News Articles

Two-state economic rivalry rages on

By Paul Grimaldi, The Providence Journal
December 28, 2010


Rhode Island will lose one of its few advantages over Massachusetts Jan. 1 when the Bay State stops taxing liquor sales.

Massachusetts began taxing beer, wine and alcohol for the first time at cash registers Aug. 1, 2009, when it raised the tax from zero to 6.25 percent. At the same time, it raised sales tax on general items from 5 percent to 6.25 percent — nearly on par with Rhode Island’s 7 percent sales tax on both general items as well as liquor.

“It had a gigantic effect,” said Vincent Bilotti, owner of Central Warehouse Liquor in Central Falls. “No sooner did they change that sales tax legislation than our sales of Coors 30-packs increased 50 percent –– and it stayed there.

“It was our people coming back home.”

The situation did not sit well with the Massachusetts liquor stores, which complained the change was driving Rhode Island customers back to their home state and sending Bay Staters across the New Hampshire border where they could buy liquor sans taxes and bottle deposits. Store owners spent nearly $3 million in a successful bid in November to overturn the tax by voter referendum.

“It didn’t matter which state, along the Connecticut and Rhode Island [borders] there were stores that were doing some out-of-state business,” said Frank Anzalotti, of the Massachusetts Package Stores Association. “Of course they lost all of that [business]. Certainly along the New Hampshire border was the biggest impact.”

The about-face by the tiny Ocean State’s larger neighbor is just one example where Rhode Island and Massachusetts act like siblings who’ve lived too long in close proximity, going round and round again over matters large and small in a seemingly endless rivalry. Whether its sales taxes, air travel, alternative energy, life sciences, casino gambling or corporate recruiting –– the backyard rumbling remained keen in 2010.

“If Massachusetts perceives an advantage over Rhode Island in a particular area it’s typically loath to give that up and vice versa,” said Steve Poftak of the Pioneer Institute, a Boston-based public policy research institute.

Cross-border competition is a fact of life for Keith Stokes, executive director of the Rhode Island Economic Development Corporation.

“Our goal is to recognize there is always going to be an ongoing competition between all six New England states,” Stokes said. “It’s very competitive between Rhode Island, Massachusetts and Connecticut because we share borders.”

Stokes took the economic fight onto the Bay State’s turf in the spring when he did his best imitation of a baseball general manager, throwing an eight-figure loan guarantee at a retired Red Sox pitcher to attract the former ballplayer’s company to the Ocean State.

Massachusetts economic development officials didn’t sound very happy last summer when 38 Studios LLC, Curt Schilling’s video game company, was lured from Massachusetts to Rhode Island by the promise of a $75-million loan guarantee.

“We have never offered such a large incentive to lure a company from a neighboring state, and we never will,” said Kofi Jones, spokeswoman for Gregory Bialecki, Massachusetts Secretary of Housing and Economic Development.

But with borders so close at hand, it’s not uncommon for companies to relocate across state lines.

In 2005, Samsonite moved its North American headquarters from Warren to Mansfield, Mass. At the time, Samsonite said it wanted to be closer to Logan Airport in Boston.

Spherics, a biotechnology company based in Lincoln, moved to Mansfield the same year. Less than six months later, another Lincoln-based biotech company, RenaMed Biologics, left for Westboro, Mass.

Thorne Sparkman, managing director at Slater Technology Fund, which invests in high-tech startup firms, said companies switch locations from one state to another for a variety of reasons. Some move for tax incentives, others to be closer to a skilled workforce, or even their CEO’s house.

The southern New England economy should probably use a regional approach, Sparkman said, which is how many investment groups operate.

“Capital is increasingly mobile, and crosses borders all the time,” he said.

The problem, he said, is that tax laws aren’t regional, but state by state, and every state wants to reap the rewards of having a business located within its boundaries.

Lynn Tokarczyk is president of Business Development Strategies in Medway, Mass., a consulting firm that helps qualified clients obtain state and local tax incentives in Massachusetts.

“As part of their due diligence, companies today are looking to reduce costs … companies are very prudent in determining the best incentives,” she said.

And while Massachusetts might not have given a loan guarantee to Curt Schilling, at least one Bay State legislator wants to give Massachusetts the tools to do that in the future. The Boston Business Journal reported that Rep. Vincent A. Pedrone, D-Worcester, plans to file a bill that would create a loan-guarantee program in Massachusetts.

Even when two states see the wisdom in working together in some economic area, their competitive natures are never far from the surface.

Rhode Island and Massachusetts are both at the head of the pack of East Coast states vying to be home to the first offshore wind farm in the United States.

While Cape Wind Associates, in Massachusetts, is nationally known, garnering headlines for its doggedness through nearly a decade of permitting for a 130-turbine wind farm in Nantucket Sound, Rhode Island’s Deepwater Wind came along more quietly, making progress on a 5- to 8-turbine demonstration project in a comparatively short period of time.

Much has been made of getting in the water first. For either developer, it would be a significant achievement that could bolster their chances of building more wind farms in other states. And for Massachusetts and Rhode Island, the hope has been that whichever one gets the first offshore wind farm would have the best chance of attracting manufacturers and other companies in the industry.

So it was an obvious boost to Massachusetts when Cape Wind announced in October that it would stage its project in New Bedford and not North Kingstown’s Quonset Business Park. The Bay State also won out when blade manufacturer TPI Composites chose Fall River as the site of a new manufacturing plant instead of, again, Quonset.

But the belief that only one state would reap all the rewards from the industry has yielded to a more nuanced view. At an offshore wind conference in Providence in November, several speakers said the industry is expected to grow so large that it will need many development centers. It is not an all-or-nothing game, they said.

“It’s not going to be one state owning everything,” said Jim Lanard, president of the Offshore Wind Development Coalition, an industry group.

He and others urged Massachusetts and Rhode Island to develop a supply chain for the industry together. With easy access between the state’s ports, it’s not hard to imagine components being shipped between the two neighbors.

And Rhode Island and Massachusetts have already shown that they can cooperate when it comes to developing offshore wind power. In July, they signed a memorandum of understanding governing the development of a 400-square-mile area of ocean bordering the two states.

The air travel industry is one sector where the two states haven’t been shy about duking it out. And the battle is more of a street brawl than a prize fight as airports in New Hampshire, Connecticut –– and Maine –– all fight for airline passengers.

Southwest Airlines may only feed its passengers peanuts, but it has been eating T.F. Green Airport’s lunch since Rhode Island’s dominant carrier began service from Boston Logan International Airport a little more than a year ago.

In November 2009, three months after Southwest started flying out of Boston but before it had ramped up its schedule, the airline accounted for 51.9 percent of the passengers traveling through Green. A year later, that had dropped to 49.8 percent.

When the Boston service started, Southwest’s chief executive, Gary C. Kelly, had assured Rhode Islanders that the two air-travel markets are separate and the move to Logan would not affect Green. “We want to grow here in Providence,” he said at the time. “There’s no business reason that we want to come in and cannibalize ourselves.”

But, by May, he acknowledged that Green was losing Southwest passengers to Southwest jets flying out of Logan, though not as many as the 10 to 15 percent the company had projected.

For much of 2010, Green battled steep losses in passenger traffic overall, giving it less clout in the battle to counter Southwest’s move into Logan. But that has been changing recently.

Green started the year with a string of five months of double-digit percentage drops in passengers using the airport when compared with the same months a year earlier. But, as the state and nation have shown signs of reversing a crippling recession, Green turned that trend around in the second half of the year. Though October and November also showed losses in passenger traffic, the drops were less than 1 percent each month.

That could make Green attractive to a new carrier that could compete head-to-head with Southwest for low-cost air travel. An ideal candidate would be JetBlue Airlines, which established service at Logan before Southwest entered the market.

Another discount airline coming to Green could spark a fare fight and another round in the perpetual border war.

with reports from staff writers Andy Smith, Alex Kuffner and Paul EDWARD Parker