kresse, the employment incentive is a simple percentage of the site’s payroll. Specifically, 0.5% of Greencore’s payroll for Quonset employees will be reduced from its lease payments, capped at half of the payment that remains after the 25% longevity discount.
For example, the company’s lease for the first year calls for a base payment of $117,700. After the 25% longevity payment, that goes down to $88,275. If Greencore starts off with the reported 390 jobs, and if they average at least $22,635 per year in pay, the company will hit the cap on its employment incentive. In that case, its lease payment for the 107,000-square-foot facility will be $44,137.50, having dropped from $1.10 per square foot to $0.41.
The lease agreement lays out a predictable schedule of payments, and assuming the company maintains the maximum discount each year, the arrangement will follow this chart. In the final year, Greencore would be paying $158,758 of its $423,355 lease payment, after a longevity discount of $105,839 and a maximum payroll discount of $158,758. Under this scenario, it will be 30 years until the per-square-foot rate of the site crosses the $1 mark.
QDC is not aware of any additional incentives from state or local governments for Greencore to make the move, beyond its own practice of having taken care of permitting and other pre-construction details.
Not all of the relevant income taxes will go to the state government, however. As part of its move, Greencore will be closing two Massachusetts facilities, one north of Boston, in Newburyport, and one in Brockton. These facilities currently employ 440 and 276 people, respectively. According to Kresse, around 35 of the Brockton employees are already Rhode Islanders.
According to QDC, and confirmed in state budget documents, the quasi-public agency is self-sufficient, and even runs with a small surplus each year. It operates with the advantages, however, that the state financed its beginnings and that it is able to borrow money ultimately in the name of taxpayers.
QDC is organized under the state’s Commerce Corp. (formerly the Economic Development Corp., or EDC), and was recently permitted to take on bonded debt in the amount of $7.5 million, which appears on a list that begins with the infamous 38 Studios, for property improvement.
The chances are slim that Rhode Island taxpayers will find themselves saddled with the costs if deals such Greencore’s turn out not to have been as good as they initially seemed. However, the larger question for Rhode Islanders concerns the state’s economic development strategy. Would a different approach — one focused on easing the state’s tax burden and lightening the load of regulations — have made this piece of real estate near the water worth more than $0.41 per square foot per year?*
After all, employees of a company in a private development would have paid the same amount in taxes, and a private property owner would have paid taxes on his or her rental income, as well.
* I’d initially characterized the lot as “prime waterfront real estate.” A QDC spokesman corrected me that this particular parcel is a mile from the water, so I’ve adjusted the language.